HUBBERT CENTER NEWSLETTER # 99/3

M. KING HUBBERT CENTER

FOR PETROLEUM SUPPLY STUDIES
M. KING HUBBERT CENTER
Petroleum Engineering Department
COLORADO SCHOOL OF MINES
GOLDEN CO 80401-1887

PETROLEUM POSITIONS OF BRAZIL AND VENEZUELA

L. F. Ivanhoe

Brazil and Venezuela bracket the range of petroleum positions of South American oil
producers. Figures 1 and 2 clearly show the differences between the two nations’
Consumption/Production/Exports/Imports.

BRAZIL (Figure 1)

Brazil has the eighth largest economy of the world. Like any semi-industrialized nation,
there are great differences in income between the rich and poor social classes and different
states/provinces.

Brazil has by far the largest area, population, and economy of South America. It is larger
than the Lower 48 States of the U.S.; its population (160 Million) is approximately 40 percent of
South America’s, and it uses 36 percent of the continent’s oil consumption. Brazilians speak
Portuguese, in contrast to the rest of Latin America where Spanish is the basic language.

Oil Production

Onshore Brazil is not particularly “oily”, much of the country being covered by the
basement rocks of the Brazilian Shield. However, the government has done its utmost in an
attempt to find and develop the country’s oil resources to offset the high cost of importing fuel.
The national oil company Petrobras was formed in 1953. Brazil’s first oil discovery, near an oil
seep, was in 1939 in the onshore Reconcavo Basin north of the port of Bahia. Brazil’s oil future
now appears to be tied to discoveries in ultra-deep (more than 1000 meters/3300 feet) waters in
the Atlantic Ocean. Petrobras now produces most of Brazil’s crude oil from deep-water fields
where the oil production costs are extremely high. The company is probably the most
experienced ultra-deep water operator in the global oil business. However, Brazil’s poverty and
social problems require major economic solutions which conflict with Petrobras’ needs for

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JULY, 1999
All Hubbert Center Newsletter views are those of the individual authors and
are not necessarily those of CSM or its Petroleum Engineering Department
national funds to bring more production onstream from the known deep-water fields. Oil
production in 1998 was 990,000 barrels per day, (1), the second largest in South America after
Venezuela, (Table 1).

Oil development rights have always been politically restricted to Brazilians, with rare
intervals when foreign companies were allowed to have service contracts with Petrobras.
Foreign consultants were hired during the 1950s, and during the 1960s Petrobras continued
active exploration and development programs in most of Brazil’s sedimentary basins. These
efforts were rewarded by the discovery of 55 significant “small to large” fields. The high level
of exploration and development continued into the 1970s with greater emphasis on offshore
activities resulting in much success. After the 1973 Arab oil embargo and four-fold increase in
the global oil price, Brazil met the resulting foreign exchange drain by changing their laws to
allow foreign companies to join Petrobras’search by means of “risk contracts”. In 1975 Brazil
produced 200,000 barrels of oil per day and consumed 835,000 barrels per day. Under the risk
contracts, more than 50 foreign firms spent in excess of $1.66 billion to drill 161 wells during the
1970s and 1980s. Only a very small oil field was found by the foreign investors, while more
than 90 significant fields were found by Petrobras. So the foreign companies moved on. A new
constitution in the 1980s again prohibited foreign investment in petroleum development, so
Petrobras had to continue Brazilian oil and gas operations with little outside assistance. Despite
severe economic problems, Petrobras’development work continues. Financing, in addition to
technology and geology, may become a problem in future production plans, (3).

Oil Consumption

Brazil has always imported oil. The nation’s oil consumption now increases along with
its population – at a faster rate than new deepwater fields are brought on production. The
national oil consumption in 1998 was 1,800,000 barrels per day, (1) so they have to import half
of their oil needs. The costs of the fuel imports strains the Brazilian economic and social
problems. Hyper-inflation was common, and several currencies were introduced during the
1950s and 1990s as the government tried to keep ahead of the economic/social problems
involved with the hyper-inflation. Brazil had to devalue its currency again in January 1999, after
having a relatively stable currency for four years.

Alcohol: Along with attempting to increase oil production, Brazil has made an effort to reduce
oil consumption by encouraging the use of ethyl alcohol as a motor fuel. This effort has
surpassed similar attempts elsewhere in the world, but the cost has been high. Alcohol, which
costs between $50 and $60 per barrel (42 gallon) to produce from sugar cane, is given huge
subsidies to allow it to be priced 30 percent below domestic gasoline. (U.S. gasoline costs
approximately $30 per barrel before taxes.) Since the alcohol program was started in the late
1970s, demand increased to 185,000 barrels per day in the late 1980s, while gasoline utilization
decreased to just over 100,000 barrels per day. In recent years, drivers have preferred to use the
more expensive gasoline because of long-term damage to motor engines burning alcohol as fuel.
The alcohol subsidies reduce the amount that Petrobras can spend on domestic oil development,
(3).

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VENEZUELA (Figure 2)

Venezuela (somewhat larger than the State of Texas) is much smaller than Brazil, with
the fifth largest population (est. 23 million) and the third largest oil consumption of South
America. It is Venezuela’s oil exports (2,950,000 barrels per day in 1997) that set the nation
apart from other American countries (1). Venezuela, a founding member of the Organization of
Petroleum Exporting Countries (OPEC) is one of the world’s major oil producers, and one of the
four largest 1997 oil exporters to the U.S. – (which include: Venezuela, Canada, Saudi Arabia,
and Mexico). Venezuela’s oil consumption (1998 = 475,000 barrels per day) is insignificant
when compared to the nation’s oil production (1998 = 3,335,000 barrels per day).

Oil Production

Venezuela is the only “super oily” nation outside of the Persian Gulf region. A west-to-
east trending branch of the Andes Mountains divides Venezuela’s oil basins into the Maracaibo
basin on the northwest and the Transandean basins to the south and east. All of the basins
produce oil.

Asphaltic residues and oil seeps were used by the Venezuelan Indians long before the
Spanish conquest. Venezuela’s first oil concession was granted in 1866 and in 1878 seepage oil
production was established near Cucuta. Serious interest in Venezuela’s conventional oil
deposits began around the beginning of this century. The 1905 Mining Law made highly
prospective lands available to explorers. Heavy oil was discovered in the Guanaco area of
eastern Venezuela in 1912. The first major commercial accumulation of conventional oil was
discovered in 1914 at the Mene Grande field east of Lake Maracaibo. This field is still
productive. Major production was discovered between 1917 and 1922 in the Bolivar Coastal
Fields along the eastern margin of Lake Maracaibo. By 1926 oil had become Venezuela’s major
export commodity. During the 1930s wood and concrete platforms in shallow waters made
possible the development of oil accumulations beneath Lake Maracaibo. During the 1940s, 36
oil fields were discovered in Eastern Venezuela. During the 1950s, further significant
discoveries were made in the Eastern Venezuela and Maracaibo basins, and the “Orinoco Heavy
Oil Belt” was outlined (4).

In 1960, the Organization of Petroleum Exporting Countries (OPEC) was formed in

response to reductions in prices paid for non-U.S. oil by the foreign (U.S.) oil companies. An
Arab oil embargo was declared against the U.S. which sided with Israel during the 1973 Arab-
Israeli war. This was followed by unilateral OPEC increases in global oil prices. This was the
“First oil shock” which wrecked havoc to oil-importing economies around the world. Oil
producing nations soon declared independence from the international oil companies then
producing their countries’oil, and “nationalized” the oil companies’concessions, operations, etc.
In Venezuela, such nationalization took place on August 29, 1975, whereafter oil production and
marketing rights of Venezuela were turned over to the national oil company Petroven/PDVSA.
PDVSA paid off some of the smaller operators and signed technical service contracts with
several of the major oil companies. As could be expected, Venezuela’s PDVSA’s exports to the
U.S. and the rest of the world were very profitable. This resulted in the euphoric country
borrowing large amounts of money to continue social programs after the global oil price

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collapsed after 1985. By 1989, Venezuela’s foreign debt was $30 billion, while their public’s
social expectations were based on the boom days of 1980. The extra-low price of gasoline
became a “sacred cow” (as in the U.S.).

Orinoco Heavy Oil: Venezuela is the only OPEC nation in the Western Hemisphere, which
makes the country a natural oil exporter to the importing nations of Latin America and to the
great market of the U.S. It has raised or lowered its assigned OPEC oil production quotas much
more faithfully than have the several Arab OPEC nations. In recent years, Venezuela’s PDVSA
and its foreign associates have applied new petroleum engineering techniques (horizontal
drilling, etc.) that have enabled the nation to produce much more of the previously non-
commercial “Orinoco Heavy Oil Sands” as “Orimulsion” (sold by the tanker as boiler fuel to
foreign electric power plants) and as low-grade crude for upgrading in special refineries.
“Declared Reserves” are important to OPEC, because each OPEC country’s production quota is
partly based thereon. Venezuela’s Orinoco non-conventional oil resource was not previously
deemed to be a “Reserve” for OPEC purposes. But after Venezuela added some Orinoco oil to
its “Reserves” in 1987, the various Arab OPEC countries each declared additional (“political”)
reserves to bring the various OPEC quotas back into line with the pre-1987 “Reserve” numbers.
Venezuela’s increase in Orinoco oil production after 1986 is one of the reasons for the 1998
global “oil glut” and low oil prices. The resulting oil glut has decreased the amount of
development capital available around the globe, so new deep-water, etc. fields needing costly
investments to bring them on production are being deferred worldwide.
Table 1 World Petroleum Supply and Disposition, 1996
(Thousand Barrels per Day)
Primary Supply Disposition Bunkers
Region/Country Oil Crude Oil Imports Total Imports Crude Total Exports of Apparent Residual Fuel Distillate Fuel
Production of Refined Oil Refined Consumption Oil Oil and Other
Petroleum Exports Petroleum (Including Products
Products Products Bunkers)
Central & South America
Argentina 805 15 36 324 67 479 7 4
Bahamas, The 0 0 55 0 39 17 3 1
Bolivia 37 0 3 0 5 35 0 0
Brazil 1,014 560 269 2 79 1,718 20 22
Chile 22 160 46 0 1 217 5 0
Colombia 633 0 24 324 65 278 1 3
Costa Rica 0 12 22 0 4 30 1 (s)
Cuba 32 103 69 0 4 192 0 1
Dominican Republic 1 41 34 0 0 78 0 0
Ecuador 406 0 18 241 38 138 8 2
El Salvador. 0 15 17 0 2 30 0 0
Guatemala 13 15 29 13 0 44 0 0
Honduras. 0 0 25 0 0 25 0 0
Jamaica 0 21 42 0 1 62 0 1
Netherlands Antilles 6 266 32 10 227 69 28 6
Nicaragua 0 12 7 0 (s) 19 0 0
Panama 1 51 15 10 9 47 14 7
Paraguay 0 3 16 0 (s) 19 0 (s)
Peru 123 56 29 37 18 153 (s) 1
Puerto Rico 0 59 99 0 12 152 2 1
Trinidad and Tobago 133 41 4 67 89 20 2 3
Uruguay 0 33 12 0 11 34 4 5
Venezuela (OPEC) 3,105 0 11 1,976 669 444 14 13
Virgin Islands, U.S. (s) 405 12 0 330 83 1 2
Other 8 19 65 8 4 81 (s) 14
Total 6,339 1,887 991 3,012 1,675 4,466 110 88
Oil production includes crude oil, natural gas plant liquids, other liquids, and refinery processing gains
.Apparent consumption includes internal consumption, refinery fuel and loss, and bunkering. Also included, where available, are liquefied petroleum gases sold directly from
natural gas processing plants for fuel or chemical uses.
(s)=Value less than 500 barrels per day.
Note: Sum of components may not eaual total due to independent rounding.

Energy Information Administration/International Energy Annual 1997: DOE/EIA-0219(97), Apr. 1999

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Table 1: World Petroleum Supply and Disposition, 1996
Central and South America.

This table is taken directly from the U. S. Department of Energy report: International
Energy Annual – DOE/EIA-0219(97), Apr. 1999. This compilation combines data from several
sources, to present the oil production/consumption/imports/exports of each of the listed nations.
The Table is always a couple of years late due to the complexity of assembling and analyzing the
various data into one table. It is included here to allow direct comparison between the several
factors for each of the nations of the table or other newsletters. The key nations mentioned in
this newsletter are underlined.

* * * * * *

Selected References

1. British Petroleum, 1999; 1998 BP Statistical Review of World Energy, June 1999; BP
Petroleum, Britannic House, 1 Finsbury Circus, London EC2M 7BA, UK.
2. U.S. Energy Information Administration, 1999; International Energy Annual 1997; Report #
DOE/EIA-0219(97), Apr. 1999; Washington DC 20585-0660. (Website =
http://www.eia.doe.gov)
3. Riva, Joseph P., 1989; Brazilian Petroleum Status; Congressional Research Service Report #
89-328 SPR, 21 pp.
4. ---------, 1990; Venezuelan Petroleum: A Source of Increasing U.S. Imports; Congressional
Research Service Report # 90-70 SPR, 36 pp.

The Author: L. F. Ivanhoe

L. F. (Buzz) Ivanhoe, Petroleum Consultant, Ojai, California, is a registered geologist,

geophysicist, engineer and oceanographer with 50 years domestic and international experience in
petroleum exploration with various private and government oil companies. He was associated
with Occidental Petroleum from 1968 to 1980 where he was senior advisor of worldwide
evaluations of petroleum basins from 1974 to 1980. On leaving Oxy, he moved to Santa Barbara
and formed Novum Corp., an international energy exploration consulting firm. Now located in
Ojai, Mr. Ivanhoe is the author of numerous papers on various technical subjects, including more
than 50 on the evaluation of foreign prospective basins and projections of future global oil
supplies. He is the coordinator of the CSM M. King Hubbert Center for Petroleum Supply
Studies.

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 The Oilman’s Column - by L. F. Ivanhoe [1]

FORESEEABLE PERMANENT GLOBAL CRUDE OIL SHORTAGE

A critical date for U.S. and global oil consumption will be when the world’s oil demand exceeds
the global supply. This watershed will occur when the world’s oil production reaches the
“Hubbert Peak”, i.e. when the world’s oil is HALF GONE – NOT when all of the earth’s oil has
been consumed. The question is NOT WHETHER, but WHEN this foreseeable event will occur.
Current estimates of when the Hubbert Peak will occur range from year 2005 by the most bearish
to 2020 for more bullish petroleum geologists. The potential for economic dislocations and
societal upheaval is enormous and fightening. Serious planning by all governments for the
foreseeable energy crisis should be started immediately.

**********************************

M. King Hubbert Center for Petroleum Supply Studies

Colorado School of Mines, Petroleum Engineering Dept., Golden, CO 80401-1887
Quarterly Newsletters - Contents

DATE HCN# Newsletter Contents AUTHOR FIGURES/TABLES

REMARKS

Oct. ‘96 H.C. Dedication Newsletter

# 96/1-1 M. King Hubbert-Obituary 10/17/89 New York Times Photo
96/1-2 Oil Reserves and Semantics L. F. Ivanhoe Fig. 1, 2, 3
96/1-3 Cutting Gas Taxes Will Make Things Worse J. MacKenzie & K. Courrier Fig.1 (Petrol Prices)

Jan ‘97
# 97/1-1 King Hubbert – Updated L. F. Ivanhoe Fig. 1, 2, 3, 4, 5, 6, 7, 8
97/1-2 Cartoons/Quotations Cartoons 1, 2, 3

Apr ‘97
# 97/2-1 A European View of Oil Reserves Colin J. Campbell
97/2-1 Alternative Estimates of Global Ultimate Oil Prod. L. F. Ivanhoe Fig. 1
97/2-2 Quotation Jules Renard Quote 1

July ‘97
# 97/3 U.S. Conventional Wisdom and Natural Gas Joseph P. Riva Table 1

Oct ‘97
# 97/4 How Long Can Oil Supply Grow? Craig Bond Hatfield

Jan ‘98
# 98/1-1 Petroleum Position of the United States L. F. Ivanhoe Fig. 1, Table 1
98/1-2 Petroleum Positions of Canada and Mexico L. F. Ivanhoe Fig. 1, 2

Apr ‘98
# 98/2 Energy and Dollar Costs of Ethanol Production With Corn David Pimentel Table 1

July ‘98
# 98/3 Petroleum Positions of EX-USSR and China L. F. Ivanhoe Fig. 1, 2; Table 1

Oct ‘98
# 98/4 Shale Oil – The Elusive Fuel Walter L. Youngquist

Jan ‘99
# 99/1 When Will the Joy Ride End? A Petroleum Primer Randy Udall & Steve Andrews Figures 9; Table 1

Apr ‘99
# 99/2 Is the World’s Oil Barrel Half Full or Half Empty? It Depends Joseph P. Riva
Upon Whether You are an Economist or a Geologist!

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 H.C. NEWSLETTER

The M. KING HUBBERT CENTER FOR PETROLEUM SUPPLY STUDIES

located in the Department of Petroleum Engineering
Colorado School of Mines
Golden, Colorado

The Hubbert Center has been established as a non-profit organization for the purpose
of assembling and studying data concerning global petroleum supplies and
disseminating such information to the public.

The question of WHEN worldwide oil demand will exceed global oil supply is stubbornly
ignored. The world’s oil problems, timing and ramifications can be debated and realistic
plans made only if the question is publicly addressed. A growing number of informed
US and European evaluations put this crisis as close as the years 2000 - 2014. The
formation of this center is to encourage a multi-field research approach to this subject.

For further information contact:

Hubbert Center Chairman Hubbert Center Coordinator

Prof. Craig W. Van Kirk L. F. Ivanhoe
Head of Petroleum Engineering Dept. 1217 Gregory St.
Colorado School of Mines Ojai CA 93023-3038
Golden CO 80401-1887
Phone 1-800-446-9488 Phone 1-805-646-8620
Fax 1-303-273-3189 Fax 1-805-646-5506
Internet Address: http://hubbert.mines.edu

Notes:
This is one of the Hubbert Center’s quarterly newsletters. Please retain for reference.

The views expressed by authors of Center publications are their own, and do not reflect
the opinions of Colorado School of Mines, its faculty, its staff, or its Department of
Petroleum Engineering.

The Hubbert Center welcomes pertinent letters, clippings, reprints, cartoons, etc.
The Hubbert Center will archive work files of recognized experts in this field.
Contributions to the Hubbert Center through the CSM FOUNDATION INC. are tax-
deductible.
Reproduction of any Hubbert Center publication is authorized.