Español








Very usefull links



Petroleumworld
Bookstore



Institutional
links


OPEC



 


Petroleumworld
Business Partners

 


IRAQ OIL THE FORUM


Blogspots
recomended

caracas chronicles

Gustavo Coronel

Iran Watch.org

Venezuela Today

Le Blog des
Energies Nouvelles

 

 

Lagniappe

 

 

Andrés Cala : Latin America bonding around oil


 

 

The oil industries of Venezuela and Brazil are doing more for Latin American unity than Venezuela's Bolivarian regional integration pipedream, in a nascent yet encouraging signal for the global energy security.

The state-controlled energy mammoths PDVSA of Venezuela and Petrobras of Brazil are investing heavily in the oil and gas industries in South American and the Caribbean, as well as signing deals to further deepen the trend in coming years.

PDVSA is helping Ecuador, Cuba, Argentina and Caribbean nations develop their hydrocarbon production and refining industries, while Petrobras is involved in just about every South American country across the entire value chain.

The two companies, which also work together in several joint ventures across the continent, are leading the drive, but they are not alone. YPF of Argentina is also planning to invest in Venezuela. Ecopetrol of Colombia is helping Venezuela and Peru, and the list goes on.

To be sure, Latin America appears to have finally found a strong shared interest to bond around, and it's not ideology or politics. It's the shared goal of developing the region's rich oil and gas reserves, the second biggest in the world after the Middle East, most of which remain untapped.

The trend appears solid, although it's gaining steam, and the outcome remains far from certain. Still, it's an encouraging sign of Latin America's evolution, one that could offer some welcome oxygen to a tight oil global supply in the midterm, and more importantly consolidate the region's march toward political and macroeconomic stability.

Love affair around oil, not politics

For over a decade, Chávez tried unsuccessfully to use his oil wealth to create a common front against the US. Many countries benefitted, but most of them also were suspicious of the political baggage.

In the process, Petrobras offered more attractive partnerships, not in the form of handouts, but investment and knowhow.

And it appears that Chávez, who failed to inspire a regional revolution he was bankrolling with oil profits, learned that the continent prefers economic partnerships, not aid. Countries, recent deals show, prefer their national oil companies to do the bonding, as opposed to political leaders.

And it's not too surprising. A successful model to develop Latin America's energy resources has been slippery. Last century, corrupt governments pillaged the wealth of energy resources, while offering foreign companies very favorable terms.

Chávez's rise in Venezuela, as well as a broader regional political transformation to accommodate a populist left, was a direct result of the failure of traditional elites to deliver a sustainable economic development model and more income distribution, despite increased cash from the commodity-rich region.

Chávez's answer was to nationalize the industry and others like Bolivia and Ecuador mirrored the example. But the model failed as countries lost much-needed foreign investment and knowhow. And starting this decade, even the more radical Bolivarian countries, including Venezuela, are gradually adopting Brazil's model.

Brazil last decade under President Lula da Silva was the first to balance free-market practices demanded by the oil industry, with social devolution to secure the necessary political stability to invest in the energy sector. Colombia and Peru followed its example and are showing good results for it. Argentina is still seeking its own middle ground.

The deals

Petrobras is spread throughout Latin America from exploration to downstream. PDVSA has signed agreements with recently expropriated YPF, Argentina's biggest oil company, to mutely seek investment in the oil value chain. YPF is considering investing not only in exploration in Venezuela's Orinoco Belt, which could hold more than 200 billion barrels of recoverable oil, but also in the country's biggest oil upgraded which transforms the heavy crude into exportable liquids.

PDVSA and Petrobras are exploring options in Argentina's Vaca Muerta, which holds some 20 billion barrels, and PDVSA said it will consider exploration in the disputed Falkland Islands.

Petrobras and PDVSA are also planning to build a massive refinery in Brazil. PDVSA is also investing in Ecuador's and Cuba's refining industry. And PDVSA will soon start exploring Cuba's Gulf of Mexico's untapped reserves.

Ecopetrol of Colombia, one of the region's biggest oil companies in terms of market capitalization, wants to invest in reversing plummeting output in Venezuela's mature fields both countries are considering building an oil pipeline to connect Venezuela's Orinico Belt to Colombia's Pacific Coast. Ecopetrol is already investing in Peru and Brazil.

The list of agreements and contracts is much longer and years old. And it's picking up, and more importantly, trickling down increasingly to mid and small size companies and contractors in oil and gas sector. It's also spreading to other sectors, benefiting the metallurgic and other industries.

Hype or trend?

Many of the deals will fall through. Cuba's oil potential has not been confirmed yet, with two strikes so far in exploratory wells. Venezuela has a long history of failed promises too.

Moreover, the expropriation of YPF in April triggered a wave of concern, some of it justified, that a new round of populist, market-bashing policies was taking hold in Latin America.

But Argentina's move cannot be understood as a simple populist move. It had been expected for some time and fits neatly into the country's –indeed the region's- resource nationalism and economic empowerment over the previous decade.

That is not necessarily a bad thing though. As the case of the expropriating champion Venezuela illustrates, foreign investors –increasingly from within the region- are still welcome and often offered attractive terms.

It's just a question of adapting to whole new game in Latin America driven by populism, one that is not so different from the long-standing norm in Middle East and North Africa oil producing countries.

Iraq is an example. Many Western companies, especially American ones, shunned the economic terms offered by Baghdad. But Iraq is successfully undergoing perhaps the most ambitious overhaul in decades.

Furthermore, this time around Brazil is acting as a regional overlord that is making sure investment risks are controlled.

There is still plenty of politics involved in Latin America's energy business, but as many foreign companies are learning, it just requires adapting to a new reality. Ultimately countries need to attract more investment to their energy sectors, as much as corporations need to adjust to new rules.

And while China has been the big winner so far, intra-Latin American cooperation among national energy companies is on the rise for mostly economic reasons, that is, to get a foothold in each other's energy sector to profit from an expected oil boom and more importantly more knowhow that they can use in their own operations.

So even if there is a large component of politics involved, as announced exploration in the Falklands illustrates, there is solid momentum, boding well as cross-country investment and economic ties grows.


Follow us and post your comments: in Twitter Facebook

 

Andres Cala is a journalist in Spain whose career spans three continents and over a dozen countries. He regularly writes on global energy and politics for American publications, including TIME Magazine, The New York Times, The Wall Street Journal, Dow Jones Newswires, The Christian Science Monitor, and the Associated Press. He is also a contributor to Energy Tribune and a columnist for Saudi Arabian political affairs magazine The Majalla. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Energy Tribune , on Aug 27, 2012 . Petroleumworld reprint this article in the interest of our readers.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

Use Notice:This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated

Petroleumworld News 08/29/2012

Follow us in Twitter

And post your comments in our
Facebook site


Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!

We invite all our readers to share with us their views and
comments about this article, write to editor@petroleumworld.com

Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors

Send this story to a friend Any question or suggestions,
please write to: editor@petroleumworld.com
Best Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x
600 pixels

 


TOP


Editor:Elio Ohep /Contact Email: editor@petroleumworld.com

Contact: editor@petroleumworld.com/ phone: Office (58 212) 635 7252,
or Cel (58 412) 996 3730 or (58  412) 952 5301

CopyRight © 1999-2010, Elio Ohep - All Rights Reserved. Legal Information

- CCS Office Telephone/Teléfonos Oficina: (58 212) 635 7252

PW in Top 100 Energy Sites


Technorati Profile

Fair use notice of copyrighted material:

Legal Information

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.