Nationalization of Bolivian natural gas is part of a broader global trend

by Brad Foss

05-05-06

First Russia. Then Venezuela. Now Bolivia.
Soaring energy prices are fuelling a global wave of natural-resource nationalization that is souring the investment landscape for international oil companies and reshaping energy politics for years to come.
While it is anyone's guess as to which energy-rich developing country will be next to assert greater state control over its oil or natural gas assets, analysts say it is only a matter of time before the actions of Russia's Vladimir Putin, Venezuela's Hugo Chavez and Bolivia's Evo Morales inspire a copycat.
"If you're an international oil company and see this trend, it must be worrying," said Yasser Elguindi, senior managing director at Medley Global Advisors in New York.

It should also be worrisome to energy consumers when global supplies are already extremely tight, analysts said. They noted that non-OPEC oil production has not lived up to its potential since 2003, when Venezuelan President Hugo Chavez began tightening his grip on Petroleos de Venezuela and, before that, Russian President Vladimir Putin jailed the ex-chief of Yukos, paving the way for its prized assets to be acquired by state-owned Rosneft.
As a result, world oil markets were even more vulnerable to supply disruptions stemming from violence in Nigeria, war in Iraq and hurricanes in the Gulf of Mexico. Crude futures shot up to almost $ 75 US a barrel as traders fretted about the possible outcome from escalating tensions between the West and oil-rich Iran over Tehran's nuclear ambitions.
"High prices have given all producing countries a lot more leverage," Elguindi said.

From a pure energy-supply perspective, Bolivia's decision to threaten seizing natural-gas fields from companies that refuse to renegotiate production contracts will have little impact on the world stage. But its symbolic significance cannot be understated, analysts said.
Coming on the heels of petroleum-sector power plays by political leaders in Russia and Venezuela, the grip-tightening in Bolivia underscores the rising influence of national oil companies and the increasing difficulty private companies face as the world's energy hunting grounds become less hospitable.

Elguindi said major oil companies, such as ExxonMobil and Royal Dutch Shell, have already begun shifting their businesses in response to the changing landscape. He said multibillion-dollar investments in Canada's tar sands and Qatar's natural gas reserves are as much a reflection of the industry's interest in these projects as they are evidence of companies "investing in things they have access to."
"If you gave oil companies a choice between the tar sands in Canada or oil in Saudi Arabia, which do you think they'd choose?" Elguindi said.

Some analysts say energy-rich countries the world over clearly have the upper hand now -- in contrast with the late 1990s, when oil traded at about $ 11 a barrel -- and that it will be up to individual companies to decide if they can live with less control over their foreign operations while getting less revenue per barrel.
For example, ExxonMobil chose to sell its stake in a Venezuelan oil field rather than accept less desirable financial terms. Many companies, including Chevron, Royal Dutch Shell and BP, agreed to convert some of their Venezuelan oil-field contracts into state-controlled joint ventures, betting that the ventures would still be profitable even with a larger share of revenue going to the state.

Some analysts believe this approach will only embolden more countries to follow Venezuela's lead, arguing that the world's largest private oil companies -- with diplomatic support from western governments -- should resist being strong-armed out of existing contracts.
"Either you hang together, or you surely will hang one by one," said Larry Goldstein, president of the Petroleum Industry Research Foundation, a New York-based industry-financed think tank. "I'm not sure Bolivia is the end of this game," said Goldstein.

Ecuador is arguing with Washington over a new oil royalties law. The World Bank tentatively resolved a financial dispute with Chad, which had threatened to shut off an oil pipeline.
The rebels threatening Nigeria's oil infrastructure have gained clout because of high oil prices, and analysts said they would not be surprised to see Angola try to renegotiate some of its contracts with foreign oil companies.
"When you start polling the world for where major oil companies can do business, you have West Africa, Russia, the Middle East and Latin America. What they all share is that they're becoming more and more difficult operating environments," said A.G. Edwards oil analyst Bruce Lanni.
 

 

Source: The Canadian Press