[toolpush]

Thanks Rockman,

Yes it was getting a cheap product classifies as an expensive one.

Pstarr,

Yes quotas are about restricting production, but during a time of increasing demand, and prices while the OPEC countries had real spare capacity quotas could be raised without effecting the market. Also at the time Vz production was falling and thus giving a window for the Extra Heavy oil to reclassified to the higher value product and also hide the fact of the shrinking conventional production due to the loss of the educated work force.

[ROCKMAN]

Pstarr - "...rather doubt South America can afford the pricey stuff. Unlike the US/Canada." But that's the point: collectively south America is a major exporter of oil. About 8X as much as is imported. In that sense similar to Canada...they aren't a primary market. And so far the Canadians haven't had any problem selling every bbl the produce. It certain won't happen in a few years but I can't imagine Vz doing whatever it has to with Big Oil to ramp up their heavy oil production. That's going to take a huge amount of capex of course. But so did ramping up Canadian oil sands production to record level. IMHO as long as demand/prices for all hydrocarbons stays elevated there's a big future for the Orinoco. It just requires establishing a political system that allows it. And eventually Vz will have to do that or fall into complete anarchy IMHO.

[ROCKMAN]

Pstarr - Just making a WAG I would expect the Vz crap has the same global market potential as the Canadian oil sands if scaled up sufficiently with a massive upgrader system. Remember the Canadian crap wont' flow down pipelines either: it as to be mixed with up to a third of light distillate to get it down the line. Which would also need to be a portion of the solution in Vz. But they are addressing that demand in Canada by building a pipeline from the Gulf Coast to Alberta. And we have a lot of distillate in S. Texas that's a lot closer to Vz than Alberta. But again it will take a huge capex infusion to ramp up the Orinoco but so did the oil sands and that continues to grow. But just like the Canadian resources there are many $trillions of potential hydrocarbons at stake in this PO world that most here recognize. I can't understand why anyone would expect a much different future. What...to save the world from AGW? Yeah...right.

And there's a lot of other expensive to produce hydrocarbons around the globe that don't reach their market via pipelines. And think how much more the Canadians might be making if they had the option to ship their crap globally via tanker.

[rockdoc123]

Currently Venezuela has upgrading capacity of 650000 bopd through upgraders run by Total, Chevron, Statoil and Rosneft. CNPC along with PDVSA also can export Merey 16 API by blending with diluent, hence avoiding the upgrading.
One difference between Venezuelan heavy crude and Canadian heavy crude is that Venezuelan heavy has much lower viscosity and hence you can avoid a lot of the SAGD type applications necessary for deeper reservoirs in Canada.

[ROCKMAN]

Pstarr - From this report looks like a lot more is being produced: http://blogs.platts.com/2013/11/25/pdvsa-woes/
Some big talk that going to require a huge amount of capex to mean anything.

Some parts: "Venezuela is producing more extra heavy crude in its oil fields in the Orinoco Belt region than it can process in the four “upgraders” that were built more than a decade ago. The upgraders were built by foreign oil companies and have a combined capacity of 630,000 b/d, or 51% of the actual aggregated output.“The upgraders are at their limit. We are producing a lot of diluted crude oil, or extra heavy oil that is mixed with naphtha, which is why we need to resolve the bottlenecks with the upgraders and expand their capacity with our present partners or with new ones,” said Rafael Ramirez, who is both president of state-owned PDVSA and the nation’s petroleum and mining minister. He spoke this month before international oil executives in Caracas.

Upgraders are plants that heat and dehydrate heavy oil, improve its quality, and also mix in naphtha or lighter crude to make the tar-like substance transportable and ready to process by traditional refineries. In addition to the limited upgrading capacity, Venezuela’s output is also being held back by insufficient volumes of naphtha. Refineries in Venezuela are not capable of producing it in adequate quantities, obliging PDVSA to import the product at market prices.

New upgraders and more naphtha capacity are the most urgent priorities in Ramirez’s new strategy for slowing the fall in petroleum production, which officially has been put at 3 million b/d. But Venezuela’s public pronouncements concerning output are roundly rejected by industry analysts, many of whom estimate that production is closer to the 2.3 million b/d that was Platts’ most recent estimate as of September. The decline in reserves of conventional, lighter crudes, of which Venezuela has proven reserves totaling 20 billion barrels, has obliged PDVSA to concentrate on developing the Orinoco Belt, where oil is as heavy as 8.5 API with high heavy metal and acid content.

The special handling also has boosted the cost of production in the Belt to an average $10/barrel, plus an upgrading cost of $30/b, still a very competitive cost level compared with other global producers. But the new projects, in which PDVSA has reserved for itself a majority equity interest of 60%, have moved at a snail’s pace. However, Ramirez has not changed Venezuela’s overall production target of reaching 6 million b/d by 2019, of which 4 million b/d would be coming from the Orinoco Belt. “The fastest way is that existing upgraders (Petromonagas, Petropiar, Petrocedeño y Petroanzoátegui) begin to receive petroleum from other production areas. So we need to expand the installed capacity of those upgraders to build up the production,” Ramirez explained.’To increase capacity of upgraders and production facilities in the Belt, PDVSA is forecasting investment of $23 billion over the next seven years. “All that has been done so far has been with PDVSA’s own resources, but from now on the mixed ventures have to assume a greater participation, because production is their responsibility. They will have greater autonomy with respect to PDVSA decisions and all will have to come to PDVSA with their own financing means. The idea is, just do it!” PDVSA is majority partner in 33 mixed ventures, seven of which are in the Orinoco Belt, where companies including Chevron, Repsol, ENI, Rosneft, Total, Statoil and CNPC are participating.

According to the PDVSA business plan covering 2013-2019, the eight new projects in the Orinoco Belt will require $108.3 billion in investment in production facilities, a figure that represents 80% of the company’s total investment over that period. Within the new strategy to realize these investments, Ramirez has promised investors to create more advantageous fiscal and trade conditions while reducing bureaucracy to accelerate the project permit processing. For independent economist Alexander Guerrero, the problem with PDVSA isn’t the upgraders’ capacity, but the fact that direct investment in the petroleum industry has dropped each year since 1999 by an average 7.5% when figuring that investment as a percentage of economic output. “Any recovery in production will take a while, because of the decapitalization and disinvestment in PDVSA,” Guerrero said. “In light of this, there is no economic reason to think oil output can increase immediately.”–Mery Mogollon in Caracas