In the last two Tech talks I have been discussing the production of heavy oil from the deposits in the Orinoco Basin in Venezuela. Production of that oil requires, in part, the injection of large quantities of natural gas. In writing about the resources that the country has, it would be remiss not to concurrently note the recent discoveries of additional volumes of natural gas offshore Venezuela, and the volumes that are thus available, not only for the oil fields, but also for a rising domestic consumption.

In November 2009, Repsol announced that the Perla 1X well had found the equivalent of between 1 and 1.4 boe of natural gas, said to be the fifth largest hydrocarbon discovery in 2009. (The other four, in debatable rank are Miran West (Iraq), Poseidon (Australia); Abare West in the Santos Basin (Brazil) and Tamar (Israel). You can argue about the size of some of the others – such as the Keathley Canyon discoveries in the GOM, since it depends on whose list (see slide 11) or other list you use.

Because the world market is increasingly having to accommodate crudes that are heavier and less easy to refine into desirable, profitable products I thought I would revisit my discussion from earlier in the series about the limitation on global oil production, due to the need for suitable refineries to process the oil that is produced, before it can reach and be used by the ultimate customer.

I have covered the operations of refineries in the past, but this time I thought I would dwell a little more on some of the factors that relate to the type of oil that is being refined. It is perhaps timely to do so, given that China is moving forward with plans to construct a refinery that will process the heavy Venezuelan crude that, until now, has largely been sent to specialized refineries in the United States that are designed to handle it. In 2008 Venezuela exported 120 kbd of oil to China (out of a total of 1.89 mbd, of which the USA imported 1.19 mbd). This past year the flow to China is reported to have increased to 362 kbd. It might be noted that the recent diplomatic leaks known as the Wikileaks saga has revealed cables that suggest that China was getting some of this oil for $5 a barrel, and then selling it for more on the open market, including possibly to the USA. This could be quite possible since it is also reported that while Venezuela said it exported 460 kbd to China, Chinese figures put the volume this year at 132 kbd.

I have written about the limitations in the free flow of oil because of the increasingly heavy and sour nature of the reserves that are now being developed, and the need for suitable refineries to process that oil. I then wrote about how it’s not just oil from oilwells, but also the non-gas-liquids (NGLs) that count toward the total volume of oil that is consumed in the world. There are other constraints to production, and the one that I’m going to talk about today is that of transportation. It seemed appropriate at a time when Chevron has just announced a doubling of the size of the pipeline from the Tengiz field in western Kazakhstan to Novorosslysk on the Black Sea. It will now carry some 1.4 mbd of oil to the port, whence it will be transshipped in tankers.

Transportation is, of course, a major problem for many energy forms, as Leanan caught, the Chinese are already facing problems this winter over the distribution of power.

Most of China's resource production bases, including coal and and oil, are either concentrated in the northern or western provinces, away from the key demand areas located in the southern and eastern region, such as Shanghai and Guangdong.

Any supply shortfall could prompt a surge in import demand as utilities and firms seek alternative fuel supplies to feed their power plants.

And it turns out that they are not the only ones. As the new snowfall wraps over the United Kingdom there are concerns over the distribution of fuel oil.

Downing Street was forced to respond to reports that heating oil might need to be rationed over the winter because of rocketing prices and restricted deliveries, admitting there was a problem moving it around the country.

The energy minister, Charles Hendry, sparked alarm yesterday when he warned the House of Commons that the situation could become "very serious" if there was further snow over the Christmas period. Thousands of public buildings and an estimated 660,000 homes rely on oil for heating and Hendry told MPs some had been told supplies would not be available for four weeks.

All of which serve to emphasize a point that I wanted to make today about how the presence of a pipeline can, but not always, help the situation.

This is the second in a series I am just starting on oil production and consumption around the world. While it is going to focus more on individual nations and oil fields, over time, there are some general remarks that I want to use to preface the series and this is one of those. (OGPSS – Oil and Gas Production Sunday Series).

One of the first things that I was told when I started looking into whether there was a coming crisis in oil supply was that oil is fungible. What that meant was that if, for the sake of discussion, the Saudi Arabian government cut off oil supply to the West, then the West could turn around and buy an equivalent amount from somewhere else (it turned out to be the North Slope and the North Sea) and the world could continue on its merry way. In fact if you go to Merriam Webster oil is cited as an example of a fungible commodity.

being of such a nature that one part or quantity may be replaced by another equal part or quantity in the satisfaction of an obligation:- oil, wheat and lumber are fungible commodities.

But that assumption is not totally true, and in the world where matching production to demand is becoming a somewhat more difficult and expensive operation the limits to the fungibility of oil may soon become more evident.