Venezuela has the largest conventional oil reserves and the second-largest natural gas reserves in the Western Hemisphere. In addition Venezuela has non-conventional oil deposits (extra-heavy crude oil, bitumen and tar sands) approximately equal to the world's reserves of conventional oil. Venezuela is also amongst world leaders in hydroelectric production, supplying a majority of the nation's electrical power through the process.
Venezuela nationalized its oil industry in 1975-1976, creating Petróleos de Venezuela S.A. (PdVSA), the country's state-run oil and natural gas company. Along with being Venezuela's largest employer, PdVSA accounts for about one-third of the country's GDP, 50% of the government's revenue and 80% of Venezuela’s exports earnings.
The policy changed in the 1990s, when Venezuela introduced a new oil policy known as Apertura Petrolera, which opened its upstream oil sector to private investments. This facilitated the creation of 32 operating service agreements with 22 separate foreign oil companies, including international oil majors like Chevron, BP, Total, and Repsol-YPF. The role of PdVSA in making national oil policy increased significantly. In 1999, Venezuela adopted the Gas Hydrocarbons Law, which opened all aspects of the sector to private investment.
This policy changed after Hugo Chávez took the presidential post in 1999. In recent years the Venezuelan government has reduced PdVSA’s previous autonomy and amended the rules regulating the country’s hydrocarbons sector. In 2001, Venezuela passed a new Hydrocarbons Law that superseded the previous 1943 Hydrocarbons Law and 1975 Nationalization Law. Under the 2001 law, royalties paid by private companies increased from 1-17% to 20-30%. Venezuela started to strictly adhere to OPEC production quotas. The ownership separation of power generation, transmission, distribution and supply functions was required by 2003 but still not enforced.
Venezuela's new energy policy implemented by President Chávez in 2005 includes six major projects:Magna Reserve;
In 2007, Chávez announced the nationalization of the oil industry. The foreign oil companies were forced to sign agreements giving majority control of hydrocarbons projects to PdVSA. Projects owned by companies like ConocoPhillips and ExxonMobil, who failed to sign these agreements, were taken over by PdVSA.
Venezuela's oil production has fallen by a quarter since President Chávez took office and falling oil prices have affected the government budget severely. However, since 2009, oil prices have surged, and more nations around the world are turning to Venezuela's large oil reserves to boost tight energy supplies: Italy’s Eni SpA, Petrovietnam and Japanese companies including Itochu Corp. and Marubeni Corp. have signed on to, or are in negotiations to sign on to, joint-ventures with PdVSA. China National Petroleum Corp., or CNPC, also signed a $16.3 billion joint-venture agreement for a project that will eventually pump an additional 1 million barrels per day (160,000 m3/d) for Asian refineries. Separately, Venezuela has been exporting 200,000 barrels per day (32,000 m3/d) of crude to China to repay $20 billion of loans extended by the China Development Bank Corp. in April 2010 to finance much-needed infrastructure projects in Venezuela. PdVSA is selling oil at market prices to repay the 10-year loan. Shipments to repay the debt represent half Venezuela’s daily crude exports to China.
The main electricity source is hydropower, which accounts for 71% in 2004. A gross theoretical capability of hydropower is 320 TWh per annum, of which 130 TWh per annum is considered as economically feasible. In 2004, Venezuela produced 70 TWh of hydropower, which accounts 2.5% of world's total. At the end of 2002, total installed hydroelectric generating capacity accounted 13.76 GW with additional 4.5 GW under construction and 7.4 GW of planned capacity.
Hydroelectricity production is concentrated on the Caroní River in Guayana Region. Today it has 4 different dams. The largest hydroplant is the Guri dam with 10,200 MW of installed capacity, which makes it the third-largest hydroelectric plant in the world. Other facilities on the Caroní are Caruachi, Macagua I, Macagua II and Macagua III, with a total of 15.910 MW of installed capacity in 2003. A new dams, Tocoma (2 160 MW) and Tayucay (2 450 MW), are currently under construction between Guri and Caruachi. With a projected installed capacity for the whole Hydroelectric Complex (upstream Caroni River and downstream Caroni River), between 17.250 and 20.000 MW in 2010.
The largest power companies are state-owned CVG Electrificación del Caroní (EDELCA), a subsidiary of the mining company Corporación Venezolana de Guayana (CVG), and Compania Anonima de Administracion y Fomento Electrico (CADAFE) accounting respectively for approximately 63% and 18% of generating capacities. Other state-owned power companies are ENELBAR and ENELVEN-ENELCO (approximately 8% of capacities). In 2007, PDVSA bought 82.14% percent of Electricidad de Caracas (EDC) from AES Corporation as part of a renationalization program. Subsequently, the ownership share rose to 93.62% (December 2008). EDC has 11% of Venezuelan capacity, and owns the majority of conventional thermal power plants. The rest of the power production is owned by private companies.
The national transmission system (Sistema Inrterconectado Nacional- SIN) is composed by four interconnected regional transmission systems operated by EDELCA, CADAFE, EDC and ENELVEN-ENELCO. Oficina de Operacion de Sistema Interconectados (OPSIS), jointly-owned by the four vertical integrated electric companies, operate the SIN under an RTPA regime.
Prolonged oil production has resulted in significant oil pollution along the Caribbean coast. Hydrocarbons extraction has resulted also in the subsiding of the eastern shore of Lake Maracaibo, South America's largest lake. Venezuela is also the region's top emitter of carbon dioxide.
Venezuela has pushed the creation of regional oil initiatives for the Caribbean (Petrocaribe), the Andean region (Petroandino), and South America (Petrosur), and Latin America (Petroamerica). The initiatives include assistance for oil developments, investments in refining capacity, and preferential oil pricing. The most developed of these three is the Petrocaribe initiative, with 13 nations signed agreement in 2005. Under Petrocaribe, Venezuela will offer crude oil and petroleum products to Caribbean nations under preferential terms and prices. The payment system allows for a few nations to buy oil on market value but only a certain amount is needed up front; the remainder can be paid through a 25-year financing agreement on 1% interest. The deal allows for the Caribbean nations to purchase up to 185 million barrels (29,400,000 m3) of oil per day on these terms. In addition it allows for nations to pay part of the cost with other products provided to Venezuela, such as bananas, rice, and sugar.
In 2000, Venezuela and Cuba signed an agreement, which grants Venezuelan oil supplies to Cuba.
In 2006, the construction of the Trans-Caribbean gas pipeline, which will connect Venezuela and Colombia with extension to Panama (and probably to Nicaragua) began. The pipeline will pump gas from Colombia to Venezuela and, after 7 years, from Venezuela to Colombia. Venezuela has also proposed the project of Gran Gasoducto del Sur, which would connect Venezuela with Brazil and Argentina. There has been some discussion about constructing an oil pipeline to Colombia along the Pacific Ocean.
Venezuela also exports electricity to neighboring countries. Santa Elena/Boa Vista Interconnector permits electricity export to Brazil, and Cuatricenternario/Cuestecitas Interconnector and EI Corozo/San Mateo Interconnector to Colombia.