Oil showdown looms with Venezuela’s Chбvez
CARACAS: With President Hugo Chбvez setting May 1 as the deadline for an ambitious plan to wrest control of several major oil projects from U.S. and European companies, a showdown is looming here over access to some of the most coveted energy resources outside the Middle East.
Moving beyond empty threats to cut off all oil exports to the United States, Venezuelan officials have recently stepped up the pressure on the oil companies operating here, warning that they might sell U.S. refineries meant to process Venezuelan crude oil even as they seek new outlets in China and elsewhere around the world.
“Chбvez is playing a game of chicken with the largest oil companies in the world,” said Pietro Pitts, an oil analyst who publishes LatinPetroleum, an industry magazine based here. “And for the moment he is winning.”
But this confrontation could easily end up with everyone losing. The biggest energy companies could be squeezed out of the most promising oil patch in the Western Hemisphere. But Venezuela risks undermining the engine behind Chбvezs socialist-inspired revolution by hampering its ability to transform its newly valuable heavy oil into riches for years to come.
As Chбvez asserts much greater control over Venezuelas oil industry, his national oil company, Petrуleos de Venezuela, is showing signs of stress. Management has become increasingly politicized, and money for maintenance and development is being diverted to pay for a surge in public spending.
During the past several decades, control of global oil reserves has steadily passed from private companies to national oil companies like Petrуleos de Venezuela.
According to a new Rice University study, 77 percent of the worlds 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.
The implications are potentially stark for the United States, which imports 60 percent of its oil. State companies tend to be far less efficient and innovative, and far more politicized. No place captures the shift in power to nationalist governments like Venezuela.
“We are on a collision course with Chбvez over oil,” said Michael Economides, an oil consultant in Houston who wrote an essay comparing the populist appeal of Chбvez in Latin America with the pan-Arabism of Colonel Muammar el-Qaddafi of Libya two decades ago. “Chбvez poses a much bigger threat to Americas energy security than Saddam Hussein ever did.”
Consider the quandary facing Exxon Mobil after its chairman, Rex Tillerson, recently suggested that Exxon might be forced to abandon a major Venezuelan oil project because of its growing troubles with Chбvez.
The energy world took notice. So did Chбvezs government. Only a day later, Venezuelan agents raided Exxons offices here. The government said the raid was part of a tax investigation, but energy analysts said the exchange of threat and counterthreat was all too clear.
Politics and ideology are driving the confrontation here as Chбvez seeks to limit U.S. influence around the world, starting in Venezuelas oil fields. Chбvez views the Bush administration as a threat, in part because it indirectly supported a coup that briefly removed him from power five years ago. Yet the United States remains Venezuelas largest customer.
Chбvez recently decreed that Venezuela would take control of fields of heavy oil in the Orinoco Belt, a region southeast of Caracas with so much potential that some experts say it could give the country more reserves than Saudi Arabia.
The U.S. Geological Survey describes the area as the “largest single hydrocarbon accumulation in the world,” making it highly coveted despite Chбvezs erratic policies. Heavy oil is more costly to recover and to refine than lighter grades of crude that flow freely.
By setting a May 1 deadline for what some foreign oil executives consider an expropriation, the Venezuelan leader risks losing Exxon, ConocoPhillips and other companies, which are loath to put their employees and billions of dollars in assets under Venezuelan management.
A departure of expertise and investment could weaken an oil industry already unsettled by being transformed into Chбvezs most crucial tool for carrying out his reconfiguration of Venezuelan society.
Chбvez has raised taxes on foreign oil companies and forced other oil ventures to come under his governments control. And he has purged more than 17,000 employees from Petrуleos de Venezuela after a debilitating strike about four years ago.
The talks have bogged down over how much the oil companies stakes in four big Orinoco projects are worth, whether Venezuelas cash-short oil company would pay for the assets in oil instead of cash and, most important, who would manage the reduced operations of the foreign oil companies.