GEOL 476 Term Paper

The Cursed World’s Largest Oil

Reserve: Orinoco Oil Belt

Prepared for Dr. Sawyer

By: Abhishek Ray
4/30/18
Introduction

It all started with the with the massive prices in oil in the late 2015, that Venezuela which holds

the world’s biggest oil reserve started seeing possibly the worst crisis in its history, worse than the Great

Depression. Oil revenue went up in favor of Venezuela's economy under the now dead President Hugo

Chavez. When oil was flying high at $100 a barrel, tons of cash flow from the state-owned petroleum

company and were directed off for social programs and food subsidies. Situation was different when oil

prices plummeted, all those inflated subsidies became unsustainable. Plummeting oil prices resulted in

less foreign currency to import from foreign. Venezuela's imports went down by 50% from the previous

year, according to Ecoanalitica, a national research firm. Now there is a grave critical shortages of live

supporting imports, such as vital medicines(CNN, 2017).

Venezuela’s biggest source of exports came from oil accounting for more than 95% of it’s

exports which allowed them to have a rich cash flow which Venezuela’s ex-president, Hugo Chavez used

to fund the basic needs of the

poor population. After his death,

Maduro was sworn in to be the

new president. Given the

situation of the country, there

have been tries to overthrow his

govt.

Figure 1 This graph shows the declining cash reserve of Venezuela

Figure 2 The graph shows the drop-in oil revenue compared to the skyrocketing inflation. Since

Venezuela's was so dependsnt on oil revenue, basic necessities were hard to produce.

Geology of the Orinoco Oil Belt

The Orinoco Belt has one of largest deposits of extra heavy crude in the whole world. It holds

about 1,200 billion barrels, found majorly in the Orinoco Petroleum Belt, which is estimated to

approximately equal the world's reserves of lighter oil. The Orinoco Belt is currently divided into four

exploration and production areas. They are namely: Boyacá (before Machete), Junín (before Zuata),

Ayacucho (before Hamaca), and Carabobo (before Cerro Negro). The current exploration area is about

11,593 square kilometres (4,476 sq mi) (Talwani,2002) .

It started when North America parted from Gondwanaland during the Late Triassic to Early

Jurassic times, the northern seashore of South America was created. This margin shifted away as

sediments were placed on it. Some of these sediments were organic rich and it happened during the

Middle Cretaceous period. It was in the La Luna Formation and Quarequal and San Antonio Formations
in the Eastern Venezuelan Basin that contained most of the organic matter that had most of the oil and gas

in this region(Talwani, 2002).

It was followed by when the there was a “oblique collision” and the eastward movement of the

Caribbean Plate against the South American Plate. It happened in Eocene but was concentrated during

the Miocene and it happens till present. Thrust belts were created as a result, which were uplifted and

then eroded. South of the thrust belt lay the fore deeps, which got a lot of amounts of sediments and

created the deep sediment filling up the Eastern Venezuelan Basin. Further south flexural, isostatic uplift

led to the elevation and subsequent erosion of the ancient Guyana shield. Eroded sediments were further

transported by north flowing rivers into the Eastern Venezuelan Basin. The sandstone deposits thus

formed are of Early Tertiary age and are represented principally by the Mercure and Oficina Formations

and their equivalents. These formations contain the bulk of the oil in the Heavy Oil Belt(Talwani, 2002).

The orogenic activity and the loading of sediments in the Eastern Venezuelan Basin helped raise

the temperatures and gave rise to a complex process of “cooking” of the organic rich sediments (known as

source rocks). The cooking proceeded from north to south in the basin, and the oil that resulted from the

cooking, migrated up dip a few hundred kilometers to the southern margin.

It now resides in reservoirs there and forms the Heavy Oil Belt. It is interesting to note that the

original organic matter in these reservoirs is immature and that there is no oil left in the source rocks

where it originated, but the migrated oil has found a home in these reservoirs far from the source beds.

These reservoirs can then be exploited for the vast quantities of oil in them. During the migration, other

changes took place in the oil. The lighter fractions in the oils evaporated - that together with microbial

activity (which was aided by meteoric waters that carried oxygen to support the aerobic bacteria) turned

the light oil into heavy oil (Talwani, 2002).

 The belt is in the south

eastern part of

Venezuela and it

stretches 437.5 mi. The

oil that comes out of

here rates at 4 to 16

degrees API and

viscosity 2,000 to 8,000

Figure 3 This map shows the location of the Orinoco Oil Belt. The whole belt is divided into 4 centipoises.
production zones: Machete, Zuata, Hamaca, Cerro Negro(Talwani, 2002).

Figure 4 The stratigraphic column shows the two oil containing formations circled in red (Talwani,

2002).
History of Venezuela from the lens of oil

Oil was known to be in Venezuela long before the Discovery of the Americas in 1492. Native

Americans knew of hydrocarbons because they appeared on the surface of their lands. They used them for

medicinal and illumination purposes. They collected oil from small creeks near seepages by impregnating

blankets and then wringing them out. They also found asphalt, and they used it for caulking their canoes

and impregnating the sails of their boats (Alvrez, 2005).

In 1499 Spanish conquerors were impressed with the natural occurrences of hydrocarbons in

Venezuela. They learned from Indians to use them for medicinal purposes. They also used it for caulking

their ships, illumination and lubricating their weapons.

On September, 1535, Gonzalo Fernandez de Oviedo y Valdes for the first time mentioned

Venezuelan oil seepages in his “General and Natural History of the Indies”. He called it “the nectar from

Cubagua” describing this substance as very useful to treat gout and other diseases (Alvrez, 2005).

In September of 1536, the Queen of Spain, Joanna, ordered officials who were in charge of Nueva

Cadiz in Cubagua Island, to bring to Spain as much as possible “oil petroleum”. So in 1539 the first

documented shipment of petroleum was sent to Spain in the Santa Cruz ship. The main reason for the

Queen’s request was to alleviate the gout of Emperor Charles V.

By 1783, King Charles III of Spain dictated the Mining Ordinances for New Spain where mines

were declared property of the Royal Crown, although the King can grant mining concessions. This included

“any other fossils, be they perfect or semi-minerals, bitumens, or juices of the earth” (Alvrez, 2005).

After the Independence of Venezuela in 1811, Simon Bolivar, the Liberator and President of the

Great Colombia, dictated a decree in Quito where he reiterated the national ownership of mines of all kinds.

Two years after Simon Bolivar’s death in 1830, Bolivar’s decree was ratified by the Venezuelan Congress.
 Meanwhile around the world, James Miller Williams began producing oil from shallow holes at

Oil Spring, Ontario, Canada in 1858. One year later, Colonel Drake completed the first oil well in United

States.

Later in 1878 in Venezuela, the first oil company was founded called “Compania Nacional Petrolia

del Tachira” by Antonio Pulido. He asked the government to explore a 100 hectare parcel in the Venezuelan

Andes. At the beginning, the oil was collected in buckets, but in 1880 they began to drill wells with a

drilling rig imported from Pennsylvania(Alvrez, 2005).

In the next thirty years concessions were granted to small entrepreneurs and foreign companies to

explore asphalt in Zulia State and other small regions of the country. At that time, Venezuela was known

more for its agricultural production than for its oil production. In fact, Venezuela was an underdeveloped

country with several political problems(Alvrez, 2005).

In 1908 General Juan Vicente Gomez took power to become the strongest dictator of the 20th

century with 27 years in office. He opened the gate to foreign oil investors. In 1909 he granted to John

Allen Tregelles, a British company representative, the rights to explore twelve of the twenty states of

Venezuela. John Allen Tregelles founded a company called “The Venezuelan Oilfield Exploration

Company” which had a lease of approximate of 27 million hectares. However, in 1911, Gomez revoked the

concession because it was not giving him enough revenues and royalties(Alvrez, 2005).

Later Gomez gave almost the same concession to Rafael Valladares who formed the Caribbean

Petroleum Company. This company made several million dollars exploring oil and asphalt on the Lake of

Maracaibo. In 1913 the concession was transferred to a British-Dutch operator, the Royal Dutch-Shell Oil

Company. This was the beginning of the modern economic history of Venezuela.

World War I was the trigger introducing Venezuela into the world oil market. After 1919, the

investment and the exportation of Venezuelan oil increased tremendously. By 1922, Venezuela became an
important supplier of oil in the world, and biggest reserves of oil were discovered in the Lake of Maracaibo.

During World War II Venezuela was the most secure provider of oil to the United States.

In September, 1960, The Organization of the Petroleum Exporting Countries (OPEC) was created

in Baghdad, Iraq. The countries that formed the organization at that time were Iran, Iraq, Kuwait, Saudi

Arabia and Venezuela. Then eight other members joined the organization: Qatar (1961); Indonesia (1962);

Socialist Peoples Libyan Arab Jamahiriya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria

(1971); Ecuador (1973–1992) and Gabon (1975–1994). As it was mentioned in the OPEC declaration of

1960, “OPEC's objective is to co-ordinate and unify petroleum policies among member countries, in order

to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of

petroleum to consuming nations; and a fair return on capital to those investing in the industry”.

Although OPEC was created in 1960, it was not until 1973 when OPEC became powerful and

started to set the oil’s price. Also, their members took control of their domestic petroleum industries, so the

price of oil produced and exported was determined by the OPEC members. At the same time, in the 1960’s

Venezuela implemented a policy of “no more concessions” which was the beginning of the nationalization

of the oil industry(Alvrez, 2005).

In January 1, 1976, President Carlos Andres Perez signed the law that reserved the government the

industry and the commerce of hydrocarbons in Venezuela. The same day “Petroleos de Venezuela S.A.

(PDVSA)” (Oils of Venezuela) was born as the company in charge of planning, coordinating and

supervising the oil industry(Alvrez, 2005).

 Figure 1. Venezuelan Oil Field

During its first year, PDVSA began operation with its three affiliates called Lagoven, Maraven and

Corpoven. That year PDVSA produced 2.3 million barrels per day of oil and the investments were

multiplied by four.

In the 1980’s, PDVSA was considered as a reliable oil supplier, and it was consolidated as one of

the most important oil companies around the world. In the middle 1980’s, PDVSA began to buy refineries

in Europe, United States and the Caribbean. Specifically, it started operations in Ruhr Oel (Germany),

Nynas (Sweden and Belgium) and Curacao Island(Alvrez, 2005).

Moreover, in September, 1986, PDVSA bought Citgo, in Tulsa, United States, which became be

the most important way to sell hydrocarbons in the US. Currently, Citgo has more than a thousand gas

stations and occupies more than 20% of gasoline market in the U.S.

In the 1990’s the company started a program of operation agreements that gave the opportunity to

foreign companies to explore and produce oil in inoperative oil fields. At that time more than 20 companies

around the world applied for these agreements. Between 1993 and 1996 PDVSA began the first three rounds

of operation agreements. This brought an investment of more than 2 billion dollars and increased the oil

production by 260,000 barrels per day.

 In January, 1998, the three affiliates that formed PDVSA for more than 20 years, Lagoven, Maraven

and Corpoven, merged. The main goal was to create company with a unified goal to generate the highest

revenues. Consequently, three divisions were formed PDVSA Exploration and Production, PDVSA

Manufacture and Marketing, and PDVSA Services.

Currently, Venezuela has proven reserves of 78 billion barrels of Crude and 148 trillion cubic feet

of Gas. This puts it as the country with the largest hydrocarbon reserves in the Western Hemisphere, and

positions it as the 5th country in the world in proven reserves. With the Orinoco Belt reserves, the country

possesses the largest accumulation of liquid fuel on the planet(Alvrez, 2005).

PDVSA has a production capacity of 4 million barrels per day (BPD); actually its production

exceeds 3 million BPD and 8.81 billion standard cubic feet/day of gas. Also, PDVSA is among the leading

corporations in the refining business, with a petroleum processing capacity of 3,285,000 BPD (1,285,000

BPD in Venezuela and 2 million BPD outside the country) through 24 refineries: six complexes in

Venezuela, one in the Caribbean, eight in the United States and nine in Europe.

Moreover, PDVSA generally exports 93% of its total hydrocarbon production. Approximately 54

% of these hydrocarbon exports go to the U.S. and Canada. Just to the U.S. PDVSA exports 1.5 million

BPD. In 2010, PDVSA is planning produce 5 million barrels per day of oil with an investment of more that

43 billion dollars from private and public sectors.

Production of the heavy oil

Heavy oil is difficult to produce because of its high viscosity and it is expensive to refine because

of its high sulfur and metal content. We deal here only with difficulties related to production. Two kinds

of methods have been used for producing the oil in the Heavy Oil Belt- methods that employ steam and

those that employ diluents.

Steam can be used in the Steam Stimulation (“Huff and Puff’) methods or by Steam Flooding. In

the Steam Stimulation method, steam is injected into the reservoir for a period of several weeks. The well
is then allowed to flow back and then pumped. Several cycles of Steam Stimulation are carried out until the

volume of oil that is recovered relative to the volume of steam that is injected is not cost effective. This

method enables rapid recovery of oil at the outset but generally limits the oil recovered to 15%, and

therefore, is not a very good method for total recovery of oil from a field, but it has been widely used in the

past in Venezuela(Talwani, 2002).

In Steam Flooding, steam is injected continuously into injection wells and produced continuously

at production wells some distance away. Steam Flooding is generally carried out in “patterns”; a typical

pattern consists of a central injection well and eight surrounding wells located at the corners and the middle

of the sides of a square surrounding the injection well. The dimensions of the square vary with the depth of

the reservoir; the deeper the reservoir, the bigger the square(Talwani, 2002).

This method works well when there is uniform permeability in the reservoir. Where the

permeability is different in different directions from the injection well, much wastage of steam can occur.

Temperature monitoring wells within the pattern can help to monitor the advance of steam in different

directions and on the basis of temperature information gathered; additional producing wells can be located.

Recently a remote sensing technique- time-lapse gravity gradiometry has been suggested by Talwani et al.

This technique utilizes measurements of gravity gradient on the surface of the field at time intervals,

generally of several months to monitor changes in the gravity field due to replacement of oil by steam. This

procedure serves to monitor the location of the steam oil interface. A variation of the steam flooding

technique is the SAGD (Steam Assisted Gravity Drainage) method in which steam is injected through

horizontal wells. Parallel producing wells are placed below the injection wells. Both kinds of wells are

placed near the bottom of the reservoir. Steam raises from the injection wells, making the oil above it more

mobile. Gravity assists in draining the oil and condensate through the production wells(Talwani, 2002).

The current projects in the Heavy Oil Belt use a different method for producing oil. They make use

of the fact that even though the oil is heavy, it is still mobile in the reservoir because of the existing

temperatures there. Oil is produced by employing down hole pumps to pump the oil to the surface where it
is diluted with a very light oil and then piped to an upgrader located on the Venezuelan coast. At the

upgrader the heavy oil is upgraded to lighter oil and the diluent is returned to the wellhead and recycled.

The upgraded oil known as “Syncrude” has higher API gravity and is generally classified as Medium Grade

oil and is easier to transport and refine(Talwani, 2002).

Conclusion

Although there are many technological and political challenges in Venezuela to tap into all its

natural resources, Maduro should first investigate diversify and not “put all his eggs in one basket”. The

over dependence is making them very vulnerable. Venezuela is the largest oil reserve known to mankind.

Letting such a vast resource go down the drain due to negligence, corruption and dirty politics is a shame.

It’s ironic that the oil had been a boon for the citizens of Venezuela and now it’s the same oil that has

wrecked their lives. Oil is such a political resource for countries that it should be managed at all cost because

it running out of sync causes major impact over the whole world as allies and adversaries come into the

picture too. Conflict in the region magnifies due to unemployment, rise in crime as the citizens are overly

frustrated possibly giving rise to something like the Arab Spring in the middle east. Also the major

technological advancement that is being missed out of due to the loss of operations is also a problem that

hurts in the long run. Sudden shift in emotions over citizen’s leader in this day and age of social media is

also poisonous. Media needs to paint the honest picture to the people of the country rather than just

spreading propaganda which does no good. And as we slowly trying to transition into renewable forms of

energy, we don’t need such friction in the industry that’ll make things go downhill. Other OPEC countries

flexing their muscle to drive US out of the market hurt one of their own members in a way which is why

any form of conflict is harmful for the buyer or seller of crude oil.
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