Marketwatch contacted me for some quotes today. I gave the reporter way too much to use, so I've collected my thoughts here...
The phrase “axis of oil” is over-used, but that’s the only way to describe what’s happening right under Uncle Sam’s nose, as Venezuela and Iran form an alliance.
In December of 2005, Venezuela's state-owned oil company Petroleos de Venezuela SA (PDVSA) signed a deal with Iran's state company Petropars to explore the heavy oil deposits in Venezuela's Orinoco River basin. There’s over a trillion barrels of crude locked up in the tar-sands sands there, in a deposit called the Orinoco Belt. But as with any tar sand deposit, the question is how much oil can be recovered.
Venezuela's proven oil reserves are around 81 billion barrels, but the government believes that some 235 billion barrels of recoverable deposits are lying, undocumented, in the Orinoco belt. If it can get that crude reclassified, that will raise Venezuela’s standing in OPEC and make it a real power in the global oil markets.
PDVSA and British Petroleum developed a simple technology to transform Orinoco bitumen into useable crude, known as Orimulsion. In this proprietary process the bitumen is mixed with water and a surfactant chemical in order to produce a stable emulsion which can be transported by pipeline and by ship. Venezuela needs partners to help it develop Orimulsion production. But it’s chasing out all the multinationals by raising taxes or outright nationalization of oil properties and equipment.
So there are two things here – 1) Venezuela needs the Orinoco Belt tar sands reclassified and 2) it needs strategic partners to help it develop those deposits and bring them to market. Iran can help on both counts – and is quite willing to do so, especially if it is a chance to kick (tar) sand in the face of Uncle Sam. Thus we have the Iran-Venezuela Axis of Oil.
And an eager customer has appeared on the scene: China. China will buy all the oil that Venezuela can sell it, from conventional oil or tar sands. As I explain in today’s Money and Markets, China’s economy is booming, kicking its energy consumption into overdrive. Its 10.2% GDP growth in the first quarter also boosted China’s oil imports by over 25% at the same time.
Since America’s oil demands are also growing, this is an unfortunate series of events. The Iran-Venezuela Axis of Oil is aimed right at our soft underbelly, and with our resources already committed in Iraq, we can’t even make threats.
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