"Science is facts; just as houses are made of stone, so is science made of facts. But a pile of stones is not a house, and a collection of facts is not necessarily science." Jules Henri Poincaré, 1905
Citizens of the world are inundated with real-time, global happenings on a near-continuous basis. Social media and news sources flood our smart devices with all kinds of 'information'. But, is this information based in fact? Or is it speculation, heresy, invention, fabrication or mis-information? To weed through the justification of the events which have occurred in Venezuela in December, we in the Den wish to share only the facts as we know them about Venezuelan oil. Given our experience in and work history at an international petroleum exploration company, we can speak from a position of first-hand knowledge.
The top five countries with the largest proven, recoverable petroleum (crude oil) reserves are: Venezuela, Saudi Arabia, Iran, Canada, and Iraq. Though rankings vary slightly by source, Venezuela is first, followed by the Middle Eastern giants and Canada, (their reserve holdings are in tar sands).
Reserve volumes: Venezuela: 300 billion barrels, recoverable. Saudi Arabia: 267 billion barrels, recoverable. Iran: 208.5 billion barrels, recoverable. Canada: 170 billion barrels, recoverable. Iraq: 145 billion barrels, recoverable. For reference, the US has 35 billion barrels of estimated recoverable reserves.
Whoa, those are some big numbers. For reference, the world consumes about 100 million barrels of oil a day (one barrel = 42 US gallons or 159 liters) What do these large reserve numbers tell us? Absolutely nothing.
These data lack information about many critical aspects of petroleum reserves. The most important of which is the definition of recoverable. Recoverable means the reserves in the ground can be economically removed and transported to refineries. In most instances between 5-35% of total reserves are recoverable with conventional means.
Other critical factors are: where the oil is/geographic locale, what type of reservoir holds the reserves, what kind of oil make up these reserves, how many wells would be needed to recover the reserves, what are the costs of exploration/exploitation/extraction/refining, where are the reserves - in depth to reservoir and distance from market, how easy is it to transport, what are the geopolitical risks to recovering the oil and/or overall stability of the country/risk of naturalization of foreign investments/loss of investment?
Let's answer the questions above with the facts, by comparing the top two recoverable reserve holders: Venezuela and Saudi Arabia. Hopefully this will provide our subscribers with some food for thought when listening to information about Venezuela.
In Saudi Arabia, the majority of their 10.5 million barrels/day of production comes from the largest onshore oil field in the world: Ghawar Field, which produces 3.8 million barrels/day. Ghawar covers 3200 sq. miles (8400 sq. kilometers), the oil produced is from a highly-porous Jurassic (~185million years old) limestone reservoir. Ghawar is a structural reservoir - a huge uplifted fold in the rocks called an anticline (imagine an upside down soup bowl). The oil is sourced from rocks immediately below the reservoir. The overall geology is fairly simple, making exploration and exploitation easy and low cost. The oil produced is very high quality and considered 'light to very light' and 'sweet'. This means the produced oil has a low-density (it is a light thin liquid, easy to move through pipelines and has a very low sulphur content, making it easy and low-cost to refine into valuable products: gasoline, diesel and jet fuels. The Saudi reserves are held by Saudi-Aramco - the national oil company. The field was discovered by a consortium of Standard Oil of California and Arabian Standard Oil (CASCO) in 1938. In 1943, the company changed its name to ARAMCO (Arabian-American Oil Company). In 1988, the Saudi Arabian government purchased all the shares of ARAMCO, thus creating Saudi-Aramco.
The large Venezuelan reserves are found in the Orinoco tar sands which produce approximately 1.3million barrels/day. The Orinoco petroleum region covers 21,357sq. miles (55,314 sq. kilometers) of onshore and offshore northern Venezuela. Oil/tar are produced from a series of thick Miocene (~15-5 million years old) deltaic sand deposits. The oil is trapped by overlying shale above the porous sands. The oil was derived from Cretaceous (~100 million years old) source rocks. The source rocks for the Orinoco is over 300 kilometers away from the location of the reservoirs. The long-distance the oil had to migrate contributed to its degradation. This explains the oil's very low quality; it is a mix of very 'heavy' crude to semi-solid tars and asphalts which are considered 'sour' to 'very sour', meaning the Venezuelan crude is so heavy it will not flow up convention wells to the surface or through pipelines (it has the consistency of cold peanut butter). It is very high in sulphur and thus corrosive to metals, making the crude sour and difficult to refine. At the current time there are only 9 major refineries in the US Gulf Coast and 2 in California; as well as, several in Venezuela which can process this crude. The high-viscosity (thickness of the liquid) requires steam injection down wells to melt the crude in the reservoir before being able to lift it to the surface and it requires the addition of thinning agents (e.g. naphtha) to facilitate the flow of crude through heated-pipelines. Refineries, able to manage this poor quality crude, use a complex chemical process to 'crack' the crude into sulphur-based fertilizers, sulphuric acid byproducts and heavy asphalt. The composition limits the output of highly valued fuels (gasoline, diesel and jet fuel). The Orinoco reserves were discovered by Exxon (Standard Oil of New Jersey) in 1936. Exxon/Mobil was nationalized in 2007 and their surface and subsurface assets seized by the Venezuelan government. Reserves are now held and produced by various Venezuelan Nation Oil Companies, with a minor interest still controlled by Chevron (Standard Oil of California). The primary purchaser of this poor quality crude is Cuba.
Given the above comparison, one can see the problems with understanding the value of the recoverable reserve data. Yes, Venezuela has a lot of estimated recoverable reserves, but at what cost? Given the difficulties in production, poor crude quality, low daily production rates, expensive and difficult refining needs, and overall risk of continued nationalization by the Venezuelan government: the bulk of the estimated 300 billion barrels of recoverable reserves will not likely be produced in the near term. Most of the production infrastructure is obsolete and degraded due to misuse/abuse, degradation from the sulphur-rich crude, sabotage and local unrest. Re-establishing production will require large investments of the poor quality product for limited economic returns.
With crude prices at a near-record lows, even for the best crudes (Malaysian Tapis, Saudi Arab Super-light, US-Bakken, Norwegian Troll, Australian Gippsland Condensate, Azerbaijan Azeri light, West Texas Intermediate and North Sea Brent Crude), 'drill, baby, drill' is not something most major oil companies will undertake in a highly-volatile, politically-unstable country with extremely poor crude quality. (Getting Venezuelan Oil is not Easy) (Heavy and Sour Means Its Hard)
