Pipeline Construction Launched, Panama Signs On

Venezuela's President Hugo Chavez and his Colombian counterpart Alvaro Uribe have launched construction of the bi-national natural gas pipeline, Venezuela's state oil firm PDVSA reported.

The pipeline will run 225 kilometers between the two countries. PDVSA will foot the project's US$335mn price tag.

In addition, Panama's President Martin Torrijos signed the pipeline agreement, committing his country to the plan. The three presidents attended the inaugural ceremony in Venezuela.

It was not known before the ceremony whether Panama would sign on to the pipeline project, now known as the Gasoducto Transcaribeno. Chavez's government agreed to start studies, technical designs and pre-engineering for a link between Colombia and Panama.

Chavez also announced PDVSA is open to building a new refinery in Panama.

The first leg of the pipeline, dubbed Antonio Ricaurte, will run from Chevron's (NYSE: CVX) Ballenas gas field in Colombia's Guajira department to an area near the Venezuelan city of Maracaibo, delivering 150 million cubic feet a day (M3f/d) of gas. Once in Maracaibo, the gas will be put to use in secondary crude recovery, petrochemicals manufacturing, crude oil refining and thermo generation.

The gas will be exported from Colombia to Venezuela until 2011, after which Venezuela will start exporting some 250M3f/d of gas to Colombia. Once the final leg into Panama is completed, Venezuela will start sending 1 billion cubic feet a day overall.

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