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.

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.

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.

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.

Venezuela needs that gas, which is why they gave quite a good price, said Carlos Bellorin, senior oil and gas analyst at IHS Petroleum Economics and Policy Solutions. With the right price, this project can be beneficial for all parties involved. Apparently, this has been accomplished.

All eyes are now on negotiations with Russian giant Gazprom over Robalo, a nearby offshore area; a 2010 agreement for the Chevron Corp. to develop part of the Plataforma Deltana offshore project thought to hold 7 tcf; and PDVSA's solo efforts to kick-start production from its own projects.

Discussions about Plataforma Deltana appear to be in limbo because its output was destined for export as liquefied natural gas. Last year, Venezuela froze its LNG projects due to low global prices, meaning the licenses would need to be revised.

PDVSA is still seeking partners for its other high-profile offshore area: Mariscal Sucre, with estimated reserves of 14.7 tcf. Officially, production is set to begin in November, but experts say that it is likely to be delayed, not least because of the sinking of a $200 million exploration rig there in May 2010.

Part of PDVSA's difficulties finding partners for Mariscal Sucre for has been its insistence that any potential investor assume part of what it says was a total loss of more than $600 million from that disaster.

Onshore, power shortages that caused widespread rationing and curbed economic growth during 2010 are a still a burning political issue for Chavez during an election year.

The country relies heavily on hydroelectric dams and is scrambling to boost its gas- and diesel-fueled generation. As a result, it has had to import gasoline when it would much rather be selling its own stocks overseas.

None of these gas projects will help keep the lights on before this October's vote -- but the garrulous president has often vowed to stay in power until 2031, so he presumably sees this as a longer-term priority.

'Perla is a Real Jewel'

Perla is the one most likely to bear fruit first. PDVSA has said early production is estimated at 80 million cubic feet per day and could begin to be pumped as early as October, although most analysts expect the first output in 2013.

The agreement between PDVSA, Repsol, and ENI runs until 2036 and will supply the Venezuelan domestic market with more than 8.7 tcf. There will be plenty of takers: Perla sits in just 200 feet of water, only about 30 miles into the Caribbean Sea from PDVSA's Paraguana Refinery Complex, which is one of the biggest in the world and uses lots of gas in its operations.

Perla is also near the El Tablazo petrochemical center, another potential consumer, and the Lake Maracaibo crude fields in the heart of Venezuela's traditional oil heartland. Many have been tapped for decades and their output is falling -- but the decline could be slowed using gas re-injection techniques.

Eventually, gas could also be used to boost recovery from the area that forms the centerpiece of Venezuela's future energy plans: the vast Orinoco extra heavy crude belt, seen as one of the largest mostly untapped oil reserves left in the world.

Visiting Caracas to sign the deal, Repsol Chairman Antonio Brufau called Perla a flagship project and ENI boss Paulo Scaroni also waxed lyrical: Perla is a real jewel, he said.

Both their companies already have important stakes in the Orinoco belt, as does Gazprom, and both men will hope their support for Venezuela's fledgling gas sector gives them more clout if they need to revise their other agreements down the road.

The government is still reviewing proposals to modify its gas law to increase taxes and put any production projects solely in the hands of joint ventures with majority PDVSA participation -- as is already the case with oil projects in Venezuela.

It is all part of a drive by Chavez to secure for the state a greater share of resources from energy projects. He says PDVSA had a slave mentality and was in hock to foreign companies, before he sacked thousands of its managers after a 2002 strike.

The old PDVSA ... they told me many times: There's no gas here, president, forget about gas, Venezuela doesn't have gas, he said during his prolonged speech to parliament.

Of course, they already had the gas negotiated or pre-negotiated to give to the multinationals ... the companies were paying 1 percent royalties, 1 percent! Now they pay 33 percent, under the petroleum law of an independent republic.

(Editing by Lisa Shumaker)