VENEZUELA - Exports - Orimulsion.

PDVSA produces Orimulsion, a burner fuel (or liquid coal) which Lagoven developed in 1984 with the help of BP through Intevep to supply power plants. Orimulsion is a mixture of 70% Orinoco's bitumen (extra-heavy crude oil) and 30% water including a surfactant additive (emulsifier) developed in Venezuela. The emulsification with water makes the extra-heavy oil less viscous and enables it to be pumped and stored like any other oil product and transported conventionally in standard tankers. Orimulsion competes with coal in power generation. The strategy behind its development since the mid-1980s has been to penetrate the world's electricity sector.

Production is done by a "steam soak" method. Water and additives are injected into the well to dilute the bitumen. This lengthens the time between steam injection cycles in forming a low viscosity bitumen-in-water emulsion, which improves the economics of the venture. The primary emulsion is then dehydrated, degassed and desalted. At the processing plant at Morichal, more water and surfactants are added to form the Orimulsion fuel. This is pumped for export by pipeline to Punta Cuchillo, on the Orinoco River, where it leaves by tanker. A pipeline has been built to the Jos terminal on the northern coast, where big tankers can be served. Its capacity is 50 million t/y.

Production capacity for Orimulsion has been targeted to rise rapidly, from about 100,000 b/d in late 1997 to 1m b/d by 2010. But PdV M&M (ex-Bitor) has encountered difficulties in marketing this fuel in West Europe and the US, where environmentalists have campaigned against Orimulsion.

Orimulsion is excluded from the OPEC quota and from Venezuelan statistics about oil, condensates and NGLs. It is being used for power generation in Venezuela. Bitumen reserves in the 54,000 sq km Orinoco Belt are sufficient for the production of 1.5m b/d for more than 450 years.

Lagoven, Maraven and Corpoven had carved up the Orinoco belt between them and had been responsible for related operations stretching as far as the coastal terminal. First explored in 1979, the Orinoco belt has more than 660 wells drilled since the early 1980s, with a success rate of 85%, and upstream investment there has exceeded $1.2 bn. But of the bitumen found, 90% is under 10o API.

The external marketing of Orimulsion is difficult. Supplies require long-term contracts with power companies as in the case of LNG. PDVSA M&M (Bitor) want to raise Orimulsion exports from 6m t/y to 18m t/y by 2005/07, under proposed deals with China, India, South Korea and Singapore, as well as Italy.

To penetrate the power sector in various parts of the world, Orimulsion has to compete with coal and heavy fuel oil, as well as natural gas and other sources of energy. In addition, Bitor either has to offer a discount or has to take part in financing a power plant using Orimulsion on long-term basis. Alternatively, it would offer a term client a stake in a new Orimulsion plant to be built in eastern Venezuela. But, according to Petroleum Argus of Oct. 20, 2003, Caracas has begun to see Orimulsion - which sells for around $38/ton - as a "waste of resources and a loss of potential government revenue".

So far Bitor, since early 1998 part of PdV M&M, has managed to secure ten term contracts for a total of more than 18m t/y with the following customers:

China National United Oil Corp. (CNUOP), China, for 5.2-6.5m t/y to burn at several power and industrial plants under a 20-year contract signed in 1990. But deliveries, scheduled to begin from early 2000, have been delayed. CNUOC first tested 200,000 tons in 1996. In 1997 it signed a one-year contract for 1m tons to test the fuel further and again took 1m tons for each of 1998 and 1999. The 5.2m t/y will be produced by a new 6.5m t/y Orimulsion plant being built at the Morichal complex as a JV with CNUOC, to be on stream next year, owned 70% by CNUOC and 30% by PdV M&M.

Guatemala Generating Group, Guatemala, for 300,000 t/y for a power plant which started up in 2000, under a 20-year contract.

New Brunswick Electric Power Co., Canada, for 800,000 t/y burning at the 300 MW Dalhousie plant under a 20-year contract.

SK Power, Denmark, for 1.6m t/y for the 650 MW Asnaes plant, under a provisional three-year contract signed in 1996. A longer term contract is being negotiated. With Denmark applying one of the strictest environmental laws in Europe, SK Power had been testing the Orimulsion since 1994.

Satat Power System, Lithuania, for up to 500,000 t/y for the 100 MW plant of Elektranei under a 20-year contract signed in 1996.

Japan: Kashima Kita Electric Power Corp. for 355,000 t/y for the Kashima plant under a five-year contract; Mitsubishi Chemical for 300,000 t/y for the Mizushima power plant under a five-year contract. Kansai Electric for 200,000 t/y for the 150 MW Osaka plant. Hokkaido Electric for 120,000 t/y for a new 350 MW plant at Shiriuchi.

Arawak Cement Co., Barbados, for 40,000 t/y with deliveries begun in 1997.

Reliance Industries is to invest $200m in a new 6m t/y Orimulsion plant in Venezuela to supply the market in India on long-term basis.

Taiwan has been testing variable volumes of Orimulsion since 1998. Bitor and a consortium have agreed that, if all goes well, a 25-year agreement would be signed for 3.4m t/y of Orimulsion to be supplied to Intergen, APED, Taiwan Synthetic Rubber and China Steel.

PowerSeraya of Singapore last May signed a 10-year contract to take up to 1.7m t/y from 2005. This will reduce its current 1-1.5m t/y of its fuel oil needs by a third.

A Kepco power plant in South Korea last April signed a 600,000 t/y trial deal to displace 4,000 b/d of fuel oil from power generation. Other South Korean firms are considering buying up to 2.7m t/y of Orimulsion.

Italy's biggest power utility Enel has taken up to 600,000 t/y for testing at its Brindisi power plant. Once Enel is convinced that Orimulsion is a suitable fuel, it would sign a long-term contract for a larger volume.

Under PDVSA's ten-year expansion programme, exports of Orimulsion should exceed 35m t/y by 2009. Bitor should work hard for this and would expect help from the various subsidiaries of PdV M&M and PdV Services.

Orimulsion was discovered by accident in the early 1980s, when experts from a Lagoven unit mixed bitumen with water to transport it. The experts found that the mix could burn. PDVSA then seized the opportunity and its R&P unit later developed a surfactant additive with the help of BP.