The Real Oil Deal
www.11abril.com Alexandra Beech New York 29 de Enero del 2003
Good day,
As the weeks roll on, the oil strike in Venezuela emerges as the main card in the opposition's favor. Those who understand the oil strike, including details of the Venezuelan oil industry, will have a firm idea of whether the government will be forced to negotiate, or whether all sides will sink in obstinacy. Oil represents not only revenues but the nation's life blood. As the government announces higher and higher levels of production, it's important to keep a tight finger on the actual pulse of production, so that we aren't swindled or misled.
Recently, I spoke with two local oil experts, Charles Beech and PDVSA production superintendent Jose Torres, who spend time with the on-site workers who actually see figures right off the barrel counters on pipe lines and tank storage levels.
Charles told me that neither investors nor the opposition should feel worried when the government announces production increases, such as the proposterous 1.6 million barrels announced by Vice President Jose Vicente Rangel earlier this week. It's all psychological warfare. The government thinks that if it can convince the world that it's back in the oil game, it will demoralize the opposition and gain an upper hand in negotiations. It hopes that PDVSA workers will wander back to work. However, the people on the oil fields have a very different take on production, which they say will only increase up to a maximum of 1. 5 million barrels a day, and then level off.
The only wells functioning in Venezuela today are natural flowing, that is, they pump light oil that naturally flows to the surface. Both experts told me that the government is already starting to have production problems with the natural flowing wells in Pirital and El Carito in Monagas state. The problems are due to the formation of asphaltene , a very heavy substance made of hydrocarbon molecules that bind and harden at high pressures. This "asphalt-like" substance creates plugs on the anulars on production tubing and formations. It also builds up on the walls of production tubing and lines - slowly choking a well.
Therefore chemical and mechanical procedures need to be implemented to counteract the effects of the asphaltene. This is called "servicing an oil well." Wells are serviced by international companies that have equipment, materials, and know-how for the procedures. Mr. Torres said that most of the companies that service oil wells are currently on strike. Until they are serviced, the wells that are "plugged up" will remain inoperable. The government is attempting to reactivate secondary wells to offset production drop offs on these wells. On Tuesday, "they opened up production in the Musipan field and closed it up again today for unknown reasons."
Besides the formation of asphaltene, other problems are likely to cap off production at naturally flowing wells. Part of the process of production is separating oil from water. American companies normally supply the chemicals that separate these two substances. However, these companies have stopped providing the proper chemicals. Moreover, the government is having difficulties with water handling, according to Mr. Torres. Due to a lack of skilled labor, the government is experiencing difficulties processing the water properly. As more oil is produced, the government will likely face greater problems disposing of the water filtered from the process.
Another problem confronting the government is that some wells are being "overproduced". Like a car that is too revved up to run, over production takes place when production is "run at greater speeds than the capacity of a unit," according to Mr. Torres. This damages the wells and the reservoirs of water. Allegedly, while Mr. Chavez has succeeded in reaching peak production in Northern Monagas, government oil workers are panicking because of overproduction in several wells.
A final problem slowly turning into a media nightmare for the government is the amount of gas it is burning. The government's own rules limit burning up to 2% of daily gas production. Currently, Mr. Torres says that "the government is burning 20% to 30% of daily gas production." When burned at high levels, according to environmentalist Luis Alfredo Brunicardi, "gas contains high levels of hydrogen sulfur contents, generating sulfur dioxide, which produces acid rain and contributes to the greenhouse effect and global warming."
The oil currently being produced in Venezuela is light, which accounts for 62% of total Venezuelan oil. A common myth is that most Venezuelan oil is heavy crude. But of the total 3.3 million barrels of oil produced under normal circumstances, only 1.28 million barrels or 38% were heavy crude, according to Mr. Torres. Still, the government will not be able to produce heavy crude until the strike ends, because of the pumping procedures required. Currently, Zulia state is producing approximately 600,000 barrels a day. The wells in Monagas State in Eastern Venezuela are producing around 700,000 for a total of 1.3 million barrels of light crude. All experts agree that it is impossible that this number will increase beyond 1.5 million barrels per day while the strike lasts.
I'd like to end this piece with a human angle that in the end matters the most. Both Mr. Torres and his wife worked for PDVSA for many years. Each day, dissident PDVSA workers find out that they have been fired by reading their names in the local newspaper. Mrs. Torres already read her name on the list of workers fired. We can only hope that the international community steps up pressure to restore democracy in Venezuela so that day never comes when Mr. Torres reads his name too.
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