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As natural-gas prices plunge to their lowest level in a decade, Venezuela plans to tap one of Latin America's biggest gas fields as it seeks to boost power generation and even help revive stagnant oil production.
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Venezuela, where President Hugo Chavez has nationalized almost all the oil industry, ranks among the top 10 nations in terms of gas reserves, but it has yet to begin any commercial production. Instead, it imports supplies from neighboring Colombia.
That could finally change after Italy's ENI and Spain's Repsol signed a deal with the state oil company PDVSA on Dec. 23 to develop the Perla field, where the Europeans have certified more than 15 trillion cubic feet (tcf).
The fiery leftist Chavez, who will seek re-election in October, underlined his determination finally to develop the Organization of the Petroleum Exporting Countries member nation's neglected gas reserves during a marathon nine-hour speech to parliament last week.
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"We could even begin to approach Russia, No. 1 in the global ranking, once we've certified the gas in the Orinoco oil belt and continue discovering the gas offshore," he said. "This is very important, and it has only been possible to achieve this through independence."
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Chavez's government says it will eventually certify as much as 400 tcf in reserves, up from 195 tcf now. That would propel Venezuela to fourth in the world behind Russia, Iran, and Qatar, according to U.S. Energy Information Administration data.
But Venezuela's gas projects have languished for years, stalled by pricing issues and industry fears of expropriations that made it hard for PDVSA to attract experienced partners.
The big difference now is that Chavez's government has hiked the tariff it is willing to pay its foreign partners for gas to $3.69 per million British thermal units.
That's sharply more than what PDVSA was prepared to shell out in the past -- and, crucially, higher than the market price.
Low Demand, Low Prices
The Perla deal would make little sense if South America's biggest oil exporter was also looking to sell its gas abroad.
Natural-gas futures prices have crashed to their lowest level in a decade -- $2.343 at the close on Friday -- as a glut of gas from U.S. shale fields swells inventories.
Combined with the global economic woes, it means demand and prices are likely to stay weak throughout this year.
Instead of exporting gas to foriegn markets, Venezuela will use the Perla output to feed its increasingly hungry domestic market. And, although details have not been made public, the government has won agreement to pay part of the tariff in its overvalued local bolivar currency, which cuts the overall cost of the agreements to PDVSA.
