Address at the Windsor Court Hotel in New Orleans

on the topic of

Ladies and Gentlemen, it is an honor to be here in the great State of Louisiana, among distinguished members and invited guests of the World Trade Center of New Orleans, the first organization of its kind in the world. Venezuela has important investment and trade bonds here in Louisiana: the Port of New Orleans is the second most important port of trade for Venezuela, and in this State, Venezuela owns or partly owns refineries that have capacity to refine 500,000 barrels per day, 19% of the State’s refining capacity.

My country now wants to strengthen these bonds and those with the United States, understanding that the U.S. is preparing a long-term strategy for energy security. As the Bush Administration’s National Energy Policy document declares, "America in the year 2001 faces the most serious energy shortage since the oil embargoes of the 1970s."

We must not be distracted by the short-term price changes in natural gas and gasoline at the pump. As President Bush and Secretary of Energy Abraham have stated it, this is a long-term problem, and it must be solved by both near-term and long-term solutions.

Venezuela is better prepared than ever to help meet America’s energy needs. Venezuela has been and is a dedicated, secure, and reliable oil provider to the US for more than 80 years, including such times as World War II, the Suez Canal crisis, the oil crisis of the 1970’s, and the open conflicts that have occurred in the Middle East. Venezuela has never participated in politically motivated interruptions of oil supplies to world markets.

Currently, Venezuela sends directly to the US 57% of all its oil and oil products exports. As you may know, we have the largest proven oil reserves outside of the Middle East, 77.7 billion barrels of oil at the close of 2000 – and that doesn’t include the 1.2 trillion barrels of bitumen and heavy and extra-heavy crude oil from the Orinoco Oil Belt, which we are now starting to exploit through joint ventures with some of our friends in the US. The crude production capacity at last year’s end, including the joint ventures of the Orinoco Belt, was 3.9 million barrels per day. We now want to go beyond oil, and include other forms of energy, especially natural gas, of which we have 147 trillion cubic feet of reserves. That is 30% of the gas reserves in the Western Hemisphere. Added to that, we are third in the world in terms of refining capacity. And our geographical location is a true advantage in terms of the American national energy security.

Now we must answer the question on how to help America meet its energy needs. The answer must be in harmony with the Bush Plan’s principles: it should be a long-term comprehensive strategy; it must also meet the goal of increasing your nation’s energy security. This last depends on obtaining sufficient energy supplies, diversification of the energy mix, new exploration and production technologies, and the opening of areas for exploration and development. It must be done in an efficient and environmentally sustainable manner. For Venezuela, this must also be done within the scope of our legal framework and the bounds of the agreements that we have freely entered.

On June 2, at the CITGO refinery in Corpus Christi, Texas, Venezuelan President Hugo Chávez stated that Venezuela would look into four different ways to contribute to the solution of the American energy crisis:

1) Increasing production capacity. It was said not long ago, at Houston’s 32^nd Offshore Technology Conference, that Venezuela intends to raise crude production capacity. Venezuelan and international participants are expected to add a substantial increase in private sector capacity.

We expect that a portion of the increased capacity will be produced, while the rest remains as "spare" capacity. Much of the new production will go to the United States. Meanwhile, the spare capacity will be a safeguard for the United States and other energy consuming nations against extreme price increases. And let me assure you, Venezuela does not want extreme price increases.

Venezuela proposed the OPEC price band of $22-$28 per barrel, so that oil prices will be fair and reasonable for both producers and consumers. OPEC members recognize that healthy oil prices are not just beneficial to OPEC nations; they are vital for the long-term future of the oil industry. Oil is a capital-intensive industry that requires a constant flow of massive amounts of money not just to maintain and expand production at existing fields, but also to explore for, develop and produce new fields.

And in the case of Venezuela, we will require substantial investments in exploration, production and crude upgrading that during the 2001-2006 period will be on the order of 26.5 billion dollars.

2) Increasing refining capacity, both here in the US, and in Venezuela. President Chávez announced in Corpus Christi that we would be investing 260 million dollars in CITGO’s Lake Charles refinery, in order to increase its refining capacity by 100 thousand barrels per day. But we are also interested in expanding our refining capacity at home.

The key to this expansion is the Orinoco Oil Belt. Upgraded oil started to flow from Cerro Negro joint venture at the end of 1999 and this project will soon be inaugurated, with its oil being processed at the ExxonMobil Chalmette refinery. With this year’s official unveiling of the Petrozuata upgrading facility, the synthetic crude era officially took off in Venezuela, soon to be refined in Conoco’s Lake Charles refinery. The recent approval of financing for the Hamaca / Ameriven project injected 1.1 billion dollars to an investment grade project. Together with Sincor, these are the four strategic projects approved by the Venezuelan Congress during the 1990s for the development of the Orinoco Belt through the use of integrated extraction and upgrading projects. When all four begin operations, they will produce a combined total of 622 thousand barrels per day of upgraded crude. Some partners in the joint ventures have already expressed their interest in expanding synthetic oil production capacity.

The synthetic crudes that are and will be coming out of the Orinoco Belt’s joint ventures are very light and have a low sulfur content. This means light, clean products that could be manufactured in Venezuela. Thus, the US could receive more refined oil products from Venezuela.

Realizing our aims in the Orinoco Belt will require further investments. It must be said that a large amount of the already-planned refinery investments in Venezuela, 2.6 billion dollars, will be employed to optimize our current assets in Venezuela and assure compliance with environmental regulations and product quality requirements.

3) Opening the natural gas market. In a recent LNG (liquefied natural gas) conference, it was reported that North America had ample gas reserves, as much as 1300 trillion cubic feet of probable and possible reserves in "frontier" regions, and more than twice as much if we add those from non-conventional sources that will require advanced, economical technologies. However, the cost of developing and bringing this frontier gas to market was likely to be more expensive than imported LNG from the Atlantic Basin.

Venezuela is well on its way to become a player in this market. We have a new Gas Law that allows for foreign investment in gas exploration and production. We have already had a very successful bidding process, where six gas fields where auctioned, and the new law allows further bidding processes. This new "apertura" is required, in order to increase our reserves of free gas, as much of the current Venezuelan gas reserves are tied to oil production. Our own national oil company, PDVSA, will start exploring the Deltan Platform, where it is expected that some 50 trillion cubic feet of free gas will be found.

Most important for the United States, sometime soon we will have selected a Liquefied Natural Gas project that has the United States as its main market target. We believe it is important that American energy companies, large and small, be present in the expanding natural gas future of Venezuela. We also believe important that the US begin building new regasification terminals, for all the natural gas that will be flowing here in the not so remote future.

4) Finally, providing a new alternative fuel to US power markets. From our abundant reserves of natural bitumen in the Orinoco Belt, Venezuela has developed a patented fuel called Orimulsión. This fuel is designed for use in boilers for the electric power generation, and marketed to plants located on or near coastal sites that consume relatively high cost fossil fuels that makes them uncompetitive. Conversion to Orimulsión allows such plants to become competitive "base load" generators with very high annual utilization rates, and doing so with lower emissions.

Currently, the customers for this fuel are mainly power generating companies in Italy, China, Canada, Japan, Germany, Denmark, Finland, Lithuania and Barbados. These companies are experiencing an expansion in demand, as is most of the power generating industry worldwide, which has been estimated to grow at a rate of 4.2% per year. This presents opportunities for growth on an international scale.

In the US, Orimulsión suffered a setback while trying to get a foothold in Florida. Nonetheless, we still think there is a match between Orimulsión and the need to diversify the American energy mix. Congress mandated a study of this fuel to the EPA; it should be out soon. A large amount of research and development has been done on this new fuel, and we believe that this will be reflected in the EPA report. We hope this will lead to better prospects for this new fuel in the US.

Orimulsión production is one of the areas in energy where production is open to third parties, so this is another opportunity for investment in Venezuela. Planned growth is based on commercial associations under various business schemes with third-party participation. The new projects are currently intended for markets in Europe, Asia and Canada.

In order to explore these four ways of helping the US meet its energy needs, President Chávez has ordered the creation of the Venezuelan Energy Task Force, composed by a high level set of representatives from the Ministry of Energy and Mines, Petróleos de Venezuela, the Venezuelan Embassy, and including PDVSA’s arm in the US, CITGO. This Energy Task Force or ETF has recently contacted the Administration, Members of Congress, and US energy companies, in order to get input and feedback relative to the four ways being explored. We have had an excellent reception so far from all of them, and we will continue to maintain communications and to spread the news.

Other efforts are under way. We have seen in the National Energy Policy document the interest of the US in the completion of the Bilateral Investment Treaty between both our countries. I have to say that Venezuela is also very interested in bringing that effort to fruition. There is a negotiating team in place, and we have had technical meetings with our American counterparts during the first week of August. In September, new talks will start, and the Venezuelan Government believes that it could be possible to reach a final, mutually satisfying, agreement before year’s end.

We are also interested in the integration of the Americas, and we believe that energy development is a fine means to that end. As an example, we have recently inaugurated a transmission line that will bring Venezuelan hydroelectric power to Northern Brazil. We also have expressed our interest in interconnecting our gas distribution pipelines with Colombia. The Western Hemisphere, through its hydrocarbon resource base, skills and technologies, offers a perfect energy complement of supply and demand. This Hemispheric balance encourages energy integration. The countries in this half of the world can count upon the necessary resources to satisfy most of their energy requirements, if they work as a whole, in an integrated, complementary manner.

Venezuela’s national strategy also aims to strengthen the international competitiveness of our country’s private oil and energy-related companies, as well to increase access for cooperation and association with US companies in the energy sector. Success in this strategy will help us diversify the country’s economy and build national private capital that will lead to social and economic development. Venezuela wants to promote maximum private capital involvement in the comprehensive development of the gas business, petrochemicals, refining, Orimulsión and coal.

Through this important part of the Venezuelan energy mix (gas, chemicals and petrochemicals, Orimulsión and coal), we will strive to promote national capital formation, to make possible the creation of private companies that consolidate the country’s economic growth and Venezuela’s strategic position in the world. There are initiatives aimed at promoting greater competitiveness, financing, new associations, strengthening small and medium-size companies, with special attention to the application of existing public policy mechanisms.

We are looking forward to having large and small companies coming from abroad and entering into joint ventures and associations with our own private energy sector in order to exploit the opportunities presented in the fields open to private investment.

Finally, we now have a draft for the new Hydrocarbons Law that is being openly discussed, in order to have a modern framework for this important sector of the Venezuelan economy. This draft brings many interesting approaches to the hydrocarbons sector, especially in the industrial and commercial downstream side: as an example, new refining activities would be open to all parties, public and private, for investment, either jointly or by themselves.

Together with the Gaseous Hydrocarbons Law, the Law for Promotion and Protection of Investment that guarantees stability in taxation and investment incentives for up to ten years after a contract is signed, and several other new laws, we are now counting on a new set of rules, a legal framework, that will guide our economic activity and that will generate the needed confidence to make companies from the US and other parts of the world want to invest in Venezuela.

The New Hydrocarbons Law

The new Hydrocarbons Law will complete the first modernization and unification of our energy laws since 1943, long before the nationalization of oil in 1975. We began this process with a new law on natural gas that came into force in September 1999.  The natural gas law brings about a significant opening of this sector to private investment.  Last month Venezuela conducted the first of what will be many auctions of rights for exploration, extraction and transportation of natural gas.
This month, the Venezuelan government presented to the public a draft law concerning oil, bitumen and all other hydrocarbons excepting natural gas. This new law is meant to harmonize with the modern law on natural gas.

The draft Hydrocarbons Law is far-reaching.

• For the first time since nationalization of the oil companies, it will allow U.S. companies -- and any other private enterprises -- to participate clearly and uncontrovertibly in "primary activities," that is, exploration, extraction, transport by special means, and storage of non-gaseous hydrocarbons. Private enterprises will be able to participate in primary activities as minority shareholders in mixed-capital (state-private) operating companies. The new Law will eliminate the
  controversy that surrounded the interpretation of the 5th Article of the Nationalization Law.
• For the first time since nationalization, domestic and foreign private enterprises will be able clearly to participate in what the law defines as "industrial activities," that is, distillation, purification and transformation of non-gaseous hydrocarbons. Not only mixed-capital companies, but also fully private enterprises, will be allowed to take part in these businesses. as shareholders of mixed-capital and fully private companies.
• Finally, for the first time since nationalization, the commercialization of certain products derived from natural hydrocarbons will be open to the private sector – through both mixed capital companies and totally private companies. This law is moving forward under a kind of "fast-track" authority that has been a feature of Venezuelan constitutions for many years.  Both the former constitutions and the new constitution enacted last year under President Chavez's leadership allows the National Assembly to give the Chief Executive expedited authority to prepare and decree laws on vital national economic
  matters. 

The law last year providing deregulation and competition in the telecommunications sector was prepared and put into force by President Chavez under the same sort of fast-track authority.

President Chavez has made the final deliberations and actions on the new Hydrocarbons Law a very open process.  This month, the government posted the draft law on the World Wide Web.  We invite comments not only from our own citizens but also from business people such as you who are potential operating partners and investors in the Venezuelan energy sector. The final law will be decided upon by a committee of nine distinguished Venezuelans from the public and private sectors, appointed by President Chavez.

Energy security starts with dedicated, secure and reliable energy suppliers. While the US needs to strengthen its own internal suppliers, projected energy demand growth requires a trusting, close relationship with the international suppliers in order for it to be met. That is why the Hemisphere is important, and why Venezuela is here today.

Let me summarize Venezuela’s strategy for energy partnership with the United States: Venezuela wants to work with the United States in order to help avert a serious U.S. energy crisis. We understand that this must done mainly through market forces, accompanied by compatible policies. Accordingly, Venezuela is focusing four ways in which to contribute: oil production capacity, refining capacity, natural gas production, and the resources of the Orinoco Oil Belt. We will do all of this under the framework of a completely new system of energy legislation more open to private enterprise and competition than at any time since nationalization.

We have created the Venezuelan Energy Task Force to guide these efforts, and we are making progress in developing a better legal framework to provide security for foreign investments. We welcome these investments, from companies large and small, because we know they can translate into national capital formation, a stepping-stone to Venezuela’s economic growth and development.

The ETF is open to your feedback, and we’ll gladly listen to your comments.

Let me also make a few remarks about our efforts to expand trade and investment in all sectors and industries.

The Andean Trade Preference Act (ATPA) was conceived ten years ago by the U.S. Administration and the Congress as a trade instrument for a comprehensive strategy to support the Andean region in its fight against illegal drug production and trafficking. Venezuela -- which is of enormous economic and strategic importance to the United States -- is the only Andean Community nation not presently included in the ATPA.

Venezuela was originally not included in the ATPA because at the time, Venezuela was not considered to be a major source of illegal drug trafficking. Since the ATPA began, however, drug trafficking through Venezuela has increased, and the achievement of Plan Colombia's goals could lead the drug cartels to look for cultivation areas in countries surrounding Colombia, with which Venezuela has a long border. Thus, incentives, like those in the ATPA, for legal productive activities in Venezuela are more crucial now than ever.

Venezuela is an integral part of the Andean Community and is a fundamental ally of the United States in the war against illicit drugs. The effectiveness of Venezuela's interdiction programs and the continuing close collaboration between the U.S. and Venezuelan authorities in the battle against illegal drug trafficking has been described very favorably in the "Narcotics Control Report" published by the U.S. Department of State for the year 2000.

The U.S. is Venezuela's largest trading partner, absorbing US$18.6 billion in exports from Venezuela in 2000. New Orleans is the second-largest port for Venezuelan trade. Venezuela was the largest importer of American products in the Andean Community in the year 2000, absorbing 45 percent of the US$12.2 billion exported to the region by the United States.

Venezuela is pursuing economic reform and dedicating substantial efforts to improve the efficiency and transparency to its institutional framework, which furthers its potential for U.S. trade and investment. A Bilateral Income Tax Treaty has been in force since January 2000, and as I have mentioned, negotiations to conclude a Bilateral Investment Treaty with the U.S. are expected to move forward during the present year to a successful conclusion.