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http://www.thedailyjournalonline.com/article.asp?ArticleId=201357&CategoryId=10717 Bringing North Sea experience to Venezuela -- An Interview with Statoil's President Norway’s STATOIL ASA is an integrated oil and gas company with 23,899 employees and activities in 29 countries. Statoil is also the operator of 60% of all Norwegian hydrocarbon production, and is a major supplier of natural gas to the European market, and has substantial industrial operations. In Venezuela, Statoil is represented by Statoil Venezuela where the company is present in three main projects in the Andean country. On the heavy-oil side, Statoil participates in the Sincor heavy oil upgrading project located in Venezuela’s vast Orinoco tar belt. SINCOR is a company formed by the strategic association of PDVSA, Total Venezuela, and Statoil Venezuela to produce up to 214 thousand barrels per day (mb/d) of extra-heavy crude oil (8 degrees API) for upgrading to a very high-quality light synthetic crude (32 degrees API, with very low sulfur content) known as Zuata Sweet. This process also produces as a by-product, coke (6,000 tons a day) and sulfur (900 tons a day). Statoil participates in SINCOR with a 15% interest. Statoil also has a 27% interest in the LL 652 oil field in Venezuela’s Maracaibo Lake. This field produces about 10,000 b/d. On the natural gas side, Statoil is operator of the offshore Block 4 (Cocuina) with a 51% interest. Under the drilling agreement, the partners in Block 4 will drill three exploratory wells to determine the reserve and production potential of the block. To date, only one well has been drilled. The second and finall wells will be drilled in late-2005. LATINPETROLEUM recently took time with Thore Kristiansen to talk about Statoil’s activities in Venezuela and the most important experiences his company brings to Venezuela. LATINPETROLEUM. In comparison with Trinidad & Tobago which has been shipping LNG now for some 10 years, why has Venezuela lagged so far behind in developing its natural gas industry? THORE KRISTIANSEN. This has more to do with the maturity and the stage a nation is at in the development of its industry. Venezuela’s situation is unique as the nation is blessed with the 5th largest oil reserves in the world. As a result, Venezuela has primarily been an oil producing country, while of course natural gas production has become increasingly more associated with this production, although primarily used until now for re-injections. With increasing demand for natural gas in the world, we now see on the demand side for natural gas, it is more apparent that distance comes into the supply/demand equation. Currently, the situation we see is that there was demand worldwide for natural gas as reported by EIA in 2002 of 2,600 Bcm/y. The EIA expects this demand to double by 2030, so we would be looking at demand of some 4,900-5,200 Bcm/y by 2030. Consequently, we see the demand for natural gas is increasing more than the demand for crude oil. The prices for natural gas have also been increasing, meaning that natural gas projects located further away from the biggest gas consuming markets are starting to come to fruition. Further, natural gas traditionally sold as a piped product, is also now becoming an exportable commodity through the form of liquefied natural gas (LNG). So what do we see as regards LNG? As a share of worldwide natural gas production, LNG represented only 3.4% in 1980, and 5% in 2001; however, LNG production is expected to increase to 15% by 2020. So there is an expected enor mous increase in the consumption of LNG, so that is why it has become more relevant now for Venezuela to develop and commercialize its natural gas resources. LNG is not a new product. It has been used primarily in the (Far East) Asia, but we are now starting to see new trends emerge. Asia has traditionally been a large consumer of LNG, and there has also been large consumption of LNG in Europe, but where we see the big new growth engine in LNG is North America. And what makes the North American market so attractive is that it is a next door neighbor to Venezuela. Thus, the reason why it has now made it more attractive to develop natural gas projects in Venezuela to be monetized in the form of LNG. That is sort of the key driver. So when I look at the issue – of why Venezuela has not developed its natural gas industry – I see it more as an issue of timing and more related to when the issues are driving the market in Venezuela. So until now, Venezuela has only played its crude oil option. In the case of Trinidad & Tobago, they did not have that crude oil option, so they played their natural gas option. LP. Once natural gas is discovered offshore, and once the Venezuelan government decides where to send that gas, does it change your economics or strategy if the government decides to send a large portion of this gas to the domestic market? TK. We would have to see exactly what the economic situation is, that is to say, what is the price of natural gas in the domestic versus the international market. For Statoil, it is an obvious question, but our primary task is assisting Venezuela to develop more natural gas resources. Of course, we would have to do this in a context that makes economic sense for Statoil. That is why we value it on a product-by-product basis. When we find natural gas, there will have to be clear agreements and understandings as to where it will be shipped. So again, I cannot respond to your question with a generic answer, because it needs to be evaluated on a case-by-case basis. There is clearly an understanding at the moment from the side of the Venezuelan government, that the natural gas produced offshore will be destined for export (international) markets. That’s why it is thinking about developing a major LNG complex in eastern Venezuela. LP. How much natural gas is Statoil hoping to find? And how much gas needs to be found to move forward with the project? TK. Remember no gas has been found so far. A number of companies believe there is gas to be found, and that is why these companies, Statoil included, were bidding for the exploration rights. We hope there is gas, but let’s be precise, we still have not yet proved there is gas. There is always a substantial exploration risk, so Statoil is always careful about having fixed estimates on how much gas there is on the block. We have internal – and they remain internal – estimates, and that is what they are at the moment. These estimates are based on our analysis of 3-D seismic of the area; we know there have been discoveries in the area so far, and we have been interpreting this information. That is why we are drilling these three exploratory wells so that we can be certain there is gas. LP. The Chevron Corporation discovery on the Trinidad & Tobago side of the maritime border, is that thought to be on trend with the Venezuela side? TK. That could partly be the case, but we cannot forget or rule out there could be separate structures on the Venezuelan side which could be different from the trend channels on the Trinidad & Tobago side. So there are different plays in which we are exploring. LP. An obvious market for the LNG is North America; Statoil already has assets in the U.S. and ships a lot of LNG to Cove Point, but what about the Mexican market? TK. There are a lot of issues (terms and conditions) that remain to be seen as regards to the final markets for the LNG after the natural gas has been through the LNG terminal. That remains to be seen. Regarding the shipping of the LNG, this will be decided on a company-by-company basis. At the moment, Statoil is building the Snøhvit LNG facility on the northern tip of Norway. This a big natural gas field with 11.2 Tcf of natural gas in place. There are various partners in this project including Total, Petoro, Gaz de France, Amerada Hess and RWE Dea; however, each company is allowed to ship the LNG to the markets of their choice. What will happen in Venezuela? It is still too early to say, because naturally it is still early in the development process. First, we all have to prove up the gas. Then we have to decide where to take it and what to do with it, what portion will be dedicated to domestic and international markets. But again the natural market for the LNG is the U.S., that is currently where there exists a huge demand for natural gas deliveries, and increasingly more deliveries will have to come through the form of LNG. One key aspect that Statoil has is that we have access to the Cove Point receiving terminal. What is the advantage of Cove Point? Cove Point is located close to the main natural gas consuming areas in the Northeastern U.S., that is to say, Washington and New York. As such, Cove Point natural gas trades inline with Henry Hub. The current thinking for the Snøhvit LNG facility is that one-third (33%) of the LNG will be destined for Europe, primarily Spain, while two-thirds (67%) will be destined for the U.S. markets. So when we think about the LNG shipments from Norway, we are looking at exporting to Northeastern U.S. and Europe, and that is why we are looking forward to getting LNG from Venezuela. It could very much be Brazil … we have also found natural gas in Nigeria and are currently looking into Angola. Of course, it makes shipping sense to send gas from Venezuela to the U.S. as opposed to shipping it from the Baring Sea. So that is the advantage that Venezuela has, they are close to the North American market. LP. Does Statoil own its own LNG tankers? TK. The LNG shipping market is quite tight at the moment. So we have chosen to build tankers as a part of the development. Statoil is building a total of four LNG tankers at the moment in relation with the Snøhvit development. A typical tanker can hold between 140-145 cubic meters of LNG. Al-though these four tankers are dedicated to the Snøhvit project, it depends on what happens. If we end up with a scenario where we have found and are developing LNG in Venezuela, we could choose to substitute LNG from the Baring Sea to optimize our shipments due to shorter sailing distances. That is to say, we could decide to send all the Baring Sea LNG to Europe, while opting to send all of the Venezuelan LNG to the U.S. This gives us options. So we have chosen to own our tankers, because what you do not want, in a tight tanker market, is to be without a tanker, as that would then of course shut down production. The typical tanker is completed on average in about 3-3.5 years. The tanker technology we utilize is proprietary Norweigan technology, and we have been able to double the size of the ships as well. But the situation in Venezuela could be different, as the shipping distances are not as long as those from the Baring Sea, and thus there might not be a need to build such large tankers as we will use with the Snøhvit. LP. What are the main strengths that Statoil brings to the table in Vene-zuela? TK. We think there are five key strengths that we bring to the table in Venezuela. First, our gas value chain competence. Statoil markets and sells 67% of the natural gas that is being produced in Norway. Today, Norway is the third biggest seller of natural gas in the world. So we have tremendous experience in the natural gas value chain. Second, we have precise and exact experience when it comes to LNG technology. Statoil has its own LNG technology that is being utilized in the Baring Sea. That is Statoil proprietary technology that we have together with a German engineering company. Third, the other strength we have is our access to the U.S., the fastest growing market, in terms of demand. There are currently only four LNG receiving terminals in the U.S., and at the moment it remains very difficult to obtain permission to build new terminals. You need to have access to the market, and Statoil has this access. There are firm plans to expand the Cove Point terminal. As such, we expect our capacity to increase from 260 MMcf/d to 1 Bcf/d. Fourth, we bring to the table our experience as regards to enhanced oil recovery. For instance, we have fields in Norway now where we have recovery rates at about 70%. That has to do in part to the fact that we have good information on the reservoirs, but it is also due to the engineering. So, when we first started out in these fields, we expected to recover 45-50% of the reserves in place. The 70% recovery rates are due in part to our use of smart wells. So what are smart wells? Your ability to drill horizontally and sort of dedicated at a very precise level. We have cases where we have been drilling these wells some 9km away from the drilling platform. Further, it is the extensive use of 4-D seismic so that we are monitoring the wells on a time dimension which gives us a better understanding of the reservoir performance. Also, it is the way we use different injection techniques. So these combinations have helped us to increase the recovery rates. Fifth, the final strength we bring to Venezuela is our experience as an operator of offshore projects. Statoil is the largest offshore operator in the world in water depths of more than 50m. So it is sort of these five skills that we bring to the table in Venezuela. LP. What is the biggest challenge to producing oil here in Venezuela? TK. It is difficult to give a generic response to this question. Of course it depends on where you are operating ... are you in the Orinoco Oil Belt (Faja) or Maracaibo Lake? So for that reason it is hard to give you a generic response. But in the Faja, clearly the biggest challenge is increasing the recovery rates. That is the key issue in the Faja. We think we can contribute to increasing recovery rates since we have extensive experience in enhanced oil recovery techniques. It should be noted the heavy oil that comes out of the Faja is really heavy oil (8-8.5 degrees API), oil that barely moves. For that reason we have to use dilutes extensively just to get it to move. So the range of responses varies as the challenges vary from place to place. LP. As regards to Sincor and the hot versus cold production issue, could you comment on what Statoil and its partners have seen and learned to date? TK. We were very glad with the announcement made by President Hugo Chàvez some months back when we proclaimed that “Sincor II was born in Paris.” There is a big potential to expand the Sincor project, and one way to do that would be to increase recovery rates, and one way to do that would be through the use of hot production. In my mind, Sincor is the most successful heavy oil project here in Vene-zuela. When you consider that we are able to upgrade a crude oil that is 8-8.5 degrees API in the ground and then being able to sell a product that is between 30-32 degrees API, it is clearly the project that is maximizing the most value in Venezuela. And that is what we wish to continue doing here in Venezuela. Hot production is one of the things we would like to test in Venezuela; today there is no hot production in Venezuela, so it needs to be tested and our engineers believe there is great potential. That is what we are discussing at the moment with the government. LP. What are the biggest challenges and opportunities for the Venezuelan natural gas market? TK. Actually, if we find gas, we see that as more of an opportunity than a challenge. Natural gas is our business. We believe there is good potential to develop a sound and attractive LNG business here in Venezuela. The nation is blessed with natural resources of 148 Tcf of natural gas, and if those figures are right, then off course there has to be potential. LP. So with or without gas, Statoil is committed to Venezuela? TK. Statoil is very committed to Venezuela. We have been here for about 10 years and have invested more than $1bn in Venezuela. When we look upon the opportunity set that is Venezuela, we think there are great opportunities in the country and we continue to look for opportunities. The key thing for Statoil at the moment is getting more opportunities. Statoil Venezuela is willing to invest, we have the capacity to invest, we have the resources to invest … we just need the government to give us more opportunities. LP. What does Venezuela have to do to continue attracting FDI and opportunities for energy companies? TK. Right now, the best and biggest thing they could do is award us projects. The Venezuelan hydrocarbon industry has been undergoing reorganization, and now we need to move from a stage where we all have been looking into opportunities to a stage where we get the real projects. That is really the key. Give us the projects, we have the ideas, we have the concepts, we have the technology, the solutions and the capital, but the government holds the mineral rights. Again, the government needs to award us the projects so that we can move forward. LP. Any closing remarks as it relates to the hydrocarbon industry in Vene-zuela? TK. Statoil has extensive experience in developing natural gas chains. Based on our experience developing natural gas chains and based on our experience in Europe, we want to bring that experience to Venezuela to help the nation develop a successful and profitable natural gas business. Not just for Statoil, but also for Venezuela. That is the key, we have the experience and the technology and are willing to share that with Venezuela. By Pietro Donatello Pitts Daily Journal Staff LatinPetroleum.Com Editor-in-Chief Complete archives at http://www.sitbot.net/ Please let us stay on topic and be civil. OM YAHOO! GROUPS LINKS
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