Venezuela’s interest in offshore exploration is being driven by its increasing need for natural gas. According to BP’s latest estimates, Venezuela has gas reserves of 152 Tcf, about three times more than Canada and nearly six times that of Bolivia. And while Venezuela has large reserves and it wants to be a big player in the Latin American gas business, the numbers don’t tell the whole story. For instance, the Energy Information Administration reports that natural gas “accounts for the largest share of Venezuela’s energy consumption, making up 43 percent (1.25 quads) of the total.” But average Venezuelans don’t use gas for cooking. They use LPG. Nor do they use much natural gas for anything else.

Thus, while it’s true that Venezuela is producing about 2.8 Bcf of gas per day, only a small portion of that gas – about 300 million cubic feet per day – is used for commercial and industrial purposes. The rest is reinjected to facilitate oil recovery.

The bottom line is that Venezuela needs more gas, both for its own domestic needs and to help boost oil production in its western region. Add in President Hugo Chávez’s grandiose pronouncements about the possibility of a trans-continental gas pipeline, and the need for gas becomes even more urgent. And right now, it appears that the gas Venezuela needs is only available offshore.

Back in July 2004, PDVSA’s vice-president Felix Rodríguez announced that the company would invest $800 million to develop offshore natural gas reservoirs, and create a new subsidiary in Cumaná, in Sucre state. The main objective was hydrocarbon projects in Venezuelan territorial waters, particularly in natural gas areas, that would “place Venezuela as [having] world-wide potential on this energy resource in coming years.”

One project, Mariscal Sucre, has proceeded slowly. It foresees the exploitation of offshore non-associated gas reserves and construction of an LNG plant north of the Paria Peninsula. The project is supposed to generate 1 Bcf of natural gas per day, leading to the production of 4.7 million metric tons per year for export. Another planned offshore development is the Rafael Urdaneta project that covers 29 blocks, 18 in the Gulf of Venezuela and 11 in northeast Falcón state. The prospects extend over approximately 30,000 square kilometers. Probable total reserves are estimated to be 27 Tcf of gas.

Among the objectives of Rafael Urdaneta is the development of geologic information for the area and ultimately, production of gas to meet emerging domestic demand. This effort will feed one of the announced pipelines, the Transcaribbean Guajiro Gas Pipeline to Colombia and Central America.

The third offshore project is the Delta Caribe, designed exclusively for exports. It includes: the construction of the Center de Industrialización del Gas Gran Mariscal de Ayacucho, in the Paria Peninsula in waters north of Sucre state, and gas development on the Deltana Platform in Venezuela’s Atlantic area. Statoil, Chevron, and ConocoPhillips are already active in the area on unrelated projects.

The challenges presented by offshore development for a country with neither offshore drilling nor natural gas experience may be softening Venezuela’s recent militant stance on re-nationalization. Minister of Energy and Petroleum and PDVSA president Rafael Ramírez made that clear recently, stating the government would “carefully differentiate between the Gaseous Hydrocarbons Constitutional Law and the Hydrocarbons Constitutional Law, since there are some gas areas where the Gas Law would apply, while there are other areas, with large liquid concentrations, where the Hydrocarbon Law would apply.”

The Hydrocarbons Law establishes a minimum government participation of 51 percent in oil exploration and production and a royalty rate of 30 percent, as opposed to the Gaseous Hydrocarbons Law, which allows private parties up to 100 percent participation and a royalty rate of no more than 20 percent.

To enroll in the ongoing bidding, companies must pay $350,000 for a package that includes seismic and geological data, the license template, and the selection guidelines. According to the ministry, prospective investors include Royal Dutch Shell, Petrobras, Japan’s Teikoku and Mitsubishi, French Total, ENI, India’s ONGC, Repsol YPF, Norwegian Statoil, and Vincler Oil and Gas.

Regarding the Mariscal Sucre offshore natural gas project, Ramírez said that Venezuela “has invited Petrobras and other partners to form a joint venture with [them].” The Brazilian firm, which has plenty of offshore experience, will participate with a 35 percent stake in the project.

Eulogio Del Pino, president of the Venezuelan Petroleum Corporation, said that according to a 1980-82 PDVSA survey, the reserves in the target areas are estimated at 7 Tcf of both gas and condensates.

Once again, those are big numbers. But now Venezuela’s challenge is to turn those big numbers into real commodities.