International Politics

	Vol. 226 No. 3
MAYRA RODRÍGUEZ VALLADARES, CONTRIBUTING EDITOR, SOUTH AMERICA

Cast of characters changes. An early major focus for 2005 in Latin America has been the entrance of small-sized independents, as well as oil companies from China and Russia into significant producing areas. Their entrance will influence development of Latin America’s oil and compel major firms to re-evaluate their investment strategies.

Last year, smaller independents entered Colombia to take advantage of more favorable contract terms and high oil prices. Also, state-owned Ecopetrol launched a second bidding round in November to offer 13 small oil fields in the Magdalena Valley and in Catatumbo, near Venezuela.

Chinese and Russian influence. Among international players, China and Russia have strengthened their regional focus. Late last year, Chinese President Hu Jintao promised to invest $100 billion, primarily in energy and infrastructure projects in Brazil and Argentina during the next 10 years. Brazil chose Chinese state firm Sinopec as the engineering and procurement contractor for the Gasene pipeline, a 761-mi, $1.3-billion line running from northeastern Brazil to the industrialized south.

In Argentina, China plans to invest $5 billion over the next five years. Sinopec and PetroChina will study possible joint ventures with Enarsa, Argentina’s new state oil firm, to develop offshore areas in the Austral basin. The firms are also contemplating EOR projects.

China’s interest in Brazil and Argentina may intensify, because plans to invest in Bolivia are on hold. Ongoing debate about Bolivia’s hydrocarbon law is keeping some foreign companies at bay. Shengli Oilfield International, a Sinopec subsidiary, has delayed signing contracts that reportedly total $1.5 billion for projects on 10 blocks in the Chaco and Chapare regions.

Russia’s Gazprom has expressed interest in building an NGL plant in Brazil. Reportedly, Gazprom is also considering the export of LNG to Chile, which is contemplating an investment of $400 million to $500 million on an LNG importation project, beginning in 2007. In Venezuela, PDVSA and LUKoil will evaluate possible, joint E&P ventures.

While there are likely to be positive effects from small independents, and Chinese and Russian oil companies entering the region, there could also be negative consequences. Chinese companies’ strategies, for example, are driven by Beijing’s political need for growth and expansion of its oil sector, to meet growing energy demands. Hence, they are unlikely to focus on energy or nature conservation in Latin America. Accordingly, environmentalist lobbies will be raising their concerns to governments in the region.

Venezuela throws a curve ball. Like last year, political tensions between the US and Venezuela have spilled over into energy. ConocoPhillips’ interest in Venezuela’s Corocoro field was recently placed in doubt after PDVSA unexpectedly announced that it would review 33 operating agreements set up with oil companies in the 1990s. ConocoPhillips’ investment in Venezuela is about $480 million. Roughly 7% of its oil output comes from there.

ConocoPhillips hopes to increase that output. However, the delays in continuing these agreements come at a time when Venezuelan officials have held talks with state oil companies from China, Russia and Iran, and when President Hugo Chávez has threatened to divert oil exports from the US to China.

ConocoPhillips is not the only US company with Venezuelan challenges. Harvest Natural Resources’ stock lost a third of its value earlier this year, after PDVSA told the company to suspend its exploration efforts. While some American executives fear that Venezuelan policies are becoming increasingly unpredictable, officials in Caracas explain that at this time of high oil prices and greater attention to China’s energy needs, President Chavez and his subordinates would like to expand the range of oil clients.

Venezuela has already announced that it will allow China National Petroleum Corp. to expand exploration. While it is more expensive to ship oil to China than to the US or nearby Latin countries, Venezuela is trying to reduce those costs by negotiating with Panama to send its oil by pipeline across the isthmus. A Panama-Venezuela agreement would reverse the flow of the Panamanian pipeline, Petroterminales de Panama, to the Pacific from the Atlantic coast with a capacity of 800,000 bopd. Nonetheless, Chinese refineries would still need to be re-fitted over several years, because most of them cannot process heavy crude.

Caribbean players. Along the Caribbean, investor interest has increased. Suriname’s Staatsolie and Denmark’s Maersk Oil began a 2D seismic program offshore in the Guyana basin. Maersk hoped to complete the project last month. Staatsolie planned to invest $2 million in the open blocks near the French Guyana border.

Repsol-YPF is also studying seismic data from offshore Block 30 and will complete its studies in April. Staatsolie, itself, has decided to undertake some exploration to attract international interest in the 13 offshore blocks that it tendered last year. Companies had said that they needed more seismic data.

In neighboring Guyana, Canadian company CGX submitted an environmental statement and five-well drilling program for approval from the government. CGX President Kerry Sully said that the company would like to spend about $7.3 million on drilling along Guyana’s Berbice coast.

Australia’s BHP Billiton and Trinidad and Tobago officials announced first oil production from Angostura field. This is the first oil output from Trinidad’s northeastern coast, and BHP Billiton officials anticipated initial production of about 60,000 bpd. Accordingly, Trinidad’s oil production should rise to almost 195,000 bpd.

Another Caribbean country, Cuba, holds some international interest. Repsol-YPF recently drilled in waters north of Havana. While the firm found high-quality oil, it was not deemed commercially viable. Both Repsol-YPF and Sherritt International plan to continue exploring. This interest has influenced companies like Halliburton to call for an end to US sanctions against Cuba. The odds of that happening are not high. 

 Mayra Rodríguez Valladares is president of New York-based MRV Associates Inc. (www.MRVAssociates.com). She is a regular contributor to this column.