Venezuela's gas conundrum

A gas pipeline being built to connect Venezuela and Colombia is due to be ready by the end of August, allowing testing to start in September.

The pipeline will supply Venezuela with 150 million cubic feet/day of Colombian gas for four years from January 1.  However, the need for the pipeline points to structural shortcomings: although Venezuela faces shortages of natural gas in its western region, the country has the largest gas reserves in Latin America, and the second-largest in the Western Hemisphere after the United States.  Exploitation of those reserves remains problematic, as about 90% of its reserves are associated gas (from reservoirs producing crude oil), and output fluctuates with the amount of crude produced.  Finding the investment needed to exploit those reserves is complicated:  after state oil company PDVSA recently took over majority stakes in oil projects, investors became wary of hydrocarbons commitments, while PDVSA's own resources are increasingly committed to social projects. 

And markets for that gas are far from guaranteed:  plans to construct a gas pipeline to Brazil and Argentina have foundered not only on the cost and environmental implications, but on the fact that the Southern Cone has substantial gas reserves of its own that require investment, not costly imports.  This may prove to be a Catch-22 situation:  without commercial gas production, it is difficult to capture markets; without markets, investments are likely to prove elusive, especially in a country where long-term economic prospects and expropriation risk generate jitters.