According to Oil and Gas Journal, Venezuela had 152 trillion cubic feet (Tcf) of proven natural gas reserves in 2007, the second largest in the Western Hemisphere behind the United States. In 2006, the country produced and consumed 1 trillion cubic feet (Tcf) of natural gas. An estimated 90 percent of Venezuela’s natural gas reserves are associated. According to Enagas, the principle government agency charged with regulating the natural gas sector, the petroleum industry consumes over 70 percent of Venezuela’s natural gas production, with the largest share of that consumption in the form of re-injection to aid crude oil extraction.

In 1999, Venezuela adopted the Gas Hydrocarbons Law, which opened all aspects of the natural gas sector to private investment. The goals of the law included the development of natural gas resources, especially non-associated fields; expansion of the domestic natural gas transport network, creation of a general distribution system; promotion of natural gas export projects; and increased consumption of natural gas by the power and petrochemical industries.

The Gas Hydrocarbons Law also allowed private operators to own 100 percent of non-associated projects, a sharp contrast to the ownership rules in the oil sector. Furthermore, royalty and income tax rates on non-associated natural gas projects are much lower than corresponding rates for oil projects. The law does give PdVSA the right to purchase a 35 percent stake in any project that moves into commercial status.

PdVSA produces the largest amount of natural gas in Venezuela. There is currently limited private participation in the sector. Repsol-YPF is the largest private natural gas producer in Venezuela, with 2005 production of 337 million cubic feet per day (MMcf/d). In September 2005, Repsol-YPF began production from the first stage of its Barrancas Block project, which contains an estimated 2-6 Tcf of natural gas reserves. The project integrates natural gas production and an 80-megawatt (MW) power station in Portuguesa. In April 2004, Total began first production in the Yucal Placer blocks, with an initial output of 100 MMcf/d. Petrobras operates the Tinaco and San Carlos projects, while Argentina’s Pluspetrol is developing the Tiznado-Barbacoas field.

PdVSA awarded exploration blocks to Chevron and Statoil in 2003 in the Plataforma Deltana area, located off Venezuela’s northeast coast adjacent to the country’s maritime boundary with Trinidad and Tobago. Chevron began exploration in 2004 of the Loran field (Block 2), drilling three wells. The company also announced in June 2005 that it had drilled a successful exploratory well in its adjacent Lau-Lau field (Block 3). Statoil holds the exploration license for the Cocuina field (Block 4), along with equity partner Total. In 2007, it drilled two successful test wells in the area. PdVSA announced plans in 2006 to develop El Dorado (Block 5) itself, without an international partner. Block 5 was offered in licensing rounds twice, without any takers.

Greater development of Plataforma Deltana will likely depend upon cooperation with Trinidad and Tobago, which already has sizable production activities in its adjacent territorial waters. Along with its interests in the Loran block, Chevron operates the Manitee natural gas project in Trinidad and Tobago that is adjacent to Plataforma Deltana. In March 2007, the two countries reportedly agreed to jointly develop natural gas reserves that straddle their border. There has also been discussion about exporting Venezuelan natural gas via Trinidad and Tobago’s Atlantic LNG facility (see Caribbean Regional Analysis Brief for more info), but there has not been any concrete proposals in this regard.

In recent years, Venezuela has improved its domestic natural gas transport network, to allow greater domestic utilization and movement of gas production. The Interconnection Centro Occidente (ICO) system connects the central and western parts of the country, making natural gas more easily available to domestic consumers and for re-injection into the western oil fields.

In July 2006, construction began on a natural gas pipeline linking Colombia with Venezuela. The 130-mile, 150-MMcf/d system will connect Colombian natural gas production in Punta Ballenas with oil production facilities in the Lake Maracaibo area. Initially, the pipeline will supply Venezuela with additional natural gas supplies for enhanced oil recovery, but Venezuela eventually plans to reverse the flow of the pipeline once it has further developed its own domestic natural gas reserves. Construction on the system is scheduled for completion by the end of October 2007.