Saturday, June 11, 2005

If Exxon doesn't want it someone else does 

When Chavez raised the royalties for Venezuela's heavy crudes from 1% to 16.6% the vendepatrias of eastern Caracas cried that you can't do this as the western oil companies will all leave. Never mind that even the ultimate free market country, the United States, charges similiar royalites. .

But even if they do leave Venezuela has a pretty good plan B in the form of the fastest growing economy in the world - China. Witness this article where the Canadians, who have heavy sand oils similiar to Venezuela, are fearfull of losing out to the "bad boy" of South America:

Alberta Keeps Eye on Venezuela Flirtation


Monday, March 7, 2005

CALGARY -- As Canada frets about China snapping up oil supplies here, the Asian giant is being wooed by the bad boy of South America, Venezuela's Hugo Chavez.

Senior Chinese leaders have touched down in Caracas in recent weeks as part of wider tours of South America and the Caribbean, with those meetings culminating in agreements to explore for oil in Venezuela.

It makes a curious case for a strategic alliance: On one side, an emerging communist superpower that prefers to deal with state-controlled industry, and on the other a politically unstable oil-rich nation that is looking to reduce its dependence on the United States.

Yet even while Mr. Chavez tangos with the Chinese, he has been tangling with giant oil companies that he views as surrogates of the Bush administration -- which he is convinced is a dark force plotting his assassination.

Alberta is watching closely. It competes with Venezuela for oil exports and in attracting investment capital. That means Canadian oil-sands companies may have to vie for China's investment dollars with a regime willing to cut a sweetheart deal to score political points in a government-to-government agreement.

Then again, there is a potential upside for Alberta, too, if U.S.-based oil giants decide that the fickle and fiery Mr. Chavez poses too much of a risk to the billions in capital needed to develop Venezuelan heavy oil.

"They've created uncertainty, which always hinders investment," says Murray Smith, a former Alberta energy minister and now the province's representative in Washington.

That uncertainty is less of a hindrance to China, on the hunt for new sources of crude as its need for imports soars. China is taking an increasingly bigger role, not only as a partner in exploration, but as a new market for Venezuelan crude. The Chinese need for new oil supplies is meshing with Venezuela's desire -- or at least that of its controversial president, Mr. Chavez -- to wean itself from depending on the U.S. market for sales of its crude and gasoline.

The flip side of Venezuela's courtship of the Chinese has been the pressure brought to bear on giant U.S. oil companies such as Exxon Mobil Corp., including increasing royalties by nearly 17-fold last fall.

A prominent Venezuelan expatriate says the government is targeting supermajors such as Exxon to retaliate against the Bush administration, which Mr. Chavez has accused of a host of sins, including plotting to kill him. "Chavez is doing anything and everything he can do to hurt the United States," says Luis Guisti, a former head of the state oil firm Petroleos de Venezuela SA and now a board member of the Centre for Global Energy Studies in London.

Mr. Giusti, for one, has little doubt that the Chinese will seek to take full advantage of any overtures from Mr. Chavez. "I think they're seeing fertile ground in Venezuela. They're seeing that the way this man is lining up his strategy could be a big opening for them."

Mr. Giusti is far from a disinterested observer; he exited PDVSA following Mr. Chavez's 1999 election. But he has decades of experience in the country's oil sector, and spent years dealing with the Chinese. When he was the head of PDVSA in the 1990s, he says, Chinese state oil firms were perfectly willing to pay rich prices. "The Chinese, they came and they outbid everybody," he says.

But Mr. Giusti says he believes the Chinese would prefer to strike a government-to-government deal for oil supplies, viewing that as an "easier way" than the sort of competitive bidding process that was part of Venezuela's apertura policy of liberalization and, of course, is the way in which any assets in Canada would have to be acquired.

Despite being nominally independent, state oil firms such as Petro-China or Sinopec Corp. are "virtually former government ministries" being deployed to carry out China's great-power goals, says an expert on China trade and politics.

"It's not just a matter of commerce, it's a matter of strategic interest," says Wenran Jiang, an associate professor of political science at the University of Alberta.

In that light, Canada's close association with the United States is a negative for the Chinese when considering where to invest, Mr. Jiang says, with the worry being that China would be cut off from oil sands production in the event of a supply crisis. For China, that is equivalent to the kind of political risk the U.S. supermajors face in Venezuela. Such a perception of risk could mean the Chinese feel compelled to seek better economic payoffs in any Canadian deal as a counterbalance, Mr. Jiang says.

But he has little doubt China's thirst for oil is great enough that it will eventually turn to Alberta's oil sands. "Sooner or later, they will come."


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