DrumBeat: May 4, 2007
Posted by Leanan on May 4, 2007 - 9:07am
Topic: Miscellaneous
...The news from Bohai Bay should reopen the debate on whether the world is running out of oil and gas – the fear that underlies Beijing's grab for natural resources. High oil and gas prices and project difficulties have bolstered the position of those who predict production is within years of peaking.In certain respects, peak-oil theorists have a lot of data on their side. Giant fields – defined as holding at least 500m boe of recoverable reserves – are believed to account for between 40 and 50 per cent of the world's total reserves. And giant fields are becoming smaller as time goes by. Recent analysis by geologist Myron Horn shows 220 giant fields were discovered in the 1970s, compared with 72 so far this decade. Meanwhile, the Centre for Global Energy Studies, a London-based consultancy, calculates that average output from giant oil fields discovered in the 1990s is about half that of 1970s fields.
A straight reading of the numbers, however, misses several important underlying issues. Politics is a bigger barrier to oil discoveries than any rock formation. Large areas of the globe remain underexplored, such as deepwater offshore Mexico and, as demonstrated on Thursday evening, offshore China. Oil and gas are finite resources, but the energy industry has repeatedly overcome the challenge of "peak oil" in the past, usually through unexpected technological breakthroughs.
America is failing its energy IQ test and its time we start hitting the books, argue the co-founders of ASPO USA.
Peak Oil Passnotes: Empires That Never Die
When the Chinese National Oil Company (CNOOC)outbid an American company Chevron, in an attempt to purchase the mainly Asian focussed Unocal the U.S. political elite wasted no time in branding this a threat to national security. As if somehow China might invade the U.S. via a network of oil storage depots. After all we know the story of Troy do we not?
Gasoline prices hit $3 as refiners strain
U.S. gasoline prices shot above $3.00 per gallon on Friday, within striking distance of record highs, as the creaking domestic refinery system strained to keep up with rising demand...."The problem this year is our continuing and increasing inability to refine enough gasoline to meet growing demand," said Geoff Sundstrom of AAA. "I think it is very possible that we will set a new record high price this month."
Senate panel proposes fuel economy hike
A key Senate panel on Friday proposed raising fuel efficiency requirements on all vehicles, including tractor trailers and large trucks, in an attempt to respond to concerns about energy security without crippling the domestic auto industry.
Chavez mortgaging Venezuela's future
Nationalizing the country's oil reserves has been a linchpin of Chavez's rise to power. Outside companies such as Exxon Mobil, BP, Chevron and ConocoPhillips continue to haggle with Chavez over terms that would allow them to remain minority partners in the fields in the Orinoco River Basin.Now that Chavez has his oil, how does he plan to sustain it?
Old king coal hard to dethrone
Dirty and dangerous, coal is a notorious source of climate damage yet is destined to remain a key energy source for decades to come.
Indonesia aims to sign Japan pact this year
Indonesia hopes to sign a free trade pact with Japan -- Japan's first to include energy -- by midyear, Indonesian Trade Minister Mari Pangestu said on Thursday.The Indonesia Japan Economic Partnership Agreement will eventually end import taxes on more than 90 percent of trade between the two nations and require Indonesia to commit its liquefied natural gas (LNG) to contractual supply, Japanese trade officials have said.
Internal investigation called for BP firings
An internal BP investigation, detailed for the first time Thursday, recommended that four executives be fired for management shortcomings in a "culture of risk taking" leading up to the 2005 explosion that killed 15 people at BP's Texas City refinery.
Roadshow: Reaction to rising cost of gas: everything, except indifference
Gary, when was the last time you actually promoted some kind of strike regarding these outrageous gas prices? Never, never, not once. I've never heard you say how people can take matters into their own hands and make a difference on lower prices.
Gas zooms past $3 a gallon; record prices blamed on refinery outages, inventory
Sticker shock at Toledo-area gasoline pumps put another hit on motorists yesterday as prices shot up to about $3.20 a gallon for regular-grade fuel at many outlets, a 20-cent increase on top of recent jumps that had put prices on the verge of $3.
Deep-sea quakes raising eyebrows
The deepest waters of the Gulf of Mexico already hold plenty of challenges for the oil and gas industry — extreme temperatures and pressures, fierce weather and currents, and even thousands of unexploded bombs dumped there after World War II.It may be time to add one more hazard: earthquakes.
Vertical integration is next phase for manufacturers and operators.
Green beer (No, not the St. Patrick's Day kind)
The brew kettles at New Belgium use 65 percent less energy than a standard brew kettle, spent grain goes to a local cattle farmer, and, perhaps most surprising, the brewery turns waste water into energy.
Oil Refiners' Production Lows, Profit Highs
Fires. Explosions. Lightning strikes. This is the new state of affairs for U.S. oil refiners, hobbled in recent months by an unprecedented plague of bad luck and operational setbacks from California to Delaware. Facilities of all sizes and age have been struck, leading to supply bottlenecks in various regions.On May 2 the Energy Dept. reported that refineries are operating at only 88.3% of capacity, barely above the 20-year low notched last week. Not surprisingly, gasoline inventories dropped for the 12th week in a row--the first such three-month stretch since 1993. All that has set gasoline prices on a dramatic bull run, with refiners' stocks setting all-time highs and U.S. consumers facing average pump prices of $2.98.
Uganda: Diesel shortage slows Bugiri road repairs
THE 84km Jinja-Bugiri road construction has been hampered by the diesel shortages. The contractors have written to the Government notifying it of the setback.: “Last week we were at a standstill for five days. We got some litres today and have resumed work,” Thomas Grave Hansen, the project manager, Reynold Construction Company, said on Wednesday.
Woqod denies shortage of super petrol
WOQOD, Qatar’s sole fuel distributor, said yesterday that there was no shortage of super petrol, or gasoline super (Octane 97), anywhere in Doha.The company was responding to queries regarding complaints of ‘severe shortage’ of super petrol at various outlets in Doha in the past two days.
Nepal Oil Corporation heavily indebted
According to the report, NOC is incurring monthly losses of nearly 3 million dollars due to lower selling prices of petroleum products. The corporation sells LP gas at a price lower by 3.70 dollars per cylinder. Likewise, it has losses of 75 dollars in every kilo-liter of petrol, 60 dollars in diesel, and 10.5 dollars in kerosene. However, it earns 278 dollars profit in sale of every kilo-liter of aviation fuel.The report also showed that NOC maintains very low stock of petroleum products, heightening risks of shortage once supply is disrupted. The current stock cannot last for more than three days of demand in the capital. The storage of petrol is sufficient only for a day in Pokhara, the major tourist city some 140 km from Kathmandu.
Pakistan - Markets to close after sunset: Steps to contain loadshedding
Conceding for the first time that the country faces an energy crisis, the government on Thursday confirmed a power shortage of 980-1500MW and announced a number of administrative and persuasive load-management measures to contain loadshedding at below 980MW in peak summer.The measures include closure of marketing centres and businesses after sunset, diversion of some industrial activity and use of tube-wells away from peak hours and staggering of weekly holidays in the industrial sector. The government rejected a reduction in street-lightening time for security reasons.
The Philippines: Ready or not
Ready or not the Philippines will be shifting to the use of bio-fuels from petrofuels in less than a week’s time.
Yet Another Report on Balkan Energy Crisis after Bulgaria’s Npp Closure
Serbia is in danger of electricity shortage because of the closure of units three and four of Bulgaria’s Kozloduy nuclear power plant (NPP)....An energy collapse is expected as meteorologists predict that summer 2007 will be the hottest one within a century, Politika said. Electricity consumption in winter and summer is almost equal due to the air conditioning usage.
Brazil considering nuclear option for energy shortage
Brazil will increase the use of nuclear energy if it cannot build enough hydroelectric plants, President Luiz Inacio Lula da Silva said on Thursday.
Bangladesh: Exploration of new energy sources must
Speakers at a roundtable here on Thursday underscored the need for exploration new sources of energy including offshore mining as the country's demand for power has been increasing rapidly.A national committee should be formed to monitor the activities in energy sector and steps must be taken to reduce the use of natural gas by exploiting other resources including coal, they said.
Gas price surge leaves customers scratching heads
"I just find it unbelievable, inconceivable that gas prices can rise that quickly and apparently for no good reason. ... I don't see any good explanation for it."
How high can gasoline prices go?
IT SEEMS THAT WHENEVER the price of gasoline goes up, the oil industry has a new explanation.
Model Coal-To-Gas Plant Gets Its Day
Once considered a white elephant and waste of taxpayers' money, the Great Plains Synfuels Plant here is now hailed as pioneer of clean-coal technology. And it's making money to boot.
Expected freeway traffic horrors don't develop - Fewer vehicles on road; BART posts ridership record
The nightmare commute scenario that many feared after Sunday's East Bay freeway inferno still had not materialized by Wednesday, with many motorists opting to take public transit rather than drive.Traffic congestion was down Monday and Tuesday. The amount of time drivers were stuck in traffic moving slower than 60 mph was down 8 percent around the entire Bay Area, according to Caltrans data. Congestion on Oakland freeways, meanwhile, was down by more than 50 percent, the data showed.
IEA gives warning of global gas shortage
The world's leading energy watchdog has warned of a looming global gas shortage unless more money is poured into investment.
Canada: Gas Pains: Why prices rise and (sometimes) fall
Drops of liquid gold were being sold at gas stations Tuesday morning; at least that's how drivers felt after an overnight jump pushed pump prices up right across the country.
Calls for energy independence and talk of electric-drive cars is sending a chill through OPEC.
Michael T. Klare: Where is the USS Nimitz?
In the latest flurry of media coverage on U.S.-Iranian standoff, the mainstream media has neglected to mention that the United States is massing warships in the Persian Gulf. Why?
Three politicos take a stand on oil profits
There are a few US politicians talking solutions to oil profits, oil shortages, and global climate change. A couple of bills now before Congress would tone down the subsidies for big oil, and one presidential candidate suggests an oil dividend. These are steps toward geonomics, the policy that rewards people for efficient use of Mother Earth.
Repsol-YPF Joins the Fray in Gulf
The deepwater Gulf of Mexico continues to attract a bevy of international oil companies due to its relatively low tax and royalty rates, stable political regime, abundant infrastructure and remaining untapped oil deposits. Companies compete against each other in government auctions to snap up new acreage. Using seismic data to see a prospective pocket of oil that others have missed could provide a critical leg up for oil explorers. Repsol-YPF hopes the new 3DGeo technology will give it a unique advantage.
Nuclear power no sure cure for climate ills
The Council on Foreign Relations, a Washington think tank, says it is almost impossible to build enough nuclear power plants to arrest the rise in earth temperatures. It would be hard for the nuclear industry to procure large amounts of reactor-grade construction materials and hire enough trained workers, the report said."Given the current U.S. energy sources and patterns of use, nuclear energy alone does not provide a solution for at least the next few decades for significantly reducing the U.S. contribution to global warming," wrote Charles Ferguson, the council's science and technology fellow.
Intel analysts to study climate change
Among questions that some are asking: Will drought and weather changes create mass migrations that could threaten governments? Will U.S. military bases be affected by rising sea levels?
U.N.: Beating global warming need not cost the earth
Humans need to make sweeping cuts in greenhouse gas emissions over the next 50 years to keep global warming in check, but it need only cost a tiny fraction of world economic output, a major U.N. climate report said on Friday.
Nigeria's MEND Frees Hostages from Offshore Attack
"The vessel was meant to have been destroyed. We have no need for more hostages just yet."
PNG now has four separate LNG proponents
The current spate of activity revolving around proposed LNG or liquefied natural gas projects is nothing short of amazing and could not have been foreseen even two or three years ago.The crucial factor for PNG’s gas suddenly coming of age – the largest proven gas field at Hides was discovered exactly 20 years ago – has been the upsurge in oil and gas prices and widespread concern that the day of ‘peak oil’ may be coming.
International Oil Cos' Niche Lies In Finance, Project Mgmt
Despite energy-producing countries' rising dominance over global hydrocarbons reserves, multinational companies likely will maintain a niche as financiers and project managers of major developments.
Lately I've found myself discussing peak oil with a variety of individuals. And last night was no exception. I used to think the only people interested in peak oil were geologists and oil execs.I was wrong.
It turns out that the smoky environment of a bar was better than Exxon's boardroom.
Venezuela Min: No Plans for Cash Payment for Orinoco Projects
Venezuela is not considering a cash payment to compensate foreign oil companies for their nationalized assets, the oil minister said early Thursday.
The oil price just keeps on rising
The primary trend, i.e. the development beyond short-term or seasonal fluctuations, continues to point north. While crude oil demand will rise strongly, the supply bottlenecks are becoming increasingly visible. Peak oil, i.e. the global zenith of crude oil production, is getting closer.
Weekly Offshore Rig Review: Day Rate Divergence
For this week's rig review, we set out to examine the relationship between contract lengths and the day rates for those contracts. Specifically, the goal was to determine if longer contracts generally carried lower day rates.
What is the Timing on Peak Oil Production?
Amongst the many concerns that surround oil production one of the biggest is when the world will reach the point of peak oil production. Some researchers feel that this may be within the next year or two. But a recent paper written in Sweden says that it will more likely not be before 2018. What this means it that the oil production will continue to go along the way it has, though in some places it will increase, until it hits its peak and begins to slowly decline. Obviously it is the declining supply that people are worried about.
Is price gouging being carried out by the big oil and gas companies? Of course. Is there anything to be gained by consumers from the high prices? Probably. As gas prices soar in the past few days, so does the chorus from consumers who believe they are being hosed at the pumps. Washington State is launching an investigation into gasoline prices and the NDP energy critic is calling on the B.C. and Canadian governments to do the same.
Richard Heinberg's Museletter #181: Talking Ourselves to Extinction
In the last couple of centuries, the magical thinking associated with religion, under assault from science, has found a new home in political and economic ideologies. Economics, which masquerades as a science, began as a branch of moral philosophy—which it still is in fact. For free-market ideologues, the market is God and profit is the ultimate good. We have used language to talk ourselves into the myth of progress—the belief that growth is always beneficial, and that there are no practical limits to the size of the human population or to the useable extent of renewable or even non-renewable natural resources. This particular myth was an easy sell: it is an inherently welcome message (a version of “you can eat your cake and have it too”) and it seemed to be confirmed by experience during a multi-generational period of unprecedented expansion based on the one-time-only consumption of Earth’s hydrocarbon stores.
Filling the SPR, how to Pay ?
Bush wants to expand the SPR from the current 691 million barrels to 1.5 billion and has selected Richton, MS as the next storage site to get to 1 billion barrels (plus expansions at the two sites in Texas and one midway between New Orleans and Baton Rouge).
http://www.laptec.net/PressRoom/PressRoomDisplay.asp?p1=1161&p2=Y%3E
http://www.energy.gov/news/4517.htm
But the Dept. of Energy cannot even buy back 4 of the 11 million barrels that it sold after Katrina !
The new 800 million barrels will be filled by 2027 and "In 2008 and beyond, as we work our way to 1.5 billion barrels, the Department will determine future fill rates based on information and market conditions available at that time.”
Given that the US cannot afford 4 million barrels, how to buy 800 million barrels ?
May I suggest a percentage tariff on oil or a percentage tax on gasoline and diesel used. A 1.5% tariff on imported oil and oil products would buy 800 million barrels in just over a decade, regardless of the market price of oil.
Storage for 723 million barrels cost about $5 billion well over a decade ago. Part of the tax would go towards building more storage, including refined products as well crude oil.
IMHO, a 1.5% tariff could add 800 million barrels to the US SPR in fifteen years, even with demand destruction.
Best Hopes,
Alan
Note the new tax plus increased demand (good demand IMHO, no GHG) will raise oil prices to users and induce modest conservation.
Why not drill ANWAR to fill it??
THat way you keep it out of the greedy oil company hands.
Give Bechtel a DOE contract to develop it... they will probably get it done for a $100/barrel or so development cost.
But in all honesty, it may be a way to get ANWAR drilled and get the oil where it is needed in the event of an emergency.
FF
As we all know, that pipeline is not going to be there forever.
FF
Hi FF,
I'm glad to see your comments.
re: "...where it is needed in the event of an emergency."
What "emergency"?
What happens when the "emergency" outlasts the supply?
re: "...pipeline is not going to be there forever."
Now, this seems to be a better argument. (Get it while the gettin's good.) And store it.
I had ideas along these lines, too. Not just for ANWR - the argument could apply regardless of source (doesn't it?) In fact, it seems this is one idea that might be "sold" to the public - it offers people some tangible ability to save for the future. I think people would like this. (A conservation measure with concrete results.) Unlike money, you could see the oil sitting there.
But I couldn't figure out how to get around the ability of someone(s) (fed?) w. force to negate any agreements and/or conditions set upon the use.
I'd be interested in pursuing this line of thinking.
You think Uncle Sam getting into the oil buisness is a good idea?
That's just a step away from nationalizing the whole shebang isn't it?
Why not? Everyone else that still has some oil left seems to be doing it! :-P (JJ)
That was my thought as well and I bet there is a plan to do just that if need be. It's kinda like a game of musical chairs. Everyone is scrambling and dancing around and try to get what they can before the music stops. Then we will have a bunch of national-based entities controlling the petroleum in each country...unwilling to sell it or invite anyone else in to develop it and take it out of their borders.
...and Robert, I do apologize because it will not be fair to the oil companies that get kicked around in this situation, but I do believe this will be the future of the business. The existing companies will become "National" companies and work for their respective countries.
Robert, I found this concerning Scottish independence and "Scottish" oil. It is from the "World Without Oil" journal (fictional oil crisis supportted with factual info). I guess it's not only Chavez that wants to keep his own oil under his control.
"It's Scotland's oil"
http://megawatt-seller.livejournal.com/1516.html
http://en.wikipedia.org/wiki/It's_Scotland's_oil
Some inconvenient facts:
Scotland last made a positive cash contribution to the UK Exchequer in 1905.
Scotlands oil is currently providing 11 billion sterling a year to the UK Exchequer.
The UK provides 30 billion sterling to Scotland each year.
The Barnet formula ensures that for every pound sterling of government money spent in England, £1.25 is spent in Scotland.
Last time I looked: 11-30 = -19 billion sterling per year.
Scotlands oil will fall from its peak production in 1999 to at least half that by 2015, and probably less than 1 million bbls / day by 2018.
25% of the working population in Scotland are employed at tax payer largesse. Many in ludicrous and overpaid and pension protected jobs
Less than half the total population are actually in paid employment contributing taxes to the exchequer. About 48%
And this figure includes the public employee tit-babies
Prior to the discovery of North Sea Oil, Scotland was rapidly depopulating. Especially in the North East.
Incomers have stabilised the population decline. Which is good. Because by 2025 we will need lots of overtaxed low wage immigrants to wipe our arses while we whinge and whine in old folks homes. I am sure they will flock in to do it.
By 2025, Scotland will be an old peoples home, with the North Sea kaput, and public employees demanding impossible protections and entitlements from an ever reducing and ageing work force.
And all of the above is without Global Peak Oil or GW.
Aye. Today was a sea change in Scottish politics. But the new Masters dont even recognise Peak Oil and have sold a line about oil lasting another 30 years and the creation of a Norwegian Style Oil Endowment Fund.
The new man in charge is an Economist by the way...
So, by 2010 the new boy wants a referendum on independence and he has also said that (and this IS true) If Scotland does not like independence, we can always go and re-join the Union.
One last important little factlet:
Scotland was not forced to join the Union 300 years ago. It joined after the Darien Fiasco (Scotlands attempt at raising overseas colonies). When Scotland Joined the Union it was Bankrupt and had been suffering under a severe Christian Regime very similar to the Taliban (''why dont Scots have sex standing up? - Because somebody may think they are dancing''.)
The Union heralded Access to Capital, Access to markets, And the truly amazing and world changing Scottish enlightenment.
Scotland lost interest in the Union about the same time Britain's Empire went into decline.
I dont see today as a good day for Scotland or the UK.
As for rejoining the Union at a later date, well, 55 million English may have something to say about that.
If Scotland is lucky, it may be in a position to sell water to the English as the climate dries England out.
Ha...thanks for the "insider's" scoop on the situation. I was just using the Scottish example to illustrate that it is not only Chavez that wants to keep his resources for his own country. We will probably here many more "local" stories about the "natives" doing what they have to to keep the resource in their hands. Heck, Africa has almost daily stories along this line.
'In Saudi Arabia gasoline costs about 45 cents a gallon. In Iran it's 33 cents. Venezuelans pay less than a quarter.
These absurdly low prices are a direct result of massive government subsidies.
While these numbers are not adjusted for cost of living, it's fair to say that drivers in those countries are getting a good deal.
But it's straining government budgets. More importantly, it's not allowing the free market to do its job. Higher prices on the open market are not leading to a drop in demand, which is keeping the cost of oil high for everyone else.'
http://money.cnn.com/2007/05/04/news/economy/gas_demand/index.htm?cnn=ye...
Especially note the 'not allowing the free market to do its job' - if Saudi Arabia or Iran or Venezuela decide to sell themselves their own oil at their own price (so to speak), this is unfair to Americans, as it stops the free market from working.
I believe the Iraqis, however, have made major strides in allowing the magic of the free market to work for them. Strangely, the article didn't note this success in lowering demand by raising prices in an oil producing country.
I may add, the article provides some basis to see the export land model in operation - not that it actually mentions this point, except to more or less suggest that an oil producing country should not be allowed to escape the demands of the free market by increasing their own consumption - after all, merely because it theirs doesn't mean they should be allowed to keep it selfishly for themselves. After all, Iraq doesn't.
As a Scot I am not happy with this blatant misrepresentation of my country...would the editors please remove this?
As an American of Scottish decent I would prefer the editors to leave it. I feel a more appropriate response with
a broader positive result would be for you to engage with dialog.
Where IS that 'Theory of Everything' ?
Here it is !
Who's to say it's "misrepresentation"? The Darien fiasco is historical fact, and Scottish demographic trends are public record. Besides, there is no value in free speech unless it includes speech you don't like.
I don't need lectures about free speech thanks. Responsible free speech is required, not a diatribe. Don't you lot usually deal with trolls quietly? If you think Mudlogger's analysis is sound then that shows two closed minds not one. I think the current state of Scotland is more nuanced than ML would allow. If Scotland is such a basket case then I wonder if that had anything to do with deindustrialisation or the use of much of our land for aristocratic 'sports'. Being tied to a neighbour so much bigger and so arrogant with it does not help. If you are English ML why don't you and your countrymen set us free and watch us drown. We don't mind. We could do with having your foot taken off our heads as we try to surface though...
As for ML's analysis, if you really think it is so transparently obvious, I should be humble and listen reverently, and then I must re-contact all those academics I used to hang out with and tell them to get down to McDonalds pronto, I hear you can always get a job there...
At least the English do not deny the Scots right to exist, as many Americans have on this forum and elsewhere to New Orleans.
Best Hopes,
Alan
I have kicked around the possibility of the U.S. nationalizing the oil industry. Understand, that's not my issue. I have no problem with countries nationalizing industries. What I have a problem with is theft, which is what Chavez has done. If the U.S. ever nationalized the oil industry, I will bet that the shareholders are compensated and the U.S. doesn't just seize companies.
I think there is a fair probability that as resources deplete and the oil companies are making higher and higher profits, that the government will step in at some point, declare company business a matter of national security, and work to nationalize the assets.
Robert a good question to ask is "How much profit has the Majors made over the last 50 years?" The oil companies with help from the ruling families of Venezeula have plundered the country for years. The population of Venezuela has seen very little benifit from it's vast natural resources. My guess is from the perspective of Chavez, the oil companies have been paid very well for their investments.
The oil companies with help from the ruling families of Venezeula have plundered the country for years.
I am interested in this line of argumentation. Maybe you are correct. Do you have any numbers to support the argument? Do you have numbers for tax revenue that oil companies have paid to the Venezeulan government? I suspect your assertion is wrong, and an emotional appeal, but I would be very interested to see the numbers.
Robert I do not have numbers to support this assertion. However I worked and spent a fair amount of time in Venezuela. A subject often discussed was "why is Venezuela third world, with it's fabulous wealth of natural resources?" Also I believe up until Chavez, the Majors paid a very small pecentage of revenue in tax. I will do a little research and see if I can locate "numbers"
Here's a place to start.
Venezuela
Rigzone has anhttp://www.rigzone.com/news/article.asp?a_id=43731 article and some of the percentages paid in Venezuela.
The article you linked to - Oil Companies May See An Ebb In Profit Gusher - summarizes both sides of this debate. Here are some excerpts:
So, Venezuela did not have the money to develop their resources, and they offered attractive terms for foreign investors to come in and develop the reserves. And they invested billions to do this.
So, the companies risked billions, the risk paid off, and Chavez tore up the contracts.
Except that you haven’t invested billions in the kid only to have him demand to renegotiate. That’s what people can’t seem to understand. Chavez has the right to nationalize. But projects were done based on the terms offered. What he should do is compensate companies for the investments they made, and he is refusing to do that. And this isn’t just an issue with U.S. companies. He is doing it to other countries as well. So, if I am China I am very reluctant to trust a guy who has no qualms about tearing up existing contracts.
Personally, I hope my company gets the heck out of Venezuela and never returns. Chavez can't get away with this act for too long without that influx of foreign investment. And if oil prices unexpectedly plunge (something I certainly don't expect) he is going to be in financial trouble. As it is, he is fostering expectations of support that can't be continued if he chases out the foreign capital.
Robert, you seem to forget that this is round No. 2 of nationalization in Venezuela. They kicked the oil companies out in the 70s, invited them back in the 90s, and the majors jumped right back in. I am quite sure that the corporations were pretty sure that they could easily get kicked out again, and set up contracts to ensure that they made lots of money real fast in anticipation of just this event.
I am also sure that if Venezuela privitizes again in 10 years, the foreign investors will be more than happy to jump right back in. They always are.
I find it interesting that they are also nationalizing Sidor, the steel company. I was involved in the privitization 10 years ago.
Hi Robert,
Thanks for the discussion.
Re: "So, if I am China I am very reluctant to trust a guy who has no qualms about tearing up existing contracts."
This would make sense, in a certain framework. I'm not sure China sees it that way, though. Perhaps the opposite, in fact.
http://www.hrw.org/reports/2003/sudan1103/26.htm
http://www.washingtonpost.com/wp-dyn/articles/A21143-2004Dec22.html
"...the rebels have attacked oil installations, seeking to deprive the Sudan government of the wherewithal to pursue a civil war that has killed more than 2 million people and displaced 4 million from their homes over the past two decades. But the Chinese laborers are protected: They work under the vigilant gaze of Sudanese government troops armed largely with Chinese-made weapons -- a partnership of the world's fastest-growing oil consumer with a pariah state accused of fostering genocide in its western Darfur region."
When prices are stable, contracts are stable. When prces rise, nationals feel foreigners are taking too large a share of the national treasure. Perfectly natural, happens all the time, im sure the majors expect it because it has happened many times in many places.
In the current situation majors have a simple choice - take their contracts to world court, probably win something for their assets and the something might be collectable against veneauelan us assets, eg their refinereies (which are debt free), or give up and remain in country under a new contract. The fact that all are choosing to remain implies that the new contract is better than what they might eventually collect in court. IMO, the fact that venezuela's orinocco belt holds a major share of the worlds useful reserves is influencing the majors' decisions.
Agreed, if prices fall chavez will have to change the terms, but most here are agreed that this is not likely to happen. It is hard to see how an impartial observer could possibly see chavez' actions as anything except very favorable for the venezuelan people, his grandstanding giveaways notwithstanding. There is little wonder that he is very popular, probably becoming more so even as the country drifts towards the usual totalarian form of marxism.
The steel company is something else again, imo it will not be nationalized. The banks, too, are in a better position.
Something like that might be difficult to quantify. I mean, where is the dividing line between plundering and fair compensation? I have to wonder though, has the US gov. or companies manipulated Venezuela over the years to the detriment of Venezuela? Was Venezuela taken advantage of because the US was negotiating from a stronger position? I think a lot of people, including myself, feel that this is what has been happening. I don't know how to prove it of course, but don't you think the US takes advantage of poorer countries when it's in its interests? I think that's why some people might excuse Chavez for taking over the oil industry.
Just like in Nigeria, the problem is much of the plunder is within the country, in corrupt government officals, certain local officials and wealthy corrupt business people. Oil cos could have paid 3 times the taxes and it would still primarily go to the rich. Look at PEMEX. There is no limit to the point that the powerful will enrich themselves and allow astonishing poverty for everyone else.
A bigger question is how much do the oil companies collude or enable these behaviors for their own enrichment, how much are they directly involved in. How often do they willingly turn a blind eye to local destruction, exploitation and abuse of the poor in pursuit of their aims. Bribes and kickbacks, directed contracts, etc when done with authorities who consider themselves to be the law are sometime legally gray, but in the big picture are clearly corrupt, expolitive and harmful to people and society. It's generally pay to play, and companies will pay.
Few companies will turn their back on a big profit on the basis of ethics if it can be accomplished with a veneer of legitimacy. Again, Nigeria, Sao Tome and many other examples can be brought forward. This doesn't mean the lower level employees are bad people, but often the whole mess just stinks.
Hi peak,
I like your questions, and would encourage you to pursue them.
re: "...This doesn't mean the lower level employees are bad people..."
In fact, we could generalize and say "nobody's bad". People are attempting to meet their needs, with the strategies they have at their disposal. (Learned, invented, "set up" in some cases...)
The question, it seems to me, is how to get into a conversation about those needs, so that people might see the wisdom in pursuing alternate strategies, and also, perhaps, learning new ones.
That's part of the risk in working in a country that isn't the same as your home country. When you operate in another country, you play by their rules, no matter what their rules are. If you're in a country that isn't on friendly terms with your base country, you have no leverage to help you if things go sour. The oil companies knew that nationalization was a possibility.
Venezuela nationalized its oil in 1976. It wasn't just a possibility, it was an actuality.