OPEC's latest figures have Venezuela as the country with the biggest proven crude oil reserves ahead of Saudi Arabia. But analysts said Wednesday it's an increase largely on paper and unlikely to lead to changes within the organization or affect oil markets
Venezuela's proven crude reserves have risen to 296.5 billion barrels, surpassing Saudi Arabia's more than 264.5 billion barrels, the Organization of Petroleum Exporting Countries said in its annual statistical report issued last week.
"I don't necessarily think it's going to change the fundamental dynamics at OPEC," said Jason Schenker, an energy analyst and president of Austin, Texas-based Prestige Economics LLC.
He and other analysts said Venezuela's reserves have apparently grown by including more of the country's unconventional extra-heavy crude, which is much more difficult and expensive to extract from the ground and to process than oil found elsewhere.
Schenker said that while Venezuela's reserves are "going to be critical for global oil supplies in the future, processing this oil into usable products is likely to be at a more expensive point in the cost curve than a number of crudes produced by different OPEC member states." "The Saudis have power right now because they're the ones who have the spare capacity to produce more," said Schenker, who closely follows OPEC for his management consulting and market research firm.
Venezuelan President Hugo Chavez said in January that the country had dramatically increased its oil reserves, saying it had surpassed Saudi Arabia. The amount of reserves now recognized by OPEC is a 40 per cent increase over the 211.1 billion barrels Venezuela claimed at the end of 2009.
But experts have been leery, saying that the new figures are inflated and that Venezuela's oil industry is suffering serious problems.
The U.S. Energy Information Administration still considers Saudi Arabia to have nearly 50 billion barrels more in proven oil reserves than Venezuela.
Some analysts say extra-heavy crude like Venezuela's would normally be withheld from a country's official reserve count and relegated as "unconventional" oil like the Canadian oil sands and U.S. shale oil.
"It doesn't flow the way regular oil flows," said Michael Lynch, president of Strategic Energy and amp; Economic Research in Winchester, Massachusetts.
"If you transport the stuff, you have to be careful it doesn't turn solid." Lynch said the new ranking was simply "an accounting thing" that has little practical use for oil markets.
"If you were an oil company, you wouldn't be able to book (heavy crude) as part of your reserves," he said.
Independent analyst Andrew Lipow agreed: "It's not like they discovered a big huge new field."
Besides, what matters most is how much oil Venezuela can produce. While the state oil company says production remains at about 3 million barrels a day, OPEC says Venezuela's daily production was about 2.85 million barrels a day last year, and some analysts say output is actually lower and has been declining.
During Chavez's government, there has been upheaval in the oil industry since thousands of managers and employees were fired after a 2003 anti-government strike.
Chavez has also increased state control over the oil sector, nationalizing projects that used to be run by private businesses under contracts.
Venezuela has continued to work with multinational companies like Chevron Corp. and Italy's ENI under agreements in which the foreign companies have minority investment stakes.
Experts say Venezuela's efforts to develop its vast heavy crude reserves in the Orinoco River region will require significant investment, technology and know-how in order to take full advantage of the wealth locked up underground.
How Venezuela fares will depend in part on "the commitment the government makes to developing these assets and partnering, and what concessions they're willing to make in that process in order to increase production," Schenker said.