ENI & Repsol Await Venezuela Gas Project Go-Ahead

Source: Reuters 10/4/2011, Location: South America

Italy's ENI and Spain's Repsol are waiting for Venezuela to approve the extraction of gas from a field that has the biggest deposits found so far off the OPEC nation, sources close to the project told Reuters.

South America's biggest oil exporter is focused on developing its fledgling natural gas industry to generate power and help address electricity shortages that triggered power rationing across the country last year.

Amid delays and setbacks to other offshore development plans, ENI and Repsol completed their exploratory phase at the Cardon 4 block last year with the certification of more than 15 trillion cubic feet (tcf).

The government says it has the ability to produce 2,500 million cubic feet per day, almost as much gas as the domestic market in Venezuela consumes.

"We're still not at the infrastructure stage," a source at one of the companies told Reuters.

"We have agreed the tariff and we are negotiating with (state oil company) PDVSA about what component of it will be in bolivars and how much will be in dollars while we wait for the declaration that the project is commercial."

Venezuela's currency complexities including strict exchange controls, restricted access to hard currency and a tiered rate for converting local bolivars, provide headaches for most foreign companies operating in the country.

Once the government has declared the project commercial, the two companies will partner with PDVSA to exploit the block with investments estimated at more than $4.5 billion.

Another source close to the talks said the tariff was higher than $3 per million British Thermic Units, which is close to the international price. The project's profitability will depend on how much is paid in local currency.

"We are happy with the tariff," said the first source. "Now we are just missing the agreement on how it will be paid."

The source added foreign companies operating in Venezuela were wary after a senior PDVSA official said last week that the government was freezing its liquefied natural gas projects because the gas was needed domestically, and low prices did not support the cost involved.

Cardon 4 includes the promising Perla field, which would be the first offshore area to be exploited in Venezuela.

Early production from the project is estimated to be 80 million cubic feet per day and to begin in October 2012.

The country sits on some of the world's largest gas reserves, which the government says amount to more than 195 tcf. But it has yet to begin producing any commercial gas and instead imports supplies from Colombia.


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