VENEZUELA - The Gas Sector.

Venezuela has 152 TCF of proven gas reserves, the second largest in the Western Hemisphere behind the US. In 2006, the country produced and consumed 1 TCF of natural gas. About 90% of Venezuela's gas reserves are associated. According to Enagas, the state regulator the gas sector, the petroleum industry consumes over 70% of Venezuela's gas production, with the largest share going into re-injection to aid crude oil extraction.

In 1999, Venezuela adopted the Gas Hydrocarbons Law, which opened all aspects of the gas sector to private investment. Its goals include development of gas resources, especially non-associated fields; expansion of the domestic gas transport network, creation of a general distribution system; promotion of gas export projects; and increased consumption of gas by the power and petrochemical industries. The law allows private operators to own 100% of non-associated gas projects, a sharp contrast to the ownership rules in the oil sector (see Gas Market Trends).

In recent years, Venezuela has improved its domestic gas transport network to allow greater domestic use and movement of gas production. The Interconnection Centro Occidente (ICO) connects the central and western parts of the country, making gas more easily available to domestic consumers and for re-injection into the western oilfields.

Colombian President Alvaro Uribe and his Venezuelan counterpart Hugo Chavez on Oct. 12 inaugurated a 224-km gas pipeline which links Colombia's Caribbean coast and the Venezuelan city of Maracaibo. State-owned Ecopetrol and its partner Chevron began pumping 50 MCF/d gas from the Ballena field in the northern tip of Colombia in La Guajira province to Maraicabo. Ecopetrol and Chevron will raise exports to 150 MCF/d in 2009 and 2010, and then reduce them to 100 MCF/d in 2011. PDVSA is using the gas by injecting in its oil reservoirs. Venezuela uses gas in its petrochemicals industry. In a speech Chavez on Oct. 12 said: "This gas of Colombia, as far as we know will last for five years. Then there won't be more gas there, though we hope they'll find more...but at that time we will be in a position to send gas to Colombia".

Venezuela needs to import gas despite its own huge reserves because it lacks infrastructure and sufficient investment in natural gas output. After 2011, PDVSA intends to sell 150 MCF/d of gas to Colombia for 16 years through the pipeline. The pipeline has a capacity of 500 MCF/d. PDVSA, which built and is operating the pipeline, spent $467m on this.

The oil sector is of central importance to the Venezuelan economy: it accounts for more than 75% of its total export revenues, about half of total state income, and around a third of GDP. Venezuela was a founding member of OPEC.

PDVSA must spend heavily each year just to maintain production levels at existing fields, as most of them suffer an annual decline rate of 20% (see OMT). Affecting PDVSA's ability to meet its investment goals are the increasing demands placed on its finances by the Caracas government for social projects. In 2004, the government set up a special development fund to finance infrastructure projects throughout the country; PDVSA supplies billions of dollars per year directly to this fund. PDVSA funds additional social programmes directly from its budget. These Chavez priorities divert billions of dollars per year away from oil-related activities. Along with these directly-administered programmes, PDVSA pays billions of dollars each year to the government in the form of income taxes and royalties.