VENEZUELA - The Chavez Energy Perspective.

In his weekly six-hour TV show, "Hello President", which has aired on Sundays since he took office in 1999, Chavez on Sept. 16 said Venezuela will be ranked among the world's largest energy producers within the next five years, adding: "We expect to double gas production and become a global super energy power". He said the priority of the "gas revolution" was to fully meet domestic consumption needs. Gas integration will be launched with neighbouring states when this target has been met.

Chavez said amendments to tax regimes for IOCs introduced earlier this year had earned over $8 bn for the country's budget after Venezuela refrained from "colonial oil production schemes". Venezuela's gas reserves, the world's ninth largest, amount to 152 TCF, accounting for 56% of the total reserves in Latin America and the Caribbean. However, the current gas production, though close to domestic consumption levels, currently lags behind that of Argentina or Mexico due to an inadequate transportation and distribution infrastructure (see down19VenzEnBasNov5-07).

The promoter of resource nationalism and anti-Americanism worldwide, Chavez in Moscow in June 2007 urged Russians to return to the ideas of Vladimir Lenin, especially his anti-imperialism, saying: "The Americans don't want Russia to keep rising. But Russia has risen again as a centre of power, and we, the people of the world, need Russia to become stronger". Chavez finalised a $1 bn deal to buy five diesel submarines to defend Venezuela's oil-rich undersea shelf and thwart any US economic embargo. By then, Venezuela had become the second-largest buyer of Russian weaponry. (Algeria topped the list, another indication of a growing multi-polarity in world affairs).

Venezuela acquired the distinction of being the first country to receive a licence from Russia to manufacture the famed AK-47 assault rifle. By channelling some of the oil money to needy Venezuelans, Chavez broadened his base of support. Much to the chagrin of the Bush White House, he trounced his sole political rival, Manuel Rosales, in a presidential contest in December 2006 with 61% of the vote. Equally humiliating to the Bush administration, Venezuela was by then giving more foreign aid to needy Latin American states than the US. After his re-election, Chavez vigorously pursued the concept of forming an anti-imperialist alliance globally.

Chaves boosted ties with Iran and Belarus. By the time he arrived in Tehran from Moscow (via Minsk) in June 2007, the 180 economic and political accords his government had signed with Tehran were yielding tangibles. Iranian-designed cars and tractors were coming off assembly lines in Venezuela. In Tehran, Chavez said: The "co-operation of independent countries like Iran and Venezuela has an effective role in defeating the policies of imperialism and saving nations". Stuck in the quagmire of Iraq and lashed by the gusty winds of rocketing oil prices, the Bush administration finds itself limited when dealing with a rising petroleum power.

To the insults Chavez keeps hurling at Bush, the US response has been vapid. The reason is the crippling dependence of the US on imported petroleum, which accounts for 60% of the total it consumes. Venezuela is the fourth-largest source of US imported oil after Canada, Mexico and Saudi Arabia; and some refineries in the US are designed to refine heavy Venezuelan crude oil.

In Chavez' scheme to undermine the "sole super-power", China has an important role. During an August 2006 visit to Beijing, his fourth in seven years, he sais Venezuela would triple its crude oil exports to China to 500,000 b/d in three years, a jump which suited both sides. Chavez wants to diversify Venezuela's buyer base to reduce its reliance on exports to the US, and China's leaders are keen to diversify their petroleum imports away from the Middle East, where US influence remains strong.

Chavez said: "The support of China is very important [to us] from the political and moral point of view". Along with a joint refinery project, China agreed to build 13 oil-drilling platforms, supply 18 oil tankers, and collaborate with PDVSA in exploring a new oilfield in the Orinoco Basin.

Ecuador has been accepted as an active OPEC member thanks to Chavez. Its Mines and Energy Minister Galo Chiriboga recently said: "We will...be present at the next meeting in Saudi Arabia in November. Ecuador will return to OPEC, which it left in 1992, to foster its strengthening and receive advise from other nations in oil matters". (Ecuador stopped paying OPEC membership fees in 1992, although it never formally left the organisation. Chiriboga said Ecuador and OPEC agreed on a three-year payment plan to clear its $5.7m debt).

Quito is renegotiating deals with IOCs under a change in law giving the state 99% of the extra made due to the rise in oil prices after a contract had been agreed with the state. The move hits Petrobras, China's Andes Petroleum, Repsol/YPF, City Oriente of the US and Perenco of France. President Rafael Correa, an ally of Chavez, says being in OPEC allows Quito to have better information on what other states are doing. He said: "OPEC will help us with its experience of renegotiating contracts...". Ecuador produces 514m b/d, 49% of which is extracted by private firms.

Chavez says PDVSA is to convert its investments from US dollars to euros and Asian currencies. He has asked Energy and Petroleum Minister Rafael Ramirez, who is also PDVSA president, to change currencies following Fed's decision to increase US money supply. Chavez calls the US dollar a "bubble". PDVSA, which has $23 bn in assets including $1.88 bn in cash, last year moved some of its reserves to euros.

Ramirez on Nov. 1 said PDVSA had no plans to find IOC partners to jointly operate the oilfields left behind by ExxonMobil and ConocoPhillips earlier this year. In remarks to the press, he said: "No, no, there are no plans to get new partners. That's not being considered and we're not open to that. We like having those fields in the hands of Petroleos de Venezuela". He said heavy crude upgraders in Orinoco had run smoothly since the May 1 state takeover, so PDVSA was to operate those fields unassisted.

Chavez took controlling stakes in four key oil JV in the Orinoco Belt as well as other profit-sharing JVs. IOCs were forced to accept the new terms or leave. Exxon and Conoco bowed out, while Total, Chevron, Statoil and BP chose to remain as minority partners in Orinoco, a region which holds some of the world's largest heavy oil reserves. The four Orinoco upgraders turn tar-like crude into more marketable, lighter oil. In the case of shared-profit oilfield JVs, Petro-Canada also left.

After months of fruitless compensation talks, Exxon has now filed for arbitration and Conoco is expected to follow suit. Conoco held 50.1% in the Petrozuata JV and 40% in Ameriven, another heavy-crude JV. Petrozuata is now fully run by PDVSA. Conoco took a $4.5 bn charge in the second quarter after leaving.

The spat with IOCs affected the La Ceiba profit-sharing agreement, an operation Exxon and Petro-Canada left behind. PDVSA now is the sole operator in this venture as well (see Part 2).