April 06, 2006

Chavez: The View From Wall Street

Interesting to read this MarketWatch appraisal of Hugo Chavez's latest moves.

An analyst says the loss of two oil fields will have virtually no affect on the bottom line of these foreign companies: "its immaterial as these are gigantic companies," he said.
In the long run, the Venezuelan economy is likely to suffer far more than the oil companies as a result of Chavez's demands.

The oil sector accounts for more than three-quarters of total Venezuelan export revenue, about half of total government revenues, and about one-third of GDP, according to the EIA.

And much of the nation's potential energy exports are trapped underground in the form of extra-heavy oil and bitumen deposits that require specialized and costly refining technology, often provided by foreign companies, to convert the tar-like deposits into useable fuels such as gasoline and diesel.

However, outside companies will think twice before pumping more money into Venezuela's oil patch if there's any doubt about whether signed contracts are binding, said analysts.

"This action would tend to make companies more skittish about investing there. Even if they find the current terms acceptable, even if they enter into a contract with Venezuela, will they keep it?" said James Williams, energy analyst at WTRG Energy Economics.

According to analysts at Raymond James, Venezuela's oil production has fallen 27% from 2.9 million barrels per day in 2000 to 2.12 million in 2005, while oil production worldwide has risen 10% over the same five years.

The drop in Venezuela's oil output is similar to the decline seen in fellow OPEC-nation Iraq following the 2003 U.S. invasion and the subsequent insurgency that battered its petroleum industry.

"The fact that they've had the same type of decline as Iraq shows what a mess Chavez has made," said Molchanov.
These clever analysts do not seem to have even the slightest understanding of Chavez's popular socialist agenda. Production may have fallen 27%, but the profits are going to the Venezuelan people, not foreign multinationals. So the people of Venezuela are gaining wealth, in practical terms.

And what is the rush to boost production? Oil prices are rising! Chavez's country is sitting on a fortune and he knows it. Do you really think he would be unable to find a company willing to extract oil from bitumen deposits, provided he offered enough money up front? (The only reason would be if the oil drilling companies were operating as a cartel - but that's a story for another post).

As for the comparison with Iraq, what the hell are they talking about? Iraq cannot even measure it's oil production these days (or choses not to do so).

Those who worship the Fascist gods of Corporate Capitalism seem completely incapable of even imagining the advantages of other approaches. You have to wonder what they are afraid of...


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