WSJ.com - With Oil, Chavez Plays It Safe
WSJ.com - With Oil, Chavez Plays It Safe
Venezuela's President Pushes
Foreign Companies Only So Far
By DAVID LUHNOW and JOSE DE CORDOBA
Staff Reporters of THE WALL STREET JOURNAL
August 29, 2005; Page A7
To his critics, Venezuelan President Hugo Chavez comes across as a messianic radical, cozying up to anti-American figures like Iran's mullahs, blasting capitalism as the "road to hell" and threatening to stop shipping oil to the U.S., which relies on Venezuela for about 14% of its oil imports.
But when it comes to the country's economic centerpiece, the oil industry, the fiery leader is more pragmatic than most realize. He has squeezed more royalties and taxes out of foreign oil companies at a time when they can afford it because of high oil prices. And he is using that money, along with a windfall in exports from state-run oil giant Petroleos de Venezuela SA, to help fund his leftist agenda at home and to cultivate friends in the region.
The pragmatic arrangement reassures analysts that Mr. Chavez is unlikely to resort to spectacular measures like nationalizing foreign oil investments or cutting off oil shipments to the U.S. About a third of Venezuela's estimated 2.7 million barrels of oil a day comes from projects that involve foreign companies and more than half of Venezuelan oil exports go to the U.S., Venezuela's natural market because of its size and proximity.
And Mr. Chavez's own political survival may depend on his pragmatism. By lavishly spending the country's oil windfall, Mr. Chavez has created popular expectations of government largess. If his government's revenue dries up and he is forced to cut social spending, then Mr. Chavez could end up on the receiving end of a popular backlash.
That hasn't kept Mr. Chavez from needling some Western private-sector oil companies over the past few years, raising royalties and tax rates and, in many cases, forcing them to give up operating control over their investments. Recently, he renamed four large oil projects that are jointly operated with Western oil companies after famous Venezuelan independence battles. Anglo-Dutch giant Royal Dutch Shell PLC was formally pushed out of a lucrative natural-gas project.
The moves caused some analysts to fret about the future for Western oil companies in a country with the largest estimated reserves outside the Middle East -- and at a time of tight supplies and already high prices.
"The companies who are there feel that although it's not an optimum situation, they can manage it," says Frank Verrasco, an energy analyst at the Washington-based Center for Strategic and International Studies.
Despite Mr. Chavez's moves, no big oil firm has packed its bags and left the Andean nation. With the exception of Exxon Mobil Corp., which is taking Venezuela to an international court over some of the rule changes, other major companies have quietly reached accommodation with Caracas, analysts say. The proof is that all the big Western oil firms are still bidding for Venezuelan oil projects, despite the tighter restrictions.
Two weeks ago, Shell's regional production manager, Frank Glaviano, told Dow Jones Newswires that despite pressure from the government, Shell is optimistic about Venezuela. "It's not about being angry," he said. "It's about conducting business."
Like many oil-producing nations, Venezuela historically has tried to grab more profits when prices rise. In the mid-1970s, Venezuela joined Kuwait and Saudi Arabia in nationalizing its oil industry amid soaring prices triggered by the Arab oil embargo. Yet Venezuela has never fully closed the door to foreign dollars and know-how in the sector. "It's an antagonistic symbiosis," says BCP Securities analyst Walter Molano.
Mr. Chavez's thinking may go beyond simply extracting more money from big oil. The former army officer has said in speeches that he wants to lessen his key industry's dependence on U.S. and European companies and markets. Most new joint ventures and projects involving Venezuela's oil industry currently are being won by state-run firms from countries such as China, Brazil, India and Iran. Venezuela is trying to diversify its buyers, too, sending growing amounts of crude to China and opening a commercial office in Beijing.
"He is dividing up the spoils among non-American companies to spread out his geopolitical risk and influence, relying less on American control over his golden goose," says Rob Cordray, senior consultant at PFC Energy in Houston.
That doesn't mean Venezuela is going to stop sending crude to the U.S., though. Venezuela relies on its Citgo Petroleum Corp. subsidiary in the U.S. to refine its sulfur-laden crude and wouldn't find a cheap alternative in Asia, where it would cost more to send the crude and where refining space is tight.
Venezuela hopes, however, that its growing ties with China could potentially help to protect Mr. Chavez from U.S. interference, analysts say. In the latest such move, Petróleos de Venezuela and China National Petroleum Co., or CNPC, on Thursday signed a preliminary agreement to create a joint venture to develop oil fields in eastern Venezuela.
None of this means U.S. and European companies will be completely shut out, though. Spain's Repsol YPF, a private-sector company, won a concession recently to help Venezuela examine the potential of a large block in the tar-rich Orinoco region. Another factor: Mr. Chavez's lavish social spending consumes enough resources that it leaves Petróleos de Venezuela with relatively modest amounts for investment, suggesting the country will have to rely on foreigners to help it keep pumping oil.
Even Mr. Chavez's occasional tirades about oil have a certain logic. His sporadic threats to cut off supplies of Venezuelan oil to the U.S., for instance, are made with the intent of talking up oil prices. "He says things that get oil traders' attention," says one former White House official. Mr. Chavez was at it again recently, saying that a Venezuelan study showed oil prices could reach $95 a barrel.
In the meantime, Mr. Chavez is using his oil billions to buy friends and influence nations, from the Caribbean basin to Patagonia. In the past year, Venezuela has emerged as a tropical version of the International Monetary Fund, offering cut-rate oil-supply deals and buying hundreds of millions of dollars of bonds from financially distressed countries such as Argentina and Ecuador. A grinning Mr. Chavez last week signed a pact for cut-rate oil shipments to Jamaica, telling reporters there: "Don't thank us. It is our call of conscience."
Write to David Luhnow at david.luhnow@wsj.com
Venezuela's President Pushes
Foreign Companies Only So Far
By DAVID LUHNOW and JOSE DE CORDOBA
Staff Reporters of THE WALL STREET JOURNAL
August 29, 2005; Page A7
To his critics, Venezuelan President Hugo Chavez comes across as a messianic radical, cozying up to anti-American figures like Iran's mullahs, blasting capitalism as the "road to hell" and threatening to stop shipping oil to the U.S., which relies on Venezuela for about 14% of its oil imports.
But when it comes to the country's economic centerpiece, the oil industry, the fiery leader is more pragmatic than most realize. He has squeezed more royalties and taxes out of foreign oil companies at a time when they can afford it because of high oil prices. And he is using that money, along with a windfall in exports from state-run oil giant Petroleos de Venezuela SA, to help fund his leftist agenda at home and to cultivate friends in the region.
The pragmatic arrangement reassures analysts that Mr. Chavez is unlikely to resort to spectacular measures like nationalizing foreign oil investments or cutting off oil shipments to the U.S. About a third of Venezuela's estimated 2.7 million barrels of oil a day comes from projects that involve foreign companies and more than half of Venezuelan oil exports go to the U.S., Venezuela's natural market because of its size and proximity.
And Mr. Chavez's own political survival may depend on his pragmatism. By lavishly spending the country's oil windfall, Mr. Chavez has created popular expectations of government largess. If his government's revenue dries up and he is forced to cut social spending, then Mr. Chavez could end up on the receiving end of a popular backlash.
That hasn't kept Mr. Chavez from needling some Western private-sector oil companies over the past few years, raising royalties and tax rates and, in many cases, forcing them to give up operating control over their investments. Recently, he renamed four large oil projects that are jointly operated with Western oil companies after famous Venezuelan independence battles. Anglo-Dutch giant Royal Dutch Shell PLC was formally pushed out of a lucrative natural-gas project.
The moves caused some analysts to fret about the future for Western oil companies in a country with the largest estimated reserves outside the Middle East -- and at a time of tight supplies and already high prices.
"The companies who are there feel that although it's not an optimum situation, they can manage it," says Frank Verrasco, an energy analyst at the Washington-based Center for Strategic and International Studies.
Despite Mr. Chavez's moves, no big oil firm has packed its bags and left the Andean nation. With the exception of Exxon Mobil Corp., which is taking Venezuela to an international court over some of the rule changes, other major companies have quietly reached accommodation with Caracas, analysts say. The proof is that all the big Western oil firms are still bidding for Venezuelan oil projects, despite the tighter restrictions.
Two weeks ago, Shell's regional production manager, Frank Glaviano, told Dow Jones Newswires that despite pressure from the government, Shell is optimistic about Venezuela. "It's not about being angry," he said. "It's about conducting business."
Like many oil-producing nations, Venezuela historically has tried to grab more profits when prices rise. In the mid-1970s, Venezuela joined Kuwait and Saudi Arabia in nationalizing its oil industry amid soaring prices triggered by the Arab oil embargo. Yet Venezuela has never fully closed the door to foreign dollars and know-how in the sector. "It's an antagonistic symbiosis," says BCP Securities analyst Walter Molano.
Mr. Chavez's thinking may go beyond simply extracting more money from big oil. The former army officer has said in speeches that he wants to lessen his key industry's dependence on U.S. and European companies and markets. Most new joint ventures and projects involving Venezuela's oil industry currently are being won by state-run firms from countries such as China, Brazil, India and Iran. Venezuela is trying to diversify its buyers, too, sending growing amounts of crude to China and opening a commercial office in Beijing.
"He is dividing up the spoils among non-American companies to spread out his geopolitical risk and influence, relying less on American control over his golden goose," says Rob Cordray, senior consultant at PFC Energy in Houston.
That doesn't mean Venezuela is going to stop sending crude to the U.S., though. Venezuela relies on its Citgo Petroleum Corp. subsidiary in the U.S. to refine its sulfur-laden crude and wouldn't find a cheap alternative in Asia, where it would cost more to send the crude and where refining space is tight.
Venezuela hopes, however, that its growing ties with China could potentially help to protect Mr. Chavez from U.S. interference, analysts say. In the latest such move, Petróleos de Venezuela and China National Petroleum Co., or CNPC, on Thursday signed a preliminary agreement to create a joint venture to develop oil fields in eastern Venezuela.
None of this means U.S. and European companies will be completely shut out, though. Spain's Repsol YPF, a private-sector company, won a concession recently to help Venezuela examine the potential of a large block in the tar-rich Orinoco region. Another factor: Mr. Chavez's lavish social spending consumes enough resources that it leaves Petróleos de Venezuela with relatively modest amounts for investment, suggesting the country will have to rely on foreigners to help it keep pumping oil.
Even Mr. Chavez's occasional tirades about oil have a certain logic. His sporadic threats to cut off supplies of Venezuelan oil to the U.S., for instance, are made with the intent of talking up oil prices. "He says things that get oil traders' attention," says one former White House official. Mr. Chavez was at it again recently, saying that a Venezuelan study showed oil prices could reach $95 a barrel.
In the meantime, Mr. Chavez is using his oil billions to buy friends and influence nations, from the Caribbean basin to Patagonia. In the past year, Venezuela has emerged as a tropical version of the International Monetary Fund, offering cut-rate oil-supply deals and buying hundreds of millions of dollars of bonds from financially distressed countries such as Argentina and Ecuador. A grinning Mr. Chavez last week signed a pact for cut-rate oil shipments to Jamaica, telling reporters there: "Don't thank us. It is our call of conscience."
Write to David Luhnow at david.luhnow@wsj.com
posted by Marcel at 6:56 AM
0 Comments:
Post a Comment
<< Home