VENEZUELA - Latin American Energy Integration.

Spearheading energy integration with fellow Latin American nations, Caracas has led the creation of four politically-motivated regional vehicles for this: PetroAmerica, the mother vehicle which Minister Ramirez describes as a "mechanism to liberate the peoples of the region" and which consists of three alliances: PetroSur, PetroAndina and PetroCaribe. Through them PDVSA supplies the member-states with crude oil and petroleum products on special terms. Under the PetroCaribe agreement, signed in June 2005, 14 states will receive 185,700 b/d.

PDVSA is shipping gasoline, jet fuel and diesel to the Central American state of Belize under an agreement signed on Oct. 28. That came as PDVSA signed a maritime shipping accord with Cuba to prepare for stepping up fuel shipments in the Caribbean. Caracas has agreed to sell fuel directly to Belize and 13 other Caribbean states under the PetroCaribe scheme. This requires participating states to pay 60% in cash and allows them to finance the rest through long-term, low-interest loans. Caracas says it will accept services and goods, such as rice or bananas, as partial payment. The first shipment of 15,000 barrels of diesel left PDVSA Isla Refinery in Curacao on Oct. 30 bound for Belize. The deal was signed by Asdrubal Chavez, who is the president's brother and heads PDVSA sales and its shipping arm PDV Marina, and Cresencio Sosa, a vice minister of investment for Belize. During the signing ceremony, Chavez of PDV Marina said: "The idea is to work for PetroCaribe to take shape in the shortest time possible. Until now six countries have signed supply contracts under the PetroCaribe accord, and the idea is to benefit the member countries, especially the nations affected by recent hurricanes". PDVSA described the shipping deal with Cuba as an "accord of integration in the area of maritime transport" aimed at the "creation of a bi-national company" in charge of handling oil shipments to the Caribbean. The agreement, signed by Chavez and Cuban Transport Minister Alvaro Montero, calls for using the fleets of PDVSA and Cuba, although it also leaves open the possibility of incorporating ships from other companies. Chavez said: "This agreement is the continuation of the process of energy integration...in the area of transport".

In September President Chavez signed bilateral agreements with the Dominican Republic, Dominica, Grenada, Suriname, Belize, St Vincent and the Grenadines, St Kitts and Nevis, and Antigua and Barbuda. He had already signed similar agreements with Cuba and Jamaica, all within the PetroCaribe framework. Trinidad and Tobago (T&T), the Bahamas and Barbados are not participating. Minister Ramirez then said: "PetroCaribe is a mechanism for co-operation and integration with institutional form, and whose Secretariat shall have permanent seat in Caracas. Likewise, the presidency shall be under the charge of the Ministry of Energy and Petroleum of Venezuela, while the vice-presidency shall be held by the country hosting each meeting". In turn, Phillip Paulwell, the Jamaican minister of trade, science, and technology, highlighted the importance of the bi-lateral agreement executed between Jamaica and Venezuela, which will allow increasing fuel supply from Jamaica to the Caribbean. He said: "The association between PDV Caribe and Petrojam is a clear signal of the extraordinary co-operation standing between both countries".

Participating governments will pay the market price for Venezuelan oil, but would only be required to pay a portion of the cost up front and could finance the rest over 25 years at 1% interest, if the cost of oil exceeds $40/b. States could also pay for part of the cost with services or goods. PDVSA will provide assistance in expanding shipping and refining facilities.

At a meeting in the resort city of Montego Bay in early September, Energy Ministers from the 14 PetroCaribe states discussed supply clauses and letters of intent on infrastructure projects to be executed during a PetroCaribe summit. They approved a survey to be done on current needs for distribution, storage and ship-loading systems in order to optimise transaction costs within the region. Observers from T&T, Barbados, Bahamas and the Caribbean Community (CARICOM) took part in meeting.

Jamaica on Aug. 23 became the first Caribbean nation to finalise an agreement with Venezuela on crude oil supplies at discounted prices. Prime Minister P.J. Patterson emerged from a private meeting with President Chavez to announce the details of Jamaica's participation in PetroCaribe. Under the deal, PDVSA was to provide crude oil at $40/b, compared to more than $60/b on the world market, Patterson said. The deal initially involves about 22,000 b/d. Jamaica will pay in goods and services as well as through low interest, long-term loans.

At a news conference in Montego Bay, Patterson said: "Much has been accomplished by strengthening the relationship between Venezuela and Jamaica". Chavez, who noted that "the era of cheap oil is over", said Venezuela was giving assistance better than what had been offered by lending institutions such as the IMF and the World Bank. "Don't thank us", Chavez said, "It is the call of conscience". Chavez and Patterson also signed a bilateral agreement committing Venezuela to raising a refinery's capacity from 30,000 to 50,000 b/d.

Venezuela has agreed to contribute $60m to a fund for socio-economic projects in Jamaica. Venezuelan officials have been touring several Caribbean countries to follow up on the PetroCaribe agreement signed in June. The deal, meant to help small Caribbean economies cope with high fuel prices, offers generous financing for oil sales and favourable rates in exchange for good, services or credit.

Through PetroAmerica and the other vehicles, Venezuelan exports to Brazil, Argentina and other Latin American countries consist of crude oil and petroleum products. By 2010 they will include natural gas. PDVSA investments in these countries are growing rapidly (see Part 4 in OMT 21).

Oil To Asia Via Panama: Panama's Vice President and Foreign Minister Samuel Lewis in July announced that the governments of Panama and Venezuela were planning to sign energy co-operation agreements "in the near future". Among projects to be involved is a proposed oil and gas pipeline which would transport Venezuelan crude oil and natural gas to Panama via Colombia. This would allow PDVSA to export crude oil to China and other markets Asia from the Pacific coast of Panama.

The pipeline project would be carried out in two stages, with the first being a Venezuela-Colombia inter-connection and the second a Colombia-Panama link. Panama would have to recondition and reverse the flow of the PetroTerminales de Panama (PTP) pipeline which runs 131 km from Puerto Armuelles on the Pacific coast to Chiriqui Grande in the Caribbean.

PDVSA in August opened its first commercial office in Beijing with the aim of consolidating new markets for Venezuelan oil in Asia and establishing a regional base for operations. PDVSA President and Minister Ramirez oversaw the inauguration during a visit to China in August. He said: "PDVSA China will evaluate business opportunities in the region, both upstream and downstream, and will become the focal point for supporting relations with new strategic partners". Ramirez and his team met with government officials and business executives including the presidents of Chinese oil companies Sinopec, China National Petroleum Corp. (CNPC), China National Oil and Gas Development Corp. (CNODC) and Zhenghua Oil. Ramirez's agenda was built on a memorandum of understanding for energy co-operation signed during a visit to Beijing by President Chavez in December 2004. Negotiations included the long-term supply of crude oil and products and change from OSAs to JVs for CNPC's development of the Intercampo Norte and Caracoles fields in Lake Maracaibo and the eastern regions. Also discussed was a JV for development of the Zumano area in eastern Venezuela, quantification and certification of reserves, evaluation of a possible joint development of the Junin 4 block in the Orinoco Belt and construction of a products pipeline through Colombia to the Pacific Ocean.

Other areas of cooperation include shipping construction, technical assistance and creation of a fund to finance infrastructure. Potential Venezuelan crude oil exports to China are around 300,000 b/d for a total 100m barrels/year by 2012. This would need at least four VLCC shipments/month with capacity of 2m barrels each. Crude oil exports to China in 2004 averaged 12,300 b/d. By Aug. 23, they had grown by 560% to 68,800 b/d.

PDVSA Vice President for Trade & Supply Asdrubal Chavez told BNamericas Asia as a whole then received 5-6% of Venezuela's oil exports, which could grow to 10-12%. Venezuela sends about 57% of its oil and pier 2 products to the US, Chavez said.