The Energy Regulation and Markets Review - Stikeman Elliott

Venezuela
Most of the gas destined for the market is produced by PDVSA, with few exceptions
that include Yucal–Placer Norte, Barrancas Block and Quiriquire Deep. Several factors
affect gas supply in Venezuela, including the important fact that the associated gas
depends on the fluctuations of the oil business. The geographical conditions also affect
supply, since the production of gas available for the domestic market is concentrated in
the eastern region, and the western region has a gas shortage, as previously detailed; not
to mention PDVSA’s influence as sole supplier of the gas industry. Finally, the price of
gas at the wellhead for producers is not high enough to create an incentive.
Oil has widely taken priority in the Venezuelan energy matrix, followed by the gas
industry. Hydroelectricity takes the third place in production terms, while coal remains
in a lowly position. Gas demand is affected by the domestic market, as all gas produced
in Venezuela is allocated to this group of consumers.
The domestic market in Venezuela is composed of the oil industry, the industrial
sector, and the electric, petrochemical and residential sectors. Throughout the past
decade, the oil industry has retained its position as the greatest consumer, followed by
gas power generation, the industrial sector and the petrochemical sector. The residential
sector is consolidated with a minimum percentage compared with total production.
The transportation stage is likewise controlled by PDVSA, which owns more than
4,000 kilometres of pipeline for the transportation of gas. The effect of the government’s
regulation of this sector has largely affected the price variables, hindering it from
achieving further development.
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RENEWABLE ENERGY AND CONSERVATION
Even though Venezuela has 2,718 kilometres of coastline with wind speeds blowing at
an average of 8.9 metres per second, which could easily host large-capacity wind power
generation systems, renewable energy developments have largely been ignored due to the
focus on oil and gas production.
Only one project in the Paraguaná peninsula of the state of Falcon has progressed
to the first stages, financed by PDVSA. The potential for private investment has been
discussed as many agree that only through private investment will Venezuela speed up
to match the pace of other Latin American countries, where many projects are already
being developed. Allowing private investment for renewable energy projects would be
a strategically wise decision for the Venezuelan government, as it would be able to sell
more of its oil to the international markets rather than using it for domestic purposes.
The installation of a renewable energy infrastructure will not be an easy task for
a country that has not yet developed a regulatory framework for the matter or attracted
the proper investment, making it more of a long-term solution.
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THE YEAR IN REVIEW
As we discussed, the migration processes to JVs gave rise to several conflicts, including
the case initiated by Mobil Cerro Negro Ltd before the ICC in New York in 2008 and
the Exxon claim against Venezuela, initiated in 2007 before ICSID in Washington, DC
– one of the most relevant cases brought against PDVSA.
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