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Market Chatter: Energy Producers in Venezuela Need to Provide Own Electricity

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Energy companies seeking to develop oil and natural gas projects in Venezuela will be required to provide their own electricity generation under proposed regulations aimed at insulating operations from the country's chronically unreliable power grid, Bloomberg reported on Tuesday.

Draft regulations for Venezuela's new hydrocarbons law reportedly require companies operating in oil and gas regions to be self-sufficient in power generation and could also permit private firms to supply electricity directly to energy projects, Bloomberg said, citing a copy of the draft circulated in mid-May.

The measures mark a significant shift from past policy, effectively requiring new projects to operate independently of the national grid to avoid adding strain to an electricity system weakened by years of underinvestment and maintenance failures.

The push gained momentum following the US removal of former President Nicolas Maduro in January, the subsequent easing of US sanctions, and the installation of a new government led by former Vice President Delcy Rodriguez. The political changes have triggered renewed investor interest in the oil and gas sector.

The proposed regulations are designed to protect Venezuela's fragile electricity network, where frequent outages disrupt daily life and hinder petroleum production.

Oil extraction relies heavily on electric motors that are highly sensitive to fluctuations in grid frequency. When irregularities occur, motors automatically shut down, forcing operators to restart wells either remotely or manually and resulting in production losses.

Over 95% of Chevron's (CVX) wells in the Orinoco region depend on the national grid, while fewer than 5% are powered by generators, Bloomberg said.

Chevron and the Venezuelan Information Ministry did not immediately respond to' requests for comment.

Venezuela relies primarily on hydroelectric generation, supplemented by plants fueled by natural gas and fuel oil.

Hydroelectric facilities are currently operating at about 60% of capacity, while thermoelectric plants are producing only 20% of their potential output, Bloomberg said, citing Miguel Lara, an adviser to foreign energy companies and former head of Venezuela's power planning agency.

Lara reportedly said 35 power outages were recorded between January and April and estimated the country faces an electricity deficit of between 2,000 and 3,000 megawatts.

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)

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