Venezuela Halts Oil Sales to Exxon Mobil
Posted by Prof. Goose on February 12, 2008 - 7:55pm
Topic: Alternative energy
Tags: Export Land Model, exxonmobil, oil, peak oil, venezuela [list all tags]
http://biz.yahoo.com/ap/080212/venezuela_us_oil.html?.v=9
CARACAS, Venezuela (AP) -- Venezuela's state oil company said Tuesday that it has stopped selling crude to Exxon Mobil Corp. in response to the U.S. oil company's drive to use the courts to seize billions of dollars in Venezuelan assets.
Exxon Mobil is locked in a dispute over the nationalization of its oil ventures in Venezuela that has led President Hugo Chavez to threaten to cut off all Venezuelan oil supplies to the United States. Venezuela is the United States' fourth largest oil supplier.
Have at it.
Uh...
So?
A smart reversal by Chavez from his initial threat to cut off all oil sales to the US. Chavez (IMO) would have been cutting his own throat if he did this.
Venezuela still owns CITGO which uniquely processes the heavier mixes Venezuala offers. These, in general, can't be processed in refineries in the rest of the world.
Now, only EXXON (which has enriched itself through exploiting Venezuelan crude, more than any other company), will take the heat. On the other hand, XOM is a big boy and can undoubtedly weather the storm, given the preferential treatment it receives in the US.
Having said that, XOM could now be harvesting millions more BPD by upgrading Venezuela's heavy oil reserves if they had just acted with less avarice and offered Venezuela a better deal for the rights to do this than they did in the late seventies and early eighties. Chavez (IMO) would never have come to power if they had.
Now, having failed to learn the less of Venezuela, XOM is pushing a law in Iraq in which they and their cohorts get the lion's share of the production rights. What would be wrong with a 50/50 offer?
Pity. What goes around, comes around.
The best thing the Bush Administration could do right now is to remain silent. Silence is an important communications tool. Used properly, it is highly effective in that once you have shown your hand to an adversary, he knows what you are thinking. Keep Mr. Chavez guessing.
I doubt it. The best course is to be honest and admit to peak oil, once you admit the problem then you can try and fix it.
Peak oil, at the least, means the end of cheap oil and hoarding of it ... have we any evidence we are near peak? ... we have seen massive year on year increases in the price of oil for 10 years or so, and the US, China and other importers are already increasing the size of their SPRs (and filling them) while exporters gradually take full control of their fate and 'net exports' start to decline.
The EIA statistics indicate we can expect more of the same, make your plans accordingly.
Silence on the part of the Bush administration. Is Bush learning a thing or two about diplomacy? Is Venezeula's posturing for a showdown at the O.K. Corral? Or is the Chavez government trying to minimize further loss by focussing the penalty on Exxon alone? Too many unanswered questions to get a clear picture.
The next few days will tell. Will this heat up? Or will it amount to a tempest in a teacup? Stay tuned.
"We expect that gasoline prices could drop another 10 to 20 cents before the expected spring price increases begin in March."
http://www.bizjournals.com/southflorida/stories/2008/02/11/daily7.html
I'm sure they'll just sell it to the Dipsey Oil Corporation who will sell it to Exxon, probably using the same boat. Most of the heavy oil refineries are in the US, so what are they going to do? I'm sure if they really had another buyer, they would have sold to that buyer a long time ago.
PO notwithstanding, they're not going to stop selling oil.
They still have the oil--
And it is not getting less valuable.
Checkmate.
Next game?
How about this ----
America is addicted to OIL.
OPEC controls 2/3 of the worlds oil reserves.
97 percent of the transportation system in USA runs on OIL.
Checkmate.
Game over !!!
Not entirely so. Altough Venezuela could go on (authough poorer) without selling oil, the Hugo Chaves goverenment can't.
I'm quite curious to see what interest will prevail.
My question is: How practical is it for Venezuela to take their oil elsewhere?
At least slightly more practical than for the US to live without it.
and on the back of this news XOM is up slightly for the day, down 1/2% in after hours trading, so it seems "the market" doesn't care much.
http://finance.yahoo.com/q/bc?s=XOM&t=5d
the helicopter "market", a well-oiled machine, no less!
umm, have the Chinese begun building heavy sour refineries since their last friendly with Chavez?
2008 might be exactly the year that we leave the undulating plateau due to the coercion and conjuncture of :
- financial crisis (the long "expected" depression);
- geological determined shortages(Russia's peak...);
- political determined shortages(see Venezuela, Nigeria, etc) ;
- election year (US, Russia, etc..)
- drought (bye, bye biofuels)...
and many things that can go wrong:
- hurricanes, cyclones in Persian gulf?
- hot summer in the North Hemisphere?
- failure of electrical networks?
- food shortages?
- angry people?
How much oil could China absorb for their SPR ?
China uses AFAIK, above ground tanks, so their are limits to their ability to build new tanks.
A specialty refinery could be built to slowly transform the SPR crude into refined or semi-refined products for further storage.
My guess is that China can absorb 100,000 to 200,000 b/day into theri SPR. A long term deal at, say, $85/barrel might look good right now for both parties. The USA would lose that amount and sales elsewhere could bit be repurposed back to the USA.
Alan
I think China might be willing to build refineries to handle their heavy crude. It depends on what other deals that China can get. China is on the record as saying that they make deals with countries that the U.S. will not deal with. They will sell arms to the Saudis that we will not sell them, for oil. China is very active in securing their oil future and they have the U.S. dollars from trade to make the deals.
Hi Alan, would you guess that those repurposed sales could be at a repurposed price?:)
Here is a snippet from an article from Bloomburg that ilargi posted on the Automatic Earth this morning:
http://www.bloomberg.com/apps/news?pid=20601086&sid=aWcJWxscwnrc&refer=l...
Question for the refinery engineers - I keep reading that Venezuelan crude needs to be processed in special refineries, and that normal refineries can't or aren't used to process it. Does this still hold true if you are willing to accept a lower grade end product? For instance, if you were willing to burn most of the crude as bunker oil for ships or power plants, rather than process it to motor vehicle fuel? Or is it a matter of corrosive contaminants, too-high viscosity, etc., that physically preclude processing in a normal refinery? Or both?
Both.
Venezuelan oil is heavy(needs hydrogen), and has lots of vanadiun(toxic metal) and sulfur in it. These impurities are bad for people and engines.
Gasoline and jet fuel are the most profitable products, these is what oil refineries want to make.
Here's what EIA says about the 2003 cutoff of Venezuelan crude.
http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2003/venez...
I recall that Venezuela seized some oil drilling rigs that belonged to foreign companies in their mad quest to nationalize resources. The drilling rigs were working on sites and contracts approved by Venezuela. According to some the Chavez government was guilty of piracy in this case as tehy hijacked some rigs. In the case of Exxon, ConocoPhillips, Total, and others working in Venezuela, billions of dollars worth of investments were seized. Venezuela took at least 60% control of the projects. The projects were yet subject to taxes, royalities, rules, regulations etc. Venezuela offered to compensate companies for their losses, then gave no compensation to Exxon or ConocoPhillips.
http://www.ogj.com/display_article/291763/7/ARCHI/none/none/Venezuela-ta...
How would you feel if you spent 10 billion dollars in a country and then the host country confiscated your investments? The current value of the upgraders, pipelines, and extraction infrastructure seized by Venezuela exceeds the amount of assets Venezuela has in the USA. Will he stop shipping oil to his three US based refineries at Citgo? Not all refineries are set up to handle heavy oil and there are trillions of barrels of bitumen in Canada, Venezuela, Russia, and elsewhere.
Chavez claimed rights to a minimum of 60% of all projects. That language leaves the option of further seizures open. Who would want to invest in such a nation as this?
Exxon has a right to file a lawsuit.
Exxon's net investment in Venezuela is not $10 billion. If they had invested this much and did not a get chance to extract billions of dollars in profits then you would have a point. According to Exxon, Chavez's nationalization, left them with a loss of $750 million.
Yes Rainsong, and what a good world citizen that legal entity has been. If it weren't for such self sacrifice by them and the rest of Oil-corp, in promoting the automobile, we would all be out shivering in the fresh clean air commuting on Alan's tooner trollys. Gee I would say they are just the peaky best, but I think Auto-corp edges them out in the just-what-the-world-needed department.
I think the human race would have been better off taking all the fossil fuels out and burning them:)
Why when legitimate criticism of venezualen nationalisation is raised do people consistantly erect strawmen?
Dezakin I think one erects straw men so that others may drive them to the ground with their insightful comments ... anyway it's fun and broadens the horizon IMO:)
No it doesn't. It just spams the debate with a bunch of off topic ideology.
OH!
What Venezuela did was legal under international law. They nationalized a higher percentage of the operations and offered adequate compensation (4 of 6 oil companies accepted the deal). XOM & COP refused the offer and now it is moving onto legal and arbitration channels.
Whether a nation wants to be an attractive place for foreign investment or not is an internal domestic policy issue (I would never invest in Russia for example, too corrupt and too much risk of Russian nationalism, but I would in Kazakhstan). But it is Russia's soverign right to be a poor place for foreign investors.
Alan
They nationalized a higher percentage of the operations and offered adequate compensation
I am curious, Alan. What is your basis for saying the compensation was adequate? ConocoPhillips has several billion dollars invested in the ground, and was offered pennies on the dollar in compensation. They were offered less in compensation than they still owe to the banks on the project. In order to get compensation they were being asked to sign a contract giving up rights to dispute any future disagreements. Personally, that doesn't sound adequate.
The compensation may have been adequate to some that didn't have significant investments, but to make a blanket statement like that is like saying offering $50K to all homeowners for their homes is adequate. I don't think you would say that if your home was worth quite a bit more, and especially if you still had a mortgage of well over $50K left to pay.
The US Gov't offered $150,000 maximum for those whom homes & contents were destroyed by a failure of federal levees, and we were told that this was fair.
And people were offered toxic trailers (I talked to several homeless people (formerly home owners) who told me that they had to leave their FEMA trailers due to illness and either sleep on friends couches or on the street. FEMA lawyers ordered FEMA field personnel to NOT test the trailers despite numerous complaints.
I am sure that they will also be offered fair compensation.
Should I hold the Venezuelan Gov't to a higher standard than the US Gov't ?
Alan
Unless people had $5 million homes, then the government made a better offer than Chavez did.
But the U.S. government didn't seize their homes, so apples and oranges. If they had, and had offered pennies on the dollar, then you would have a similar comparison.
Million dollar plus homes, plus contents in LakeView (Fats Domino's home was worth ??) plus disruption. The maximum flood protection available is $250,000, add $150,000 and many declared bankruptcy.
The taking was due to the failure, via malfeasance, of a promise made in 1928 and reinforced in the mid-1960s for a specific level of protection.
The second taking was the delivery of toxic trailers (CDC today ordered all residents out ASAP) and the willful decision not to test for over a year.
What is the fair compensation for someone previously living a normal life, who home was destroyed via malfeasance, and is then offered a trailer that makes them ill (again with willful failure to assure safety), they then end up sleeping in a tent outside, go into a deep depression and commit suicide (succeed or fail) ? This describes hundreds if not thousands of New Orleanians.
Granny Smith apples vs. Delicious apples,
Should I hold the Venezuelan Gov't to a higher standard than the US Gov't ?
Alan
Should I hold the Venezuelan Gov't to a higher standard than the US Gov't ?
If you did, those folks would have gotten about $20,000 for their million dollar home - and that presumes that the government actually seized a perfectly good million dollar home. Sound like adequate compensation?
Much more adequate than driving a "normal patriotic" American to homelessness and suicide by a series of malfeasance and deliberate policies.
I have heard their stories, seen their faces and they affect me *FAR* more than any negative impact on my ownership of oil company shares if said companies had been operating in Venezuela.(not XOM or COP but APA, PBR, Tullow, STO, ECA, CNQ).
I feel not 1% of the outrage towards the Venezuelan Gov't and the damage the have done to shareholders as I do the recent actions of the US Gov't.
The US Gov't has not treated it's own citizens any more fairly than Venezuela has treated foreign multinational corporations. I would argue that the V actions are morally flawed but still superior to that of the US Gov't. as shoplifting is a lesser crime than armed robbery.
AFAIK, the Venezuelans have not forced any COP or XOM employees into toxic boxes for two plus years or caused hundreds of them to commit suicide.
Alan
Alan, this just isn't a credible analogy at all.
True, the US Gov't was murdered over 1,100 of her citizens via malfeasance and thousands more via deliberate policies (the death rate in New Orleans went up 48% in the six months after Katrina and remains elevated).
Venezuela has, perhaps, committed a minor economic crime against foreign non-persons (corporations).
And then there is Iraq.
Murder vs. putting a cheap apple sticker on an expensive fruit might be a closer analogy.
And I will not apply a higher moral standard of "fairness" to Venezuela than that exhibited by the US Gov't.
Alan
When you're using phrases like 'murder via malfeasance' you're engaging in a campaign of deception Alan. There aint no such thing. All you're doing is labasting rhetoric, and not very credible rhetoric at that.
And then there is Iraq.
And Nazi Germany and the Roman Empire and a bunch of other things that are entirely unrelated.
This is what passes for serious debate here?
The US Army Corps of Engineers was given the specific mandate by Congress to provide a specific level of protection. They proclaimed that they had done so, while knowing that they had not.
A single specific case was the levees for St. Bernard Parish and the Lower Ninth Ward of New Orleans. The "as designed" zero elevation was 1.5 to 1.8 feet above the "as built" zero elevation.
Roughly a third of the levees was built to this "below spec" in error. Simple, massive incompetence to that point ! However, the error was discovered internally, and there were several honorable choices, such as
1) Finishing the remaining 2/3rds to the correct design elevation and then going back and adding a foot and a half to the third already built.
2) Going back and raising to already built levees to the proper elevation (the most critical were built first).
3) Disclosing the error to the public and continue building a short levee with budgeted funds and await further funding to build then right. (Such a disclosure would have prompted a multi-year effort to add more years to the budget).
Instead they kept their error secret and continued building short levees. This deceived those protected by the levees as to the degree of protection they had and this deception was malfeasance !
There were other significant errors, known to the US Army but not disclosed, regarding T wall levees, surge dynamics and soil support that created additional acts of malfeasance.
A good analogy would be that GM discovers that the plastic is a large batch of seat belts is significantly weaker than design spec, and does nothing about cars on-the-road, but builds more cars from the same batch and hides this knowledge. Or GM decides to save money on seat belts and buys cheap, weak, plastic. And then your friends die from seat belt failures.
Alan
The moral failures of the Venezuelan Gov't are dwarfed by the moral failures of the US Gov't. Given the lack of outrage (and lack of an 8/29 commission) about the US Gov't failures, I refuse to hold the Venezuelans to a higher standard than my own government.
Alan, you're comparing less than competant engineering trivia to outright theft, and then throwing perjorative phrases like murder around. The sad thing is, you probably believe your own rhretoric.
Its kinda sad that you actually think that this is a good analogy. This comparison is bunk.
You're right there Dezakin, we shouldn't be comparing individuals to either corporation or state entities, people tend to do silly things like bleed at the ears.
I do not think that comparing buying homes threatened by levee breaks to a country nationalizing its oil industry as quite the same thing. There are some similarities that allow you to make comparisons, but so many differences.
The government provides floor insurance and helps people when there are floods, so it is proactive to save that it is more cost effective to move the people than to insure them, rescue them or fortify expensive levees.
The government owned oil may be the only valuable resource that the country and its people have. If it is extracted rapidly at a low payment, the country and its people are left with very little to show for it, but the oil companies have made a lot of money and move on to the next country.