Venezuela contains billions of barrels in extra-heavy crude oil and bitumen deposits, most of which are situated in the Orinoco Belt in central Venezuela. Estimates of the recoverable reserves from the Orinoco Belt range from 100 to 270 billion barrels. PdVSA has established four strategic associations to exploit these resources. The strategic associations convert the extra heavy crude and bitumen from approximately 9° API to lighter, sweeter crude, known as syncrude, at the Jose refinery complex on Venezuelas northern coast. The International Energy Agency (IEA) considers syncrude a non-conventional crude oil. However, EIA categorizes it as part of Venezuelas oil production. According to industry sources, the four projects produced a combined 570,000 bbl/d of syncrude in 2004. Venezuela plans to aggressively develop the Orinoco Belt oil resources in the coming years. PdVSA has divided the area into 27 blocks, with plans to auction these in licensing rounds following an exhaustive survey of the region. Even before the completion of this formal process, PdVSA has already noted potential interest from several foreign operators. In August 2005, PdVSA awarded the Junin 7 block to Repsol-YPF, a 200 square mile area of the Orinoco Belt. Also in August 2005, PdVSA signed an agreement with CNPC to develop the Junin 4 block, thought to contain 20 billion barrels of extra heavy crude and bitumen. Royal Dutch Shell has begun talks with PdVSA about a new syncrude project that could entail an investment of $4-8 billion. Despite the controversy over back taxes or the increased royalty rate on syncrude projects, existing Orinoco operators are also showing interest in expanding their projects in the area. Chevron, operator of the Hamaca project, signed a letter of intent with PdVSA in April 2005 to invest $6 billion in a new syncrude project, with potential output of 200,000-400,000 bbl/d. Total and PdVSA began negotiations in March 2005 on a plan to build a $5 billion second phase of the Sincor project, which currently produces 180,000 bbl/d of syncrude. Any new syncrude project would fall under Venezuelas 2001 Hydrocarbons Law, rather than the existing agreements, meaning higher royalty rates and requirements for PdVSA majority ownership of any new developments.
Orimulsion® is a patented product developed by PdVSA for use as a boiler fuel. PdVSA markets Orimulsion as an alternative to coal or fuel oil, especially in power plants. It is a mixture of approximately 70 percent natural bitumen, 30 percent water, and less than 1 percent surfactants (emulsifiers). Bitumen is a non-oil hydrocarbon and not counted towards Venezuelas OPEC crude oil production quota. There is a single Orimulsion plant in Cerro Negro, with a capacity of 5.2 million metric tons per year (mt/y). The future of Orimulsion production, however, is unclear. Production is currently 40,000 bbl/d down from a peak of 100,000 bbl/d. In April 2005, PdVSA announced that it would cease Orimulsion production within twelve months. The company claims that, due to prevailing high oil prices, it is more profitable to sell its heavy and extra-heavy crude varieties as upgraded syncrude or blended crude oil. PdVSA stated that it would continue to produce Orimulsion only until it had met its contractual obligations. The decision to stop Orimulsion production has not been without controversy. In August 2005, Canadas New Brunswick (NB) Power filed a $1.6 billion suit against PdVSA, alleging that the company had broken a supply commitment to NB Powers Coleson Cover power plant. NB Power conceded that PdVSA never actually signed the agreement, but that PdVSA signaled its intent to supply Orimulsion to the company. An international arbitration panel agreed to hear a case against PdVSA brought by Italys Enel, in which the company claims $200 million in damages due to the lost Orimulsion supply. Despite PdVSA statements that it would cease Orimulsion production, the company announced that it would go ahead with a plan to bring a 6.5 million mt/y Orimulsion plant online in a joint venture with CNPC. The project, dubbed Sinovensa, will supply Orimulsion to power plants in China. CNPC planned to complete the construction of two, 600-megawatt power plants in Zhanjiang by the end of 2006 that will consume 1.8 million mt/y of Orimulsion from the Sinovensa project.
Venezuela has an extensive domestic oil pipeline system, providing transportation from production centers to refineries and coastal export terminals. Currently, the country does not have any export pipelines, but there has been some discussion about constructing an oil pipeline to port in Colombia along the Pacific Ocean. This would facilitate greater Venezuelan crude exports to Asia, bypassing the Panama Canal bottleneck or the high costs of shipping around Cape Horn. There has been some discussion of Chinese oil firms providing financing for such a pipeline, but no solid plans have yet emerged.