The Rising Influence of Rising Affluence

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Spain’s Repsol Says It Makes Venezuela’s Biggest Gas Discovery

By Steven Bodzin and Daniel Cancel

Sept. 12 (Bloomberg) -- Repsol YPF SA, Spain’s biggest oil company, discovered a Venezuelan gas field containing as much as 8 trillion cubic feet of fuel, one of the world’s largest finds.

The field’s potential gas resources would be enough to supply Spain for more than five years, the company said yesterday in an e-mailed statement. Venezuelan President Hugo Chavez and Repsol Chief Executive Officer Antonio Brufau discussed the find in Madrid yesterday, the company said.

“Given that Repsol was initially expecting reserves seven to eight times less than this, until we see confirmation that this is the size of the discovery, I don’t think it’s time to toot Repsol’s horn,” said Patrick Esteruelas, a Latin America risk analyst with Eurasia Group in New York.

Repsol wants to boost oil and gas production through new finds off the coasts of Brazil and Venezuela after four years of declining output. A “challenging” operating and contractual environment in Venezuela make it difficult to develop new gas reserves, Esteruelas said yesterday in a telephone interview.

“The Venezuelan government remains insistent that any new gas developments should be directed to the heavily subsidized price in the domestic market,” he said. “Venezuela is still running a gas deficit and will use any new production to plug that deficit. That’s a massive stumbling block to successive gas development.”

Venezuela has 174.9 trillion cubic feet of natural gas reserves, the largest in South America. The country had 2.6 percent of the world’s proved natural-gas reserves in 2008, or the world’s ninth-largest reserves, according to BP Plc.

PDVSA, Repsol, Eni

In the development phase of the Venezuela field, known as Cardon IV, state-owned Petroleos de Venezuela SA will have a 35 percent stake in the project, with Repsol and Eni SPA retaining a 32.5 percent stake.

Repsol’s American depositary receipts, each worth one ordinary share, gained 26 cents, or 1 percent, to $25.87 yesterday in New York.

Most of the country’s gas can be produced in combination with crude oil. Venezuela’s oil output has declined since 1998, prompting it to import gas from Colombia.

Repsol is also a partner in Brazil’s Guara oil field, which may contain 2 billion barrels of oil.

Venezuela is seeking to expand gas output and become an exporter of liquefied natural gas, or LNG.

“Repsol wants to produce LNG,” Diego Gonzalez, president of natural-gas consultancy Paradigmas XXI in Caracas, said in a phone interview today. LNG can be exported by ship, allowing companies to charge more than Venezuela’s government-set prices.

PDVSA, the state oil company with a monopoly on domestic natural-gas distribution, charges customers less than $1 per thousand cubic foot for the fuel, Gonzalez said.

Natural gas plunged 29.6 cents to settle at $2.96 per million British thermal units, at 2:55 p.m. on the New York Mercantile Exchange.

To contact the reporter on this story: Steven Bodzin in Caracas at [e-mail]; Daniel Cancel in Caracas at [e-mail].

Last Updated: September 11, 2009 23:00 EDT