Before I begin, I would like to congratulate the organizers of this event, the “International Gas and Liquefied Gases Forum, a 21st Century Vision”, and also thank them for the opportunity they provide me to share with you -as a footnote to this program- my thoughts regarding the tendencies which will have an impact on the global energy industry, and how Venezuela will fit into this scheme of things.
My congratulations are of course extended to all the national and international participants in this Forum, which includes some of our distinguished partners, such as ChevronTexaco, ConocoPhillips, Mitsubishi, Shell, Statoil and Total, as well as to the Venezuelan companies also present, My thanks also to the academic sector representatives, the communications media and guests in general.
All have contributed to making a success of this event which, yesterday and today, enabled an intense interchange of information and views on the gas business to take place, covering a wide variety of topics on the best ways to use the leverage provided by natural gas in Venezuela, with the aim of becoming more competitive throughout the PDVSA value chain, and to consolidate our position among the international energy market’s leaders.
While it is true that hydrocarbons demand continues to grow, and that the business opportunities available are plain to see, the challenges which the global hydrocarbons industry will have to face, now and in the future, are also clearly evident. For example, scenarios for the 2004/2009 time-span highlight the great common challenge of having to supply the raw material to meet increasing consumer demand and expectations, together with increments in stringent quality specifications, as well as the protection of the social and natural environments.
In the midst of all this, we can see on the horizon a greater efficiency in energy consumption, due to the adoption of new technologies and management tools, together with the establishment of economic policies aimed at promoting new investments and increasing the value of natural resources for the purpose of converting them into tools for sustainable development.
Exploration and production will require enormous capital contributions, as well as technological innovations and management knowledge, to produce oil and gas in the volumes which the world will need in the next 20 years. The challenges, however, are not confined to the upstream, but will also extend to the processing of the raw material and its by/products.
These considerations are fundamental as a foreword to an analysis of the international energy market, the prospects of which look promising in the context of world economic growth -estimated at 3.8% per annum- considered to be the highest since 2000, according to JP Morgan Economic Research.
Additionally, various economic analysts place the United States economy’s growth at an annual average of 3%, which is why it remains among the world’s fastest growing economies, together with that of emerging Asian countries, chief among which is China. It is worth pointing out that more than 60% of the projected increase in the world’s primary energy demand between 2000 and 2030 will come from developing countries, especially those in Asia.
According to our scenarios analysis, and based on various specialized sources -such as the “Annual Energy Outlook 2004”, published by the US Department of Energy- it is expected that world oil demand will increase from 78 million barrels per day in 2002, to 118 million barrels per day in 2025.
With regard to natural gas, which is the objective of this Forum and of other important discussions around the world, it should be pointed out that at 1st January 2003, world gas reserves stood at 5,500 trillion cubic feet, which is to say, 50 trillion cubic feet more than in 2002, according to the authoritative “Oil & Gas Journal”. It should be noted that 96% of these reserves are located outside North America, which is to say, the United States, Canada and Mexico.
World natural gas consumption is expected to maintain an average annual growth of 2.4% between 2000 and 2030, according to the “World Energy Outlook 2004”. For its part, the “International Energy Outlook 2003” of the US Department of Energy estimates a 2.8% annual growth for the 2001-2025 period. In any event, natural gas is considered to be the fastest growing primary energy over the coming years, this in comparison with annual average demand growth rates of 1.8% for oil and 1.5% for coal.
The foregoing means that the projection of natural gas consumption could practically double from the 90 trillion cubic feet consumed in 2001, to 176 trillion cubic feet by 2025 above all as an electricity generation fuel, although the expected growing demand of GTLs, or gas-to-liquids plants, should also be taken into account. This means that natural gas’s share of total world energy consumption will go from 23% in 2001 to 28% in 2025.
It is specifically foreseen that the supply of natural gas to the United States will grow at an annual average of 1.4%, or from 24 billion cubic feet in 2002 to a little over 31 billion cubic feet in 2025, while domestic production will increase annually by 1% over the period, or from 19 to 24 billion cubic feet. In this sense, according to US National Petroleum Council in a September 2003 report, its is estimated that LNG imports will grow from 2 billion cubic feet per day in 2003 to 15 billion cubic feet per day in 2025.
According to the “Annual Energy Outlook 2004”, well-head prices in the United States would rise during the 2002 to 2025 period from $ 2.95 to $4.40 per thousand cubic feet. Indeed, prices vary considerably from country to country because natural gas markets tend to be regional due to transport limitations, in comparison with those of oil and its liquid byproducts. However, as the international use of natural gas and its trade grow, it is expected that price-determination mechanisms will evolve enough to enable the consolidation of a world market for this fuel.
As is well known, Venezuela enjoys major competitive supply advantages in the face of growing oil and gas demand, since It holds the western hemisphere’s largest reserves of hydrocarbons. To be specific: it has 147 trillion cubic feet of proven natural gas reserves, and it is estimated that the reserves yet to be discovered are in the order of 196 trillion cubic feet. A first estimate of the still-to-be-discovered reserves lying offshore in the Caribbean and Atlantic continental shelves places them in the order of 95 trillion cubic feet of natural gas, with a 30-year development cycle, and requiring a $ 50 billion investment.
At present, Venezuela ranks as the world’s eighth country with the planet’s largest gas reserves. If we add to this PDVSA’s present and future human resource, technological and financial synergies with its national and international partners, the country’s strengths in the road to becoming a major gas producing and exporting power become evident, without taking into account its privileged geographical location in terms of supply to the natural markets with the highest demand.
At Petróleos de Venezuela we talk of raising resource value, of making use of all our capacities to generate and multiply wealth that will make our oil industry a tool for the sustainable development and well-being of our country and also of our world markets, to which we reiterate our spirit of cooperation in an ethical, competitive and sustained manner, so that we can truly become a complement to their energy needs.
We have given ample proof of our strengths and virtues as proved, for example, by our 2003 operational and financial results. On the operational side, we increased the country’s oil reserves to 78 billion barrels, and our production capacity to 3.6 million barrels per day. Refining capacity was maintained at 3.3 million barrels per day, while exports reached 2.1 million barrels per day.
On the financial side, our revenue from worldwide operations reached 46 billion dollars, with a net income of $3.8 billion, which was $ 1.5 billion more than in 2002. Operational costs were cut by more than $ 2 billion, and our contribution to the shareholder was some $ 10 billion. Capital investment outlays topped $ 2 billion, and went mainly to the oil and gas business. We also met, and will continue to meet, our commitments to our creditors, who received $ 2.2 billion dollars from us, $ 1.8 billion of which went to debt repayment.
I should point out here that a sensible and responsible national and international private sector contributed decidedly to PDVSA’s recovery. I am sure that this trust and involvement will remain equally firm in the development of the projects portfolio of the 2004-2009 Business Plan, which we have already launched this year as a firm step towards the consolidation of the New PDVSA.
The 2004-2009 PDVSA Business Plan is aimed at maximizing the value of our oil and natural gas resources, consolidating the gains achieved in 2003 and reaffirming our position as an ethical, competitive and sustainable supplier, while at the same time focusing on developing and empowering the Corporation’s human talent, All of this is aimed at promoting and participating in Venezuela’s internal development, in the face of the manifest needs and opportunities presented by the world hydrocarbons market. Venezuela’s internal development is supported by us through an increasing fiscal contribution, as well as by local purchasing, economic activity generation and PDVSA’s direct contributions to the government’s social plans. All of this is done without losing sight of the fundamentals of the business.
Investment for the planning period has been estimated at $ 37 billion, of which 73% or $ 27 billion, will be supplied directly or indirectly by PDVSA and 27%, or $ 10 billion, by third parties. It should be pointed out here that PDVSA’s finances are enjoying remarkably good health. The Corporation’s cash flow indicates that there will be enough cash to meet the 2004 investment budget, estimated at close to $ 5 billion. However, for the purpose of maintaining advisable budget flexibility and the execution of the Business Plan, as well as having continued access to the international financial markets, we will continue to explore financing sources for some of our major projects, if and when funds can be obtained at terms favorable to PDVSA.
Guided by these strategic aims, we are going forward in the development of a wide projects portfolio made up of attractive business opportunities for international investors, both in the upstream and the downstream. We have particular interest in channeling the enthusiasm of small and medium-sized foreign companies so that they, in association with Venezuelan enterprises, can contribute to strengthening national capital in the hydrocarbons industry’s goods and services supply chain, with emphasis on our offshore gas development, precisely here, in the country’s northeastern region, in projects such as the Plataforma Deltana and Mariscal Sucre Liquefied Gas.
This Forum has already covered the Plataforma Deltana project in detail. I only want to underline the fact that ChevronTexaco and ConocoPhillips of the United States, and Norway’s Statoil, will begin operations in the exploratory areas in May this year, tasks to which they have already committed $107 million. Similarly, the project’s guidelines also include maximum national capital incorporation and the region’s sustainable development. We estimate that the first LNG cargo will be shipped at the beginning of 2009.
Reference was also made during the Forum to the Mariscal Sucre Liquefied Gas project, with the participation of PDVSA (60%), Shell (30%), Mitsubishi (8%) and, in the future, other Venezuelan institutions (2%). We are making the necessary effort to ensure that the first LNG barrel will be on the market at the end of 2008 or the beginning of 2009.
As part of these and other oil and petrochemical projects, we are currently in the process of building the modern Gran Mariscal Sucre Industrial Complex (CIGMA) with the commitment of it to become a model of maximum national content incorporation (over 50%), as set down in the Sustainable Development Master Plan designed for the northeastern region, particularly the State of Sucre, which will benefit through the generation of 6,000 direct jobs during the almost four years of the construction phase.
These initiatives are excellent examples of how the objectives we have set ourselves on the matter of gas development in the country are coming closer to fruition, The investments required could have hardly been made 100% with PDVSA resources, when these are ranked against the traditional areas in our projects portfolio. We are achieving, for this reason, the major development of our non-associated gas resources with the involvement of important outside investors.
Additionally Intevep, our research and development subsidiary, is carrying out major technological advances in natural gas development in Venezuela. The most telling achievement in this direction has been the technology known as DISOL, which is used for the transformation of natural gas into high-purity liquid fuels and lubricant bases. For the future, we are thinking of using synthesis gas obtained from hydrocarbons gasification (heavy, extra heavy crudes and residuals) for the same purpose. At the moment we are planning on the construction, in the east of the country, of a GTL or gas-to-liquids pilot plant for the production of some 2,000 barrels per day, while the synthesis gas from heavy hydrocarbons technology undergoes further development.
This is how we in Venezuela are preparing to respond to the evident positioning of natural gas as one of the world’s clean and high- yield energy resources. The increasing predominance of this fuel is also being boosted by the abundance of its reserves, competitive costs and sustained world demand. Private and state-owned companies around the world are increasingly dedicating to it human, technological and financial resources, in order to take advantage of this window of opportunity in the present decade.
The globalization of the natural gas market undoubtedly also generates some geopolitical concerns, fuelled mainly by the coming together of various interests and the need to establish interdependent relations between producing and consuming countries. Warnings have already been issued by some analysts regarding the possibility of an Organization of Gas Exporting Countries, or OGEP, as a version of OPEC that would enter the international gas trade.
I use the word “warning” advisedly because its meaning is not precisely a harbinger of good omens, but rather pretends to foretell presumed “cartelizing” practices in the gas market; the same distortion used to stigmatize OPEC and ascribe to it all manners of oil market imbalances. The truth of the matter is that commodities markets have always required, and will continue to require, stabilization mechanisms that will ensure benefits to all actors in its value chain.
A balanced equation of volumes and price schemes is vital to the structuring of a stable natural gas market, above all for volumes marketed internationally in the form of LNG. Very low prices would discourage investment in new developments, and very high prices would make other clean energy sources more competitive, thereby displacing natural gas.
The common objective is to arrive at a win-win situation for all concerned, and this gain translates into a better quality of life for our societies. The future of the natural gas industry and its profound impact on the future of humanity hinge on the achievement of this objective. This imposes on us the need to maintain a permanent constructive dialogue (such as we have had in this Forum), working together to arrive at concerted decisions that are informed and intelligent. Meeting this great challenge is the responsibility of both producers and consumers, as well as of governments, financial institutions and other interested parties in the economic, political, social, academic and scientific worlds.
I would like to close by again expressing my appreciation for the fruitful work undertaken by this Forum in the search for better ways to develop our gas resources and also to ratify that you are all welcome to face with us this challenge, while we further strengthen PDVSA as an ethical, competitive and sustainable Corporation, aimed at supplying an important quota of humanity’s growing energy demand, and committed to Venezuela’s comprehensive development. Ladies and gentlemen,
Until we meet again,
Many thanks.