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Page added on May 9, 2016
Venezuela’s power struggle a race against time: Fuel for Thought
Venezuela’s oil industry is at risk of grinding to a halt, along with the rest of the nation, as El Guri, Venezuela’s largest hydroelectric power facility, could see a drop in output of 3,800 megawatts if eight of 18 turbines are shut down.
That would be roughly a quarter of the power produced in the country.
Since the national electric grid powers the oil industry from oil wells, to refineries, natural gas processing plants and marine terminals, loss of power from Guri would be crippling.
This situation is highly possible if reservoir levels keep falling. The government appears to have no immediate solutions and instead talks of lofty goals on converting its diesel-run power plants to be fueled by natural gas.
The Guri dam was at 242.88 meters at the end of April and shutdowns would begin if it reaches 240 meters.
While it has started to rain recently and forecasts for a few centimeters of rainfall over the month provide a bit of a cushion, it may not be enough.
“Average drawdowns on reservoir levels for May are normally around 6.4 cm — considering current savings due to power rationing are at around 20%, it is going to be really touch and go whether they make it through May,” FGE analyst Thomas Olney said.
Rather than developing shorter term solutions like expanding existing infrastructure and capacity in its diesel-run power plants and taking advantage of falling global gasoil demand, the government announced plans to convert its diesel-driven power plants to run on natural gas.
Energy Minister Eulogio Del Pino estimated they would be able to export 500,000 b/d more diesel rather than use that to run power plants.
Venezuela needs to export more oil products in order to increase its foreign currency earnings as not only is the country short water, it has a severe fiscal crisis that may get worse if it can’t meet multi-billion dollar bond payments coming up over October and November.
But the feasibility of such a plan is a big question mark.
“When Del Pino [talks of] that replacing 500,000 b/d of oil products, he does not say that it would require additional gas production of 2,900 Mcf/d… which PDVSA is far from doing,” said Venezuelan consultant Einstein Millan.
Natural gas to the rescue?
Venezuela certainly has the natural gas resources to run its power grid with the second largest reserves in the Americas behind the US of 196 Tcf, according to the US’ Energy Information Administration.
The question is how to unlock those reserves. Venezuela is already forecast to run a gas deficit this year of 1,947 Mcf/d, according to independent analyst Nelson Hernandez.
Eni and Repsol started offshore gas production in the giant Perla field last July, and production of five out of seven wells is pumping out about 510 Mcf/d of gas with targeted peak production in 2020 of 1,200 Mcf/d.
Even at peak production, it would not cover the current gas deficit, let alone additional expected were to convert to gas.
Rosneft also recently signed a deal to jointly develop offshore gas in the Mariscal Sucre field and maybe past won’t be prologue, but the field they are planning to develop has about a 20-year history of failed development efforts behind it.
In order to develop natural gas production, installing necessary infrastructure as well as paying for converting power plants to run on natural gas requires funds that Venezuela does not have.
Another possibility is all of the foreign firms operating in mixed JVs in the country could be forced to cough up more money as the government has demanded or risk losing their production rights. So far there’s been no additional money announced from those companies to the government. If they were to lose production rights, it brings up the question as to who would be left to manage and invest in the ventures and production could suffer even more.
Since the Guri dam supplies about 70% of the nation’s power demand, if it fails, social unrest could escalate and the government itself would be at heightened risk of collapse.
This could be another reason deals with the government may not happen as it would become riskier to make a deal with a regime that may not be in power in a year’s time.
Perhaps OPEC will make an agreement on cutting production at its next meeting in June and higher oil prices will save the day for Venezuela. But given the lack of cohesion at the last Doha meeting, there may be better odds of continued rain for the next few months alleviating the emergency situation.
10 Comments on "Venezuela’s power struggle a race against time: Fuel for Thought"
rockman on Mon, 9th May 2016 7:19 am
“Another possibility is all of the foreign firms operating in mixed JVs in the country could be forced to cough up more money as the government has demanded or risk losing their production rights.” And of course the way to lure new foreign investments is to threaten to take away the assets of previous foreign investors. LOL.
Davy on Mon, 9th May 2016 8:00 am
They need to ask the Chinese to bring in some more money that used to work. I think the Chinese have their fill of bad investments at the moment. They could honor international business practices complete with a new government and try to reorganize a destroyed economy. That will not happen until a conflict because the society is too polarized.
A conflict may very well destroy the oil industry as we know it there. We are approaching a dead state of oil where oil infrastructure will not be replaced because economic resources are not available. This country looks like economics and climate change will take it down. You may find that irrelevant to your life but it is just another example of destructive peak oil dynamics at work.
It bodes ominously for a demand supply destructive process that will take globalism down with it. This process triggers are in places like Venezuela and Nigeria. They will spread and multiply soon.
JuanP on Mon, 9th May 2016 8:46 am
Venezuela will keep getting worse regardless of what happens with this dam, but this dam could precipitate and accelerate the crisis.
In Uruguay we have exactly the same problem; too much of our electricity comes from hydroelectric plants. When the inevitable megadroughts and megafloods come they will destroy us all. I don’t think any place in the world will be spared. Water and climate are the weak links because we depend on them to grow our food.
How do you survive a 20 year drought or a 20 year flood?
Kenz300 on Mon, 9th May 2016 9:51 am
Wind and solar are the future………they require little or no water to generate electricity………….
Natural gas generators still require water to generate electricity……..
100% electric transportation and 100% solar by 2030
https://www.youtube.com/watch?v=RBkND76J91k
ghung on Mon, 9th May 2016 10:43 am
100% pipe dream.
rockman on Mon, 9th May 2016 11:00 am
Davy – “We are approaching a dead state of oil where oil infrastructure will not be replaced because economic resources are not available.” Actually to some degree that already hit Vz a coupe of years ago. Their crud is best marketable after they run it thru an “upgrader”. But I read some time ago that their upgraders were not functioning and someone was going to have to pump in 100’s of $millions to get them back up to speed. I suspect most would be even less interested in making that investment today.
A big potential is actually an anti-govt group…the former refinery workers that the govt dumped a few years ago. I forget the details but there were reports of some sabotage back then.
AJY on Mon, 9th May 2016 12:35 pm
A lot of the better ex oil workers got taken on by E&P and service companies in the US and might not want to go back, but then again they might be out of work at the moment. The crude is extra heavy and needs a lot of wells, some with condensate flood, and with frequent work-overs, which has probably been lost with Schlumberger and Haliburton pulling out. As well as upgraders (Flexicoke is the latest) they need pipelines, some of their newest development was having to be trucked from the wellhead.
Lawfish1964 on Mon, 9th May 2016 12:47 pm
Venezuela is a view of the future of the U.S. southwest. Lake Mead is at its lowest level since it was being filled in the 1930’s and there are no signs that the Colorado will start flowing like it used to to reverse the situation. If the drought persists, it won’t be 3 or 4 more years before Hoover Dam stops producing power. Watch Las Vegas turn into a ghost town and much of California as well.
PracticalMaina on Mon, 9th May 2016 12:59 pm
The southwest, specifically the Mohave is having a nice renewables build right now, given it may someday soon be too hot to really inhabit, the electricity will be there long after the water is not IMHO.
Editor Petroleumworld on Wed, 11th May 2016 3:13 am
There is no hope for the Venezuelan oil industry until the present clique that run the country is out, is just a question of time…. the question is until when will foreign companies give up ?.