Venezuela Syncrude Challenging Mideast Oil in U.S.
By Matthew Robinson
JOSE, Venezuela, March 20 (Reuters) - Venezuela's rapidly rising production of foreign-financed synthetic crude is providing the United States with a new stable supply of oil outside the Middle East, according to oil analysts.
Amid concerns over Gulf exports, Venezuela Wednesday formally launched its $4 billion Sincor project, slated to give U.S. markets another 180,000 barrels per day (bpd) of light oil, which analysts say will not count as part of the Venezuelan OPEC quota.
"That crude will come straight to the United States, and directly challenge light Saudi Arabian crude at a time when the market is going to be looking hard for incremental barrels," said Jay Saunders, oil analyst for Deutsche Banc.
The Sincor project comes as analysts worry that OPEC's strict supply caps on low-cost oil could hike energy prices and possible U.S. military action against oil exporter Iraq as part of its war on terrorism might disrupt global oil flows.
President George W. Bush has made diversifying U.S. energy supplies a top priority of his administration. Nations from the politically volatile Middle East, including Iraq, provide over 25 percent of U.S. oil imports and the dependency is only expected to grow in coming years.
With an estimated 300 billion barrels of extra heavy oil reserves - considered too heavy to count toward Venezuela's OPEC quota - the Orinoco tar belt is the largest hydrocarbons reserve outside of the Middle East.
Sincor and three other heavy oil projects will export a total of 420,000 bpd from Venezuela to the United States by next year.
Markets will be seeking oil after OPEC last week said it would keep in place through June a stringent price-supporting deal reached in December, analysts said.
"U.S. refinery runs will probably increase sharply in the second quarter, and if you don't get decent imports, crude inventories could draw at a time when they normally build (ahead of the U.S. summer driving season)," Saunders said.
HEAVY COMPETITION
Growing supplies of unconventional upgraded oil will challenge Venezuela's OPEC partner and cartel kingpin Saudi Arabia and other large Gulf exporters for market share in the United States.
"One thing I think the Saudis understand is the competition of very large reserves," said Amy Jaffe Myers, consultant for the Baker Institute for Public Policy.
Sincor brings together as partners France's TotalFinaElf with Norway's Statoil and Venezuela's state PDVSA,
Two other foreign-backed projects, Cerro Negro and Petrozuata, started up last year and are producing 240,000 bpd of upgraded synthetic crude from the region.
With the completion of the Hamaca upgrader in late 2003, Venezuela will be exporting around 600,000 bpd of synthetic crude, mostly to the United States.
The projects transport the nearly solid 8 to 10 degree API oil from the southeast Orinoco region to the Caribbean port of Jose in northeastern Venezuela for upgrading and export.
The first shipment of Sincor will go to TotalFinaElf's refinery in Port Arthur, Texas, this month. Sincor is expected to hit full production by the end of the year.
U.S. refiner Ultramar Diamond Shamrock Corp., a unit of Valero Energy Corp., has signed a three-year contract to take 45,000 bpd of the new "Zuata Sweet" crude to its Three Rivers refinery near Corpus Christi, Texas.
While analysts and oil companies warn that new oil terms put in place under Venezuela's new hydrocarbon's law may prevent further heavy oil investment, the Ministry of Energy and Mines said the tar belt would provide stable supply for decades.
"We have oil in the Orinoco to last for the next 35 to 40 years," said a Ministry spokesman.
(C) Reuters Limited 2002.
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