Venezuela plans long-term boost in oil output

AP News
Posted: Aug 06, 2011 6:39 PM
Venezuela plans long-term boost in oil output

Venezuela's top energy official said the government is making progress on long-term plans to dramatically boost oil output and is also aiming to diversify an economy that remains heavily reliant on oil wealth.

Energy Minister Rafael Ramirez said Friday night that the country intends to increase production of heavy crude in the eastern Orinoco River basin by about 15 percent this year, and by 15 percent to 25 percent next year. Venezuela's goal is to lift its oil output from about 3 million barrels a day now to about 4 million barrels a day in 2015.

"It's a new frontier that's opening up," Ramirez said in an interview with The Associated Press and the British newspaper the Guardian.

He said that by next year new oil fields and pipelines should be equipped to allow output to grow and that eventually more than $100 billion in investments are planned involving both the government and private companies already doing initial work in the area.

Venezuela is planning a decade of rapid oil development in the region it calls the Orinoco Oil Belt, or "Faja," which holds vast deposits of extra-heavy crude. Studies confirming those deposits in a swath flanking the Orinoco River have allowed the country to surpass Saudi Arabia as the nation with the world's biggest proven reserves, according to OPEC figures released last month.

Ramirez said that eventually Venezuela will need as many as 100,000 additional workers in the region and that part of the investment will go toward building infrastructure, housing and schools to support the influx of people. In the coming decade, he said, the government aims to boost output in the Orinoco from about 1.1 million barrels a day to 3.9 million barrels a day, considerably more than the entire country now produces.

Venezuelan President Hugo Chavez has predicted that OPEC quotas will eventually be adjusted to reflect Venezuela's growing reserves. But Ramirez said that issue won't be discussed for now.

"Today isn't the time to do it still, no, because we're determined to keep the price of oil stable," he said.

As for crude prices, which fell sharply during the past week, Ramirez said that "a fair price is close to $100 a barrel."

Crude futures ended the week at $86.88 a barrel on the New York Mercantile Exchange, a drop of $8.82 from the week before.

Ramirez said it's too early to predict what steps OPEC might take in response, saying prices are being pulled down by uncertainty about the U.S. and European economies.

Ramirez is one of Chavez's closest aides and has been his oil minister since 2002. He helped Chavez in 2003 defeat an anti-government strike that nearly paralyzed the oil industry. Thousands of state managers and employees were subsequently fired.

He said Friday that those conflicts were early chapters in what has been a "battle for oil sovereignty" waged by Chavez and his socialist-inspired Bolivarian Revolution movement. Ramirez's office is filled with photos and paintings of Chavez, 19th century independence hero Simon Bolivar, Cuba's Fidel Castro and Argentine revolutionary Ernesto "Che" Guevara.

Ramirez, whose brother is a doctor on Chavez's medical team, said the president has continued to take an active role in setting oil policy even as he has been undergoing cancer treatment. Ramirez declined to speak in detail about Chavez's illness but said: "We're all praying and working for that to turn out well."

The government is planning many of its long-term oil projects based on the assumption that Chavez will be re-elected in late 2012.

Asked what would happen if the opposition were to win, Ramirez said, "I'm convinced that the opposition isn't capable of governing this country."

Holding up a jar of Venezuela's black, sulfur-laden crude, Ramirez explained how it's processed into lighter oil.

"In the Faja we're going to need a new industrial complex," he said. "We need pipes, we need valves, we need chemicals, we need oil services."

Chavez has sharply increased government control over the industry, nationalizing projects that used to be run by private companies. Companies ranging from Chevron Corp. to PetroVietnam have since agreed to participate in projects as minority partners.

U.S.-based Exxon Mobil Corp. sought international arbitration in one nationalization dispute.

"That's advancing and this year there should be some arbitration decisions," Ramirez said, calling the fight with Exxon a "difficult battle."

Ramirez said many other foreign oil companies have been signing 35-year contracts with the government. "It's a long-term relationship," he said.

Under Chavez, the state oil company Petroleos de Venezuela SA, or PDVSA, has also been used for non-oil tasks, such as government food programs, farm aid and public housing construction.

Critics say such roles have made PDVSA less efficient. But Ramirez, who is PDVSA's president, denied that such spending is compromising the core oil business.

He also defended the company's growing debt as reasonable, saying that to meet investment goals, "we need extra resources."

While oil accounts for about 95 percent of Venezuela's export earnings, Ramirez said the government continues to try to diminish reliance on the sector by supporting other state-run industries and agriculture projects.

He said one long-term goal is to make Venezuela "a more balanced country."