Venezuela Moves Up in Oil Leagues : Dramatic Reappraisal of Its Reserves Bodes Well for United States

A dramatic reappraisal of the amount of oil in Venezuela, securely fixing the Latin American nation in the same league as Saudi Arabia, has caught the attention of U.S. oil experts and stands to enliven the debate over domestic energy security.

The new estimates were recently corroborated by experts from the U.S. Interior Department’s Geological Survey after the Venezuelans’ initial reports were greeted with some skepticism. The information points to huge amounts of oil that some energy experts say could prevent the widely forecast surge in U.S. reliance on oil from the Middle East.

“These are dimensions that can swing the balance,” said Charles D. Masters, chief of the Geological Survey’s World Energy Resources Program, who visited Venezuela last month to examine its claims. “This is really big stuff.”

Nobody is calling it an energy panacea, but some observers argue that the updated information from Venezuela could alter the longer-term energy outlook for this country--promising a significant buffer against increased market dominance by Middle Eastern oil as reserves are depleted in the United States, Great Britain, Canada and other Western nations.

The prospect of a sharp increase in U.S. reliance on oil from the unstable Middle East, a result of declining U.S. production and growing demand blamed on last year’s oil price collapse, was a major concern raised by a recent Reagan Administration report on energy security.

Canada, Venezuela and Mexico were the top three foreign suppliers of oil to the United States in 1986, but the biggest increase was recorded by oil from the Persian Gulf nations. Saudi Arabia’s shipments to the United States surged about fourfold.

“The potential of Venezuela’s oil is vast,” said John Lichtblau, president of the Petroleum Industry Research Foundation. “Maybe there has been too much emphasis on the Middle East and not enough on the fact that there is so much oil closer to home. If prices rise some, the Venezuelans could step in and develop this oil.”

The existence of such large, known quantities of oil so close to home is also being examined by those uncomfortable with the Reagan Administration’s willingness to open remote U.S. wilderness areas to oil exploration, where the oil potential is essentially unknown.

It might even be more cost-effective to help Venezuela develop its reserves “than looking for new finds in costly, remote, environmentally contentious areas of the United States which indeed may have no oil,” suggested Rep. Philip R. Sharp (D-Ind.), chairman of the House subcommittee on energy and power.

Nothing of that scale is apparently under discussion. In fact, the potential of Venezuela and other Western hemisphere nations drew scant mention in the Administration’s recent report on energy security, which didn’t reflect Venezuela’s new reserve estimates.

The official in the U.S. Energy Department to whom questions about the Venezuela reserves were referred--Scott L. Campbell, director of the office of policy, planning and analysis--conceded last week that he hadn’t read Venezuela’s submission to the committee that put together the report.

“The Venezuelans think we’re throwing cold water on this, and we’re not. In fact, I’m thinking of going down there and looking myself,” said Campbell, who joined the department in January. “But we’re just not sure the infrastructure is there to make that oil economic.”

“How come Exxon and Shell aren’t rushing in there?” Campbell asked in a telephone interview. (Actually, the nationalization of Venezuela’s oil industry was completed in 1976, and no private oil companies operate there.)

Venezuela says the new estimates--effectively doubling the known reserves that can be tapped from existing wells, while vastly upgrading the commercial potential of its fabled Orinoco hydrocarbon belt--are based on the results of five years of exploration and research that included 700 new wells and the first thorough seismic work done on the Orinoco region.

Though Venezuela has long been known to contain enormous amounts of unique, “extra-heavy” oil, the geologists say that successful experimental work and the updated seismic information now indicate that far more of the tar-like substance can be produced and transported easily and economically than was earlier believed.

The most conservative numbers advanced by the Venezuelans--the amount of oil recoverable at current oil prices, with today’s technology, from wells already drilled--show an increase to 55 billion barrels from the year-earlier estimate of 29 billion barrels.

That 26-billion-barrel increase in proven reserves is like introducing three oil fields the size of this country’s largest, Prudhoe Bay in Alaska, to a place half the distance to most U.S. oil markets. Prudhoe today is supplying 20% of this country’s domestic production.

The 55-billion-barrel figure is an “incredibly conservative” estimate, said G. Henry M. Schuler, a former oilman and an expert in energy security at Georgetown University’s Center for Strategic and International Studies, who recently completed a fact-finding visit and calls the Venezuelan information “startling.”

In addition to those 55 billion barrels, the Venezuelans now say that another 267 billion barrels of oil--most of it extra-heavy Orinoco oil--fall within the reach of today’s technology and economic requirements. The U.S. Geological Survey, while using slightly different numbers and categories of oil, says it has no quarrel with the Venezuelan statistics.

Most of Venezuela’s oil is thicker and costlier to produce and commands a lower price than oil from the Middle East. But while it might not be as good, there is ultimately more of it: Venezuela’s reserves add up to 326 billion barrels, compared to Saudi Arabia’s 201 billion barrels.

(There’s much more than that, actually--about 1.2 trillion barrels, including nearly all the world’s extra-heavy oil, are said to lie under Venezuela--but 326 billion is the part said to be recoverable.)

Geologists describe the newly emerging picture of Venezuela’s oil potential as less a result of new knowledge than of new comprehension in the oil community outside Venezuela.

“I don’t think anybody really knows (the precise amount of reserves), but they can make it as big as they want,” Masters said.

“It’s pretty clear there is an immense amount of oil in the Orinoco basin. I had always been skeptical, but it’s pretty well-documented. In the last five years they’ve done a hell of a lot of work. The data is just now coming into the technical literature.”

Masters is to report on the new Venezuelan estimates at an international industry meeting in Houston this week as part of the Geological Survey’s periodic review of how much energy the world has.

Despite Venezuela’s role as a founding member of the Organization of Petroleum Exporting Countries, the nation is regarded in this country as both a friendly democracy and an oil supplier inextricably linked to U.S. markets.

Its ports are twice as close as Alaska to major U.S. markets. Venezuela likes to remind Americans that it has increased production to alleviate U.S. oil shortages in the past and didn’t take part in the 1973 Arab oil embargo.

“They have a deep interest in long-term, stable relations with the United States, and culturally there is a high comfort factor between the United States and Venezuela,” said Daniel Yergin, president of Cambridge Energy Research Associates in Cambridge, Mass. “And the reserve additions tell us Venezuela is going to be a long-term player when other countries’ reserves are in decline.”

Yergin and others draw distinctions between Venezuela and the other major nearby suppliers of oil to this country: its national oil company is sophisticated and professional, unlike Mexico’s, and its extra-heavy oil is more economically recovered than Canada’s enormous reserves of tar sands.

Shallow wells, high sub-surface temperatures and compacted sand combine to make Venezuela’s heavy oil rise to the surface without heating or other “exotic and costly artificial stimulation” needed in California’s Kern County and other heavy-oil regions, says the Los Angeles-based newsletter Energy Detente, a longtime follower of the Venezuelan oil scene.

About half of Venezuela’s oil exports of 1.5 million barrels a day--most of them lighter oil--already end up here.

Within the past year, Petroleos de Venezuela solidified those ties by acquiring half-interests in two sophisticated refineries in Corpus Christi, Tex., and Lake Charles, La., and is shipping 260,000 barrels a day to those two plants under long-term contracts. The volume could climb to 360,000 barrels to the refineries, which are equipped to refine heavy oil, said Angel Olmeta, a New York-based executive of Petroleos de Venezuela.

Masters and others stress that Venezuela’s extremely heavy crude oil still presents economic problems, and any large-scale production of the Orinoco reserves would require enough demand to support world oil prices of $25 to $30 a barrel. Those levels prevailed as recently as 18 months ago, but a prolonged downward trend in price and demand beginning in 1981 effectively killed Venezuela’s refinery-development projects to handle Orinoco oil.

Olmeta says that with the right price and demand it would probably take “several years” to significantly augment Venezuela’s capacity to “crack” the Orinoco crude into large volumes of gasoline and other products. It currently produces about 100,000 barrels a day of the heavy and extra-heavy crude.

The prospects have been improved by an inexpensive new oil-and-water emulsion that the Venezuelans call “orimulsion” and another breakthrough that enables them to easily move the thick oil through pipelines, the U.S. geologists report. The technologies cheapen the transportation process as well as the task of preparing the oil for processing in a refinery.

Among other things, the Venezuelans say orimulsion readily turns the oil into a combustible alternative to coal that can skip the refinery process altogether. It is to be tested later this year by the New Brunswick (Canada) Electric Power Commission.

For now, the Venezuelans’ excess capacity--it is capable of producing 900,000 barrels a day more than its OPEC quota of 1.5 million barrels--would enable it to quickly step up production of conventional oil in case of sudden shortages here, as they have done before.

“If we had shortages, Venezuela could run up its production by 1 million barrels a day within a month,” Lichtblau said. “They have the greatest excess capacity outside of the Middle East.” It is widely assumed that OPEC production ceilings would become irrelevant in such a case.

All this should get the Venezuelans a lot of attention in Washington, where they have been trying to win an audience for their dazzling new oil statistics. The message, aimed in the short term at heading off any U.S. tariffs on imported oil, is that Venezuela is eager to sell its oil to this country and can ease U.S. fears of oil shortages, both in the short and long term.

“We find it enormously curious that at a time when Venezuela is investing in American companies and sending its refineries 250,000 or 300,000 barrels a day--this is a pretty secure source of supply--there is a move to penalize us,” said Olmeta, a director of the national oil company’s U.S. arm. “The mood in Venezuela is to integrate with the United States, but the mood here seems to be to disconnect with its logical suppliers.”

Venezuela, Mexico and Canada are lobbying hard to win exemptions from any oil import fee, though enactment of such a fee isn’t given much chance in Congress anyway.

The timing of Venezuela’s disclosure of its higher oil reserve estimates after several years of research prompted some to initially dismiss it as a gimmick to win a higher production quota within OPEC and to appear more creditworthy to international lenders.

While the scope of the reserves themselves is no longer in dispute, Olmeta concedes it is in Venezuela’s interest to lay the groundwork for an eventual increase in its OPEC quota, which might be aided by the new oil numbers.

“Venezuela has traditionally been very conservative in its reserve estimates. It probably should have done this some time ago,” Olmeta said. “But a gimmick is if you manufacture the reserves out of nowhere. If something like this (the new reserve estimates) happens to coincide with your interests at a given moment, you do it.”

Meanwhile, after such past disappointments as Mexico and offshore Alaska, where estimated oil reserves had to be scaled back or exploration proved disappointing, the United States is understandably leery about interpreting any new source of oil as a cure-all for energy problems.

Moreover, today’s oil glut and low prices have prompted the Venezuelans to shut down some of its limited Orinoco production in favor of the lighter oil from such oil regions as Lake Maracaibo, which commands a higher price.

But the confirmation of the Venezuelan data by independent scientists promises to make the updated statistics from that country a focal point of the U.S. energy debate, especially with oil prices widely expected to climb again in the next few years.

By one line of reasoning, U.S. reliance on imported oil will inevitably grow because this country’s potential has been so thoroughly explored that few major new oil strikes are considered likely. Therefore, some energy experts argue, the emphasis--in addition to conservation, international exploration and better recovery of oil from old fields--should be on exploiting known foreign reserves closer to home.

“There are imports and there are imports,” says Schuler, a former manager of U.S. oil company properties in the Middle East. “I don’t think the incremental growth in oil imports has to come from the Middle East.”