Why natural gas, not oil, could be Venezuela’s “grand prize”

Venezuela’s oil reserves may be vast, but some of the best opportunities to quickly develop the country’s resources are offshore, in pockets of natural gas trapped deep beneath the ocean floor.

Many of these gas fields were discovered decades ago on the country’s east coast, on the border with Trinidad and Tobago, a nation made up of two main islands. But they remained largely untouched as Venezuela focused its efforts on extracting and selling oil.

Companies like London-based Shell have wanted to produce this gas for many years, long before American forces captured Venezuelan President Nicolás Maduro in January. This contrasts with the much lower appetite to venture into Venezuelan oil fields, something many of the world’s biggest oil companies are reluctant to do. In part because Venezuela, which closely protects its oil assets, has been more willing to give foreign companies access to its natural gas.

“It’s like an old toy but new,” said Antero Alvarado, an energy consultant based in Caracas, the Venezuelan capital. “You never opened the box.”

U.S. sanctions on Venezuela’s government and its state oil company, Petróleos de Venezuela, have been some of the biggest obstacles to increasing gas production, although the Treasury Department has been gradually loosening restrictions, including through new guidelines issued on Friday. Producing and selling much more Venezuelan natural gas would also require cooperation with Trinidad and Tobago.

Many of Venezuela’s gas fields are along the maritime border with the island country, which, unlike its neighbor, has the infrastructure to take the fuel to the coast and export it. But the relationship between the two countries — separated by language and by just 11 kilometers of sea in some parts — has deteriorated in the last year. (Trinidad, a former British colony, has English as its official language.)

Venezuelan leaders were angered by Trinidad’s decision to side with the United States over the Maduro government. Under Maduro, Venezuela has had even more hostile relations with another neighbor with large energy reserves, Guyana. It is unclear whether Delcy Rodríguez, Maduro’s vice president and successor, intends to repair those relations.

Dragon, a gigantic gas field named after the choppy waters that separate Venezuela from Trinidad, is among the closest projects to getting off the ground. Venezuela tried many years ago to extract the gas buried there, but ran out of money — an ill-fated effort marked, in 2010, by the sinking of an exploration rig.

In 2023, Venezuela finally agreed to allow Shell to explore Dragon. The idea was that it would be much cheaper to build a small gas pipeline connecting Dragon to the existing infrastructure in Trinidad than to start everything from scratch in Venezuela, which does not have a terminal to export gas.

The fact that Venezuela needs its neighbor to bring its gas to market is one of the reasons the project has a good chance of moving forward, said Francisco J. Monaldi, head of the energy program for Latin America at Rice University in Houston.

“Venezuela cannot go back on the agreement and monetize this gas elsewhere like it did with oil, so Shell can feel relatively safe that the country will not change the rules,” Monaldi said. Dragon and another gas project along the maritime border with Trinidad are among the few new fields in Venezuela with a good chance of being developed in the next five years, he said.

BP, another London-based energy giant, told Reuters this week that it is seeking US authorization to run this second project, called Cocuina.

New licenses issued on Friday by the US Treasury Department appeared to give more freedom for oil and gas companies to trade with Venezuela and operate in the country. Shell said it is analyzing what these new permits mean for its offshore gas project. BP did not immediately respond to requests for comment.

“They are creating an environment that allows the actors already present to continue operating,” said Rachel Ziemba, senior research associate at the Center for a New American Security.

But there are still many doubts regarding access to electricity, security and the banking system in Venezuela, Ziemba added.

If Dragon takes off, the field could generate about $500 million a year in revenue, estimated Luisa Palacios, former president of U.S. refiner Citgo Petroleum, based on recent natural gas prices. Government documents indicate that at least 45% of that amount would go to Venezuela, in the form of taxes and royalties, he added.

But the project is progressing in fits and starts, caught between the two countries and US policies, which continue to limit Shell’s activities.

“These are opportunities that could be activated in a matter of months, with the potential for a few billion dollars in investment and production in the coming years,” Shell CEO Wael Sawan told CNBC last week.

The comments, made after the release of Shell’s results, were a reminder that the horizon for oil and gas projects is long — and even late-stage ventures may not begin production before President Donald Trump leaves office.

Taylor Rogers, a White House spokeswoman, said the Trump administration is “working with the interim authorities to make Venezuela prosperous again” and “ensure that oil and gas companies can make unprecedented investments” in the country.

Energy Secretary Chris Wright later expressed support for Venezuelan gas development.

“It’s a potential win-win for Trinidad and Tobago, a win-win for the global LNG market and a win-win for Venezuela,” Wright told reporters in Caracas, referring to the market for liquefied natural gas for export.

It is still necessary to agree details with Venezuela, how exactly Shell will extract the gas.

This will test the relationship between Venezuela and Trinidad, which reached a low point last year. In October, the Venezuelan National Assembly declared the Prime Minister of Trinidad and Tobago “persona non grata” after she praised US military action in the region. Rodríguez even stated that the Venezuelan government was interrupting negotiations with Trinidad and Tobago and canceling gas contracts.

“All our hopes and aspirations of getting Venezuelan gas, Dragon gas, seemed to go up in smoke,” said Anthony Paul, who previously worked in Trinidad’s energy ministry.

The office of the Prime Minister of Trinidad and Tobago, Kamla Persad‑Bissessar, did not respond to written questions. Energy Minister Roodal Moonilal told reporters last month that the Trinidad government had not received any notice of cancellation from Venezuela. “We are optimistic,” said Moonilal.

The island nation has a strong interest in accessing Venezuela’s gas fields because domestic gas production has been falling — a serious blow to an economy highly dependent on the export of fuel and derivatives.

Venezuela, in turn, wastes much of the gas it produces, contributing to climate change by allowing it to leak or be burned in torches, a process known as . In 2024, the country burned almost as much gas as the United States — the largest oil and gas producer in the world — despite producing much less energy, according to the World Bank.

“It is in everyone’s interest that we cooperate to jointly develop these natural gas resources,” said Kevin Ramnarine, former energy minister of Trinidad and Tobago.

Further west, near Colombia, the companies Eni and Repsol, from Italy and Spain, already produce natural gas that Venezuela uses to generate electricity. The country used to pay for this gas with oil, which companies could then resell. But the United States tightened sanctions after Trump’s return to power, blocking these types of payments.

Eni did not immediately comment, and Repsol declined to say whether new exemptions granted Friday by the U.S. Treasury will allow companies to accept payments from Venezuela.

Eni, which also has a stake in Venezuelan oil fields, has already stated that it would be willing to increase production, as long as it returns to being paid for supplies.

Still, any increase in gas production on the western side of the country would be limited by Venezuela’s ability to use that gas domestically. A deactivated gas pipeline connects the country to Colombia, but would need to be repaired.

“The question,” said Monaldi of Rice University, “is: Who is going to make this investment?”