viernes, 17 de julio de 2015

The Perla Gas field: from promises to realities

The offshore Perla gas field, located in the Gulf of Venezuela, adjacent to the Paraguana Peninsula (Cardon IV Block), has just entered production. However, of the seven wells already drilled in this new field, only one has been put in production. This discovery, made by a joint venture of ENI, Italy and REPSOL, Spain, is the greatest and also the only exploration success of the last 15 years in Venezuela.  Although the country has some of the largest oil and gas reserves in the planet they sit underground essentially undeveloped, due to the incompetence of the  state-owned oil and gas company Petroleos de Venezuela and to the obsolete and ultra-nationalistic posture of the political regime.
ENI and REPSOL have estimated the recoverable reserves in the field at some 17 trillion cubic feet of gas, which would make it greater than Bolivia’s proven gas reserves of some 11 trillion cubic feet of gas, see: However, this estimate will no doubt be revised as more wells are drilled and the extent and behavior of the reservoir become better known.
Initial production will be 150 million cubic feet per day, increasing to about 450 million cubic feet per day by the end of the year. In the longer term the production would rise to a peak of 1.2 billion cubic feet per day, to be attained in 2020, to be maintained until the end of the contract in 2036. By the time the field is fully developed 26 wells will be drilled. Processing of the gas will be done in the Paraguana Peninsula, where one of the world’s largest refining centers is located. The joint venture is owned by ENI and REPSOL, each company holding 50% of the shares.
According to the information at hand the production of this field will be entirely dedicated to the domestic market. The deficit of natural gas in Venezuela is very significant, almost 3 billion cubic feet per day, which means that, even at peak production, the Perla Gas field would not be able to satisfy more than 30 percent of the current shortage. And, as time goes by, the demand will increase.
The dedication of this gas to the local market poses delicate problems for the project, which is owned by two private companies. The main one seems to be the price at which the Nation will buy the gas from the private producers, since in Venezuela the price of gas in the domestic market is highly subsidized.  
In an article which appeared in, see:, oil and gas expert Einstein Millan argues that, due to the low prices of gas in the domestic market and, even, in the global market, the financial outlook of the project is poor. The economics of the project would depend on the possibility of selling the recoverable liquids in the international market, but this would require changes in the current legislation. Millan adds that the economics of the base case, following current parameters and regulations, are clearly negative. On the other hand, adds Millan, the reservoir is rich in condensate, according to ENI, about 70 barrels of condensate per million cubic feet of gas. Exporting the liquids would improve the economics of the project but will have legal implications that have not been properly addressed in the contract.
In effect, who will have the ownership of the condensates? By law they belong to the Nation but, without a possibility of marketing these condensates, the foreign partners might have no hope of making a profit.   
Millan also suggests that, if the reservoir is exploited in order to maximize liquid recovery this could generate damage to the reservoir, producing a sub-optimal final recovery and, in turn, a great loss to the Nation.
Additional complications are emerging as the project starts producing. One is that Petroleos de Venezuela had the option of acquiring up to 35% of the project in the exploitation phase, but this appears impossible, as the company is incapable of meeting the financial requirements. Experts comment in private that the Venezuelan government, rather than becoming a bona fide partner in the project, might eventually move to expropriate it, which is the inelegant manner this government has preferred to do things in the past. This, of course, would have a terrible cost to the Nation, both in terms of money and prestige, both of which are already dramatically depleted.
But, as the Venezuelan saying goes: Que es una raya más para un tigre? How important is one more stripe to a tiger?
The main dilemma seems to be the price at which the Nation will pay the joint venture for the gas produced and delivered. If too low the foreign partners would operate at a loss. If too high the Nation would have to absorb a significant loss since it would pay more than it recovers from the domestic market.
The moral of the story is that if the rules of a game are not clear, fair and free from ideological contamination, no project can ever be profitable and both sides lose.