VENEZUELA - Downstream Parts Of Strategic Associations.

Each of the upstream strategic associations (SAs) developing bitumen fields in Venezuela's Orinoco basin has a downstream operation in the home base or markets of the partners. In some cases, an overseas PdV M&M unit has a stake in the downstream operations of these partners.

There are four bitumen-producing SAs in Venezuela: Petrozuata operated by Conoco (soon to be part of ConocoPhillips), Cerro Negro operated by Mobil (ExxonMobil), Sincor operated by TotalFinaElf, and Hamaca operated by Phillips.

Petrozuata: PDVSA's first SA to develop 9 deg. API Orinoco bitumen was signed in early November 1995 by Maraven and Conoco in a $3 bn venture to extract the extra-heavy crude and, through an upgrader at Jos, process it into 103,000 b/d of 22 deg. API synthetic oil. The SA has already reached this capacity, producing the bitumen from more than 500 horizontal wells drilled to recover 1.5-2 bn barrels over 35 years.

Petrozuata this year was exempted from the OPEC production cuts because it had a fully operational upgrader which came on stream in early 2001. Owned 50.1% by Conoco and 49.9% by PdV E&P, Petrozuata is to debottleneck its facilities to produce 150,000 b/d. Over 320 wells have been drilled in the Zuata region and a further 750 wells are planned. The 9 deg. API bitumen, mixed with 47 deg. API naphtha blend diluent and lighter Venezuelan crudes, is pumped through a 36-inch, 200 km pipeline to the Jos upgrader, where the diluent is separated and returned to the field through a second, 20-inch pipeline for reuse. The pipelines, the first private lines to be built in Venezuela in more than 20 years, have a 200,000 b/d capacity that can be raised to 500,000 b/d. The pipeline system is being used by Cerro Negro and other SAs (see profiles in Gar Market Trends No. 22).

Some of the 22 deg. API oil is being used by the local refining system to produce gasoline and gasoil for the domestic market. The rest of the output is shipped in double-hulled tankers to Conoco's refining system in Lake Charles, Louisiana, for processing into high-value products. At Lake Charles, CITGO also has a fully-owned refinery which can process more than 320,000 b/d of crude oils (see OMT). Conoco's acidic crude unit at Lake Charles was commissioned in December 2000 and now processes 60,000 b/d of the 22 deg. API Petrozuata synthetic crude oil.

Petrozuata-II: Petrozuata is considering a $2.7 bn project to raise its capacity to 260,000-290,000 b/d and a second upgrader to be on stream by end-2006. This is one of several ventures PdV E&P is proposing to bring total Orinoco synthetic crude oil production to 1m b/d by end-2009.

Cerro Negro: In late July 1996, a deal was reached with Mobil to take a 50% share in its 160,000 b/d refinery in Chalmette, Louisiana. The refinery now can process up to 185,000 b/d of crude oil. ExxonMobil is the operator in Cerro Negro SA, which began producing 60,000 b/d of bitumen in November 1999.

Cerro Negro has a capacity of more than 100,000 b/d but is only producing 60,000 b/d because of Venezuela's OPEC quota limitations. The bitumen, of 8.5 deg. API, is being converted into 16.5 deg. API synthetic oil by an upgrader built at the Jos industrial zone. The upgrader, on stream since Aug. 7, 2001, has the capacity to take up to 120,000 b/d of 8.5 deg. API bitumen and turn them into about 105,000 b/d of 16.5 deg. API synthetic crude oil.

In Cerro Negro, PdV E&P is a 42% partner of ExxonMobil (42%) and Veba Oel of Germany (16%). PdV E&P has proposed expanding Cerro Negro. But Exxon Mobil is worried that a new law decreed in November 2001 by President Ch vez says Venezuelan state companies should hold at least 51% in all new JVs and raises state levies. It also forbids arbitration outside Venezuela (see who's who in Part 5 in next week's APS Review).

The 16.5 deg. API synthetic oil, now averaging about 50,000 b/d, is shipped from the Jos terminal for further processing mainly at the Chalmette refinery and partly in Veba's refining system in Germany.

As in the case of Petrozuata and the other SAs, ExxonMobil blends the 8.5 deg. API bitumen with a naphtha diluent and lighter Venezuelan crudes to help it flow to the upgrader at Jos. Before the upgrader was completed, the bitumen used to shipped from the Jos terminal to Chalmette and Germany for processing.

Sincor: The $4.2 bn SA Sincor is owned 47% by TotalFinaElf, 38% by PdV E&P, and 15% by Statoil. With its upstream production begun in late 2000, Sincor extracts 40,000 b/d of 8.5 deg. API bitumen. Its output was cut from 55,000 b/d because of the OPEC quota. Its upgrader at Jos, the biggest of its kind in the world, was inaugurated in early October 2001.

Sincor is shortly to reach its planned capacity of 200,000 b/d which in early 2002 will be turned at the upgrader into 180,000 b/d of 32 deg. API low sulphur crude oil called Zuata Sweet. Located near the Caribbean town of Puerto La Cruz, this venture has involved 22,000 workers and almost 250 horizontal wells in clusters ranging from 6 to 24. The 32 deg. API oil is to be supplied to Ultramar Diamond Shamrock's 86,000 b/d refinery in Corpus Christi, Texas, under a three-year deal.

Hamaca: The $3.9 bn SA Hamaca, with the JV called Petrolera Ameriven (PA), is owned 40% by Phillips (operator), 30% by PdV E&P, and 30% by Texaco (now part of ChevronTexaco). Its upstream production, begun in November 2001, now averages about 30,000 b/d of 8.5 deg. API bitumen from the Hamaca basin.

Hamaca's production capacity should reach 220,000 b/d by end-2003 or early 2004. This is when its upgrader at Jos will be on stream to produce 208,000 b/d of 26 deg. API of synthetic crude oil for export. Like the other SAs, Hamaca has a field life of 35 years to recover 2.4 bn barrels of Orinoco bitumen.

PdV M&M in November 1998 took a 50% share from Phillips in the 58,000 b/d delayed coker built at the US company's 205,000 b/d refinery in Sweeny, Texas. That was under a deal signed in August 1997. The coker went on stream in February 2000. Under the same deal, PdV M&M also has a stake in Sweeny's new vacuum distillation unit which has been built with a capacity of 110,000 b/d.

As part of that deal, worth $500m, PdV M&M was to supply to the refinery 165,000 b/d of Venezuelan Merey heavy crude, 16 deg. API, through a long-term contract.

It was then estimated that the coker and vacuum distillation unit should lower the feedstock cost at the refinery by $2/barrel. Building of the coker began in 1998. The coker was later included in Phillips' downstream merger with Ultramar Diamond Shamrock. Now this is to be included in Conoco's $35 merger with Phillips, in a deal "between equals" announced in November 2001.

The merged entity will be called ConocoPhillips, will have its HQ in Houston, but will retain a significant presence in Oklahoma, Phillips' home base. It will be the third largest integrated oil and gas group in the US. Worldwide, the group will be the sixth largest energy company and the fifth largest global oil refiner.

Background: A memorandum of understanding was signed in November 1997 with Coastal under which PDVSA was to acquire a share in its 100,000 b/d Corpus Christi refinery in Texas. The MoU envisaged a PDVSA-Coastal SA to develop bitumen reserves in the Zuata region of the Orinoco belt. But that project was cancelled in 1998.

In 1997 PDVSA was in talks with Clark on building a $400m coker at its 210,000 b/d Port Arthur refinery as a JV. PDVSA was interested in swapping its fully owned Lemont refinery for a share in the Port Arthur plant, but that fell through. PDVSA continues to sell to Clark crude oils on term basis.

Talks with Murphy in 1997 for a share in its 95,000 b/d plant at Meraux (Louisiana) and a smaller facility in Wisconsin fell through.