Monday, April 09, 2007

New Rules or Old Methods?

Some interesting snippets from a New York Times article on Venezuelan oil resources and their soon-to-be expropriation:

Consider the quandary facing Exxon Mobil after its chairman, Rex W. Tillerson, recently suggested that Exxon might be forced to abandon a major Venezuelan oil project because of its growing troubles with Mr. Chávez.

The energy world took notice. So did Mr. Chávez’s government.

Only a day later, Venezuelan agents raided Exxon’s offices here in the San Ignacio towers, a bastion for this country’s business elite. The government said that the raid was part of a tax investigation, but energy analysts said the exchange of threat and counterthreat was all too clear. <...>

Mr. Chávez recently decreed that Venezuela would take control of heavy oil fields in the Orinoco Belt, a region southeast of Caracas of so much potential that some experts say it could give the country more reserves than Saudi Arabia. The United States Geological Survey describes the area as the “largest single hydrocarbon accumulation in the world,” making it highly coveted despite Mr. Chávez’s erratic policies. <...>

The oil companies decline to talk publicly about the negotiations, but people in the industry say Exxon and ConocoPhillips, two of the largest American companies in Venezuela, are digging in their heels. The companies, however, lack a united front: Chevron is expected to accept Mr. Chávez’s terms, since it is also negotiating access to a large natural gas project in Venezuela. <..> (New York Times, April 9, 2007)

These methods might sound familiar; familiar they are. In essence they are a more radical and populist way of imitating this:

The Russian government has won another concession from the foreign partners of the oil and natural-gas field being developed in Russia's remote Far East, known as Sakhalin 2.

Last week Gazprom, the Russian energy monopoly, took control of the project when foreign developers led by Royal Dutch Shell agreed to sell 50 percent plus one share to Gazprom, after months of pressure on the company and accusations about environmental issues from a Russian regulator. Critics called the sale a forced nationalization.

The latest twist came Thursday when the Russian government said the private developers had given up their right to recoup $3.6 billion in capital expenses on a priority basis. They were supposed to collect the money before the government began collecting sizable royalties. (New York Times, December 29, 2006)

Oh, I almost forgot this:

Gazprom forced BP's joint venture, TNK-BP, to give up export rights from a major gas field near the Chinese border. Now Gazprom will export from the field, called Kovytka; TNK-BP is selling only to local customers.

If Gazprom gains at least a blocking stake in the Shell project, then it will control all major gas supplies to Asia from Russia, critics say, with the pricing power and political influence that comes with a monopoly. Gazprom would still compete against liquefied natural gas from the Middle East and other sources. (New York Times, September 23, 2006)

Finally, during the last several decades, control of global oil reserves has steadily passed from private companies to national oil companies like Petróleos de Venezuela. According to a new Rice University study, 77 percent of the world’s 1.148 trillion barrels of proven reserves is in the hands of the national companies; 14 of the top 20 oil-producing companies are state-controlled.

Notably, Russian monopolies seem to function more efficiently without a blind pursuit of wasteful spending. However, several commentaries in today's Vedomosti newspaper have suggested that this seeming efficiency is very superficial. Most of the capital being raised in European and Russian capital markets does not flow into capital expenditures relating to existing operations, even less flows into new projects. Despite this, Gazprom continues to show the pure benefits of operating as a monopoly in the Russian market. Its latest move into power-generators, allows it to tap the soon-to-be liberalized energy market, where domestic (Russian) prices are set to rise to match those in Europe. While in control of the actual input resources for power generators, which it is able to acquire at prices of five times below those in Europe, as the market in Russia for input resources is unliberalized, it has the ability to widen the margin on the electricity it sells by several factors. A rough estimate shows that its profits from this venture would see triple-digit growth in the next few years.

However, the similarities in the Venezuelan and Russian scenario highlight the common features under which resource-driven economies operate, the rules that they establish, and the means by which investors operate. By following similar routes, these countries are already serving as an oligopoly in the global energy supply market without any formal cooperation.

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