A re-classification of Venezuelan synthetic oil by the International Energy Agency on Friday meant that its production estimate for the Latin American country fell sharply below its OPEC quota. The IEA reclassified 320,000 barrels per day (bpd) of Venezuelan synthetic oil from new projects in the Orinoco region as non-conventional crude, and removed it from its estimate of Venezuelan crude oil production. The change brought the IEA's estimate of May output down from an original 2.68 million bpd to 2.36 million, versus an OPEC quota of 2.5 million. In June, the IEA estimated Venezuelan output at 2.28 million bpd, even further below quota.
The IEA, which is used by the world oil industry as a data benchmark, added the Orinoco volumes to its estimate of Venezuelan "natural gas liquids and other", which the IEA treats as outside the OPEC quota system.
Venezuela, OPEC's third largest oil exporter after Saudi Arabia and Iran, produces synthetic oil by upgrading extra-heavy crude from the central Orinoco region. Venezuela has said publicly that the new oil is counted as part of its quota calculation, although OPEC has yet to formally rule on the issue. Some senior Venezuelan oil officials want to exclude it.
The IEA move was questioned by some industry analysts, who recently began including the synthetic oil volumes within their estimates of Venezuelan output. "Venezuela has never claimed it is producing below quota. This sort of analysis could mislead markets as to the true level of OPEC overproduction in recent months," said Mehdi Varzi, senior energy consultant Dresdner Kleinwort Wasserstein. "The reclassification doesn't alter the actual volume of oil entering world markets."
Klaus Rehaag, editor of the IEA's monthly Oil Market Report, defended the move by saying that any other approach would be inconsistent with the way it treats heavy oil from Canada. "It's a restatement of our numbers, which has no impact on supply and don't directly relate to quotas," Rehaag said. Rehaag said it was not the IEA's job to decide whether the synthetic oil counted under the OPEC system of quotas or not. He pointed out that neither natural gas liquids nor Orimulsion, a boiler fuel also extracted from the Orinoco extra-heavy crude, was counted under the quota system. "The upgraded portion, our understanding of the contractual agreements on the joint ventures is that they are also excluded (from OPEC production constraints)," Rehaag said.
The issue is a sore point for OPEC, as Venezuela plans to export about 650,000 bpd of synthetic oil by 2005. It is also a key issue for multinational oil companies which invested billions of dollars in the Orinoco projects, because they extracted guarantees from Venezuela that they would be allowed to pump the synthetic oil at full capacity under the 40-year contracts irrespective of Venezuela's OPEC restrictions.