Archive for the ‘oil’ Category

Ecuador: Selling it to China

Friday, December 19th, 2014

This is a photograph of a 420,000-gallon oil spill in Ecuador’s Amazonian region in June 2013:

Andrew Ross, writing at The Nation, asks,
Why Is Ecuador Selling Its Economic and Environmental Future to China?
The slick, oily underside of Correa’s “citizens’ revolution.”
(emphasis added)

While large swaths of the Amazon Basin remain uncharted, the most telling maps depict the region carved into numbered oil blocks, some of them hundreds of square miles in area. The Pañacocha field, for example, sits in Block 12; the ITT oil reserve is located in Block 43; and Block 57 is where Suárez took me. The blocks are periodically auctioned off as concessions to oil companies, and more and more of them are marked as a Chinese claim or interest. The Chinese extraction sites are remote, but anyone traversing the Amazon waterways, as I did this past summer, will routinely pass boatfuls of Chinese oil workers. At this point, China exercises a near monopoly on Ecuador’s oil—up to 90 percent this year alone—and is fast becoming the dominant player in mining and mineral extraction.

Of course, Ecuador is hardly alone in its growing dependence on Beijing. China committed almost $100 billion in loans to Latin America between 2005 and 2013—$15 billion last year alone, while the World Bank lent a mere $5.2 billion. But many believe that the erosion of sovereignty has been sharper in Ecuador than elsewhere in the region. The terms of its loans from Beijing are not fully transparent, giving rise to the worst suspicions. A March 2014 Amazon Watch report alleged that Petrochina has the contractual right to seize assets from any oil companies operating in Ecuador if the nation does not pay back China in full. A more extreme version of this claim is that the terms of loans include a “sovereignty immunity waiver,” that permits China to seize Ecuador’s own assets if it defaults. One of the administration’s chief critics, Acción Ecológica director Alexandra Almeida, told me that “the agreements with the Chinese are unlike any other. Even with Chevron we knew what we were getting. No one knows that much about the Chinese loans.”

Ross views the situation from the left, saying things such as “On the face of it, Beijing is not as easy to demonize as the infamous Paris Club, which represents the interests of Northern creditors,” and “has no history of ecological debt to Latin America.” But Ross is not blind to the fact that

environmentalists, like the YASunidos, have become Correa’s number-one enemy, labeled by some of his ministers as “enemies of the state.” Recent shifts in the interpretation of the penal code have made it possible to criminalize dissidents as “terrorists,” and domestic repression is growing.

Read the whole thing.

Venezuela: Default by September 2015?

Thursday, December 11th, 2014

Casey Breznick posts,

A CNBC report on the prospect of a Venezuelan default cited a Capital Economics report stating that a default could be expected by next September or October when $5 billion in debt payments come due. Only an upswing of oil prices to somewhere around $121/barrel would allow Venezuela to balance its budget, according to some estimates. But with OPEC recently slashing its 2015 production levels to a 12-year low in response to decreasing estimated global oil demand and increasing supply via U.S. shale production, a significant oil price increase in the short-term seems highly unlikely. Bloomberg reports that the implied probability of default—derived from complex financial formulas—in the next five years stands at 93%, the highest in the world.

The Devil’s Excrement looks at Maduro’s New Script,

You may laugh all you want at what he says, but I don’t. He is making a very specific narrative out of all this and I am not sure where it is heading. It may be that he just wants to blame  the US for the intensification of the crisis in the next few months or simply, that he is preparing the ground in case there is no money to pay international investors. There is a one billion Euro payment in March, which looks doable, but there are much larger maturities in October 2015. But investors have so far believed that Venezuela had a “willingness” to pay, and the action in the markets today indicated some people were losing faith.

It did not help that Bloomberg reported today on a meeting with investors at a New York law firm, which actually took place like ten days ago. This meeting actually ended in a somewhat positive note, as many suggested that Venezuela and PDVSA could not get away with a restructuring below current prices for most bonds, as the oil cash flow would not justify it.

Francisco Toro:

It’s not the gobs of debt monetization, the billions of make-believe-bolivars the Central Bank loans PDVSA leading to an uncontrolled monetary expansion and the collapse of demand for real money balances.

It’s not the opacity in public accounts, the drop in reserves, the commercial default, the implosion in the goods markets, or the fact that you need your kid’s birth certificate to buy her diapers.

It’s not the fiscal deficit at 17% of GDP, or oil at $58 per barrel, or the tapped-out Fonden “sovereign wealth fund,” or the fact that the Finance Minister gives every possible public sign that he’s an idiot.

It’s not that the one regime official who announced a semi-reasonable reform that might have stanched the flow got shifted sideways to a non-economic job.

It’s not the Central Bank’s scandalous subservience to the Executive branch, or the fact that it won’t even dare publish basic inflation statistics.

It’s not that PDVSA has missed every production increase target it’s set for itself since 2003, it’s not that its refineries are badly maintained and barely functional, much less profitable.

It’s not that labour laws make it insane for a worker to waste his time working, and unreasonable as well as that is time he needs to spend queueing for basic consumption goods.

It’s not that the investment climate has been so shitty for so long, and the profit repatriation picture so bleak, no one sane even considers putting money into Venezuela.

Nope. It’s none of that. According to Maduro, it’s all a conspiracy, led by some flunkie sitting at a cubicle at Moody’s, someone who for some weird reason has decided to mess with his revolution. That’s why it’s expensive for Venezuela to borrow.

PDVSA 2022 bond in the last three months. It was losing 14% of its value today, with a yield to maturity of 31.4%:



Venezuela: The oil teat runs dry

Sunday, December 7th, 2014

Earlier this week I mentioned that Venezuela needs to sell its oil between $150-$200/barrel in order to break even. While the country’s economy is increasingly dependent on oil revenues since oil accounts for 95% of all exports, Venezuela ships cut-rate oil to Cuba and 13 other countries. For the last year, Venezuela’s had to cut back:

For a decade, the 13 beneficiaries of Venezuela’s largess have depended deeply on the oil to finance social spending and infrastructure, and rewarded Caracas with diplomatic support on the international stage, regional diplomats said in interviews.

Even as Venezuela pledges to continue the program, the country’s oil exports to the countries fell about 20% through October compared with the same period last year, says ClipperData LLC, a New York data tracker. And last year, Venezuela’s cut-rate oil exports declined 15% from 2012, the International Monetary Fund says.

Petrocaribe may become a thing of the past, which curtails Venezuela’s influence at the OAS and the UN,

The program has cost Venezuela $22.1 billion, with Petrocaribe countries accumulating more than $11 billion in debt through 2013, said Mr. Piñon, basing his calculations on PdVSA data.

In return, Venezuela got loyal allies that voted with Venezuela at the United Nations, the Organization of American States and at other regional bodies, diplomats and officials from four countries said.

Let’s hope the US State Department recognizes this as an opportunity, especially as Russia and Iran widen their scope in our hemisphere.

But I doubt they will.



Venezuela: Maria Corina charged; falling oil prices

Wednesday, December 3rd, 2014

It wasn’t enough to break her nose on the floor of the National Assembly, now Venezuela indicts opposition leader Machado, alleging plot to kill Maduro; she has not been arrested yet.

Watch her response, translated by Global Post,

We know what’s going on in Venezuela.
Our country is collapsing. It’s total chaos. And those clinging to power and are responsible for this situation have decided to respond by repressing and persecuting.
They’re trying to silence everybody, from union members to journalists, tweeters, mayors, human rights defenders, anyone of us who fights for truth.
Today that’s what I’m charged for. They accuse me of a monstrous crime that everyone in Venezuela and the world knows is a big lie.
They charge me because I tell it like it is. Because I tell Maduro every day that he must resign. …
… Because we denounce the corruption and the abuse. Because we accompany the students and workers in their protests and their demands.
They charge me because we are organizing a formidable citizens platform … to carry out the urgent transition to democracy in peace.
Many ask me, why am I turning myself in?
I’ll respond with what I told my own children when they asked me the same question.
I am not turning myself in. I am presenting myself to defend the truth.
What’s the option? Flee, keep quiet, give up?
Our only option is to fight. It’s to confront lies with the truth, because truth always prevails.
The weapon these dictatorial regimes have for remaining in power is the fear they sow in citizens.
… In Venezuela the people are rebelling. We are an enormous majority that wants profound change.
Pain and anguish unite us, but so do our dreams and our democratic convictions.
That’s why it’s time to fight and go forward. My message to all right now is: Rise up, because we are going to succeed.

The trending Twitter hashtag is #YoEstoyConMariaCorina (#IAmWithMariaCorina).

Juan Cristobal Nagel is Live-blogging Maria Corina’s day

—————————————

Earlier today I posted some questions on Venezuela and the falling oil price

Post title changed.

Venezuela: Oil break-even price?

Tuesday, December 2nd, 2014

Tom Bemis looks at Breakevens for most major oil-producing countries (emphasis added)

A widely used measure of the impact of oil prices on major producers’ governments is the fiscal breakeven price. That’s “the average price at which the budget of an oil-exporting country is balanced in a given year,” according to Standard & Poor’s. Estimates of fiscal breakeven prices can vary considerably based on a variety of factors including actual budget expenditures, and differences in oil production forecasts.

In most cases, the oil price necessary to balance the budgets of major oil producing countries is above $100 a barrel in 2015, according to data from Citi Research’s Edward Morse.

Venezuela, already facing serious fiscal woes and rampant inflation, needs oil at $151 a barrel next year to balance its budget, according to the data.

Iran, which has yet to agree to curb development of nuclear weapons and heavily subsidizes gasoline for its citizens, needs oil at $131 a barrel.

And Russia, whose seizure of Crimea and continuing aggression towards Ukraine has raised tensions throughout Europe and inspired western financial sanctions, needs oil at $107 for a chance of getting its finances in order.

Silvana Ordoñez:

Venezuela’s future? ‘Barbarity and people looting’One analyst at Nomura recently estimated that Venezuela may need oil prices to hit $200 a barrel to balance its budget. (The precise figure is difficult to determine, because Venezuela doesn’t disclose as much economic data as other countries do.)

Will The Minister Come Back Empty Handed From China?

It seems as if President Maduro really believed that OPEC would cut production after he sent Ramirez to visit a few countries, including Russia, who happens not to be a member of OPEC. But as most analysts expected, OPEC did not cut production and scheduled the next meeting for next June, bringing a lot of people back to reality, including Maduro. It was only after Ramirez reportedly left the meeting “red faced”, that it sunk in that maybe Plan A was not going to work. Thus, Maduro switched to Plans B and C. Plan B is to “hope” that oil prices bounce back and plan C was to send Minister of Finance Marco Torres to Beijing to see if he can get some money there. Plan D was to name a commission to cut salaries and luxurious expenses. Yeah, sure!

I have been arguing with a bunch of friends about the probability that Torres will come back with a significant loan, which I peg to be around 0.00001, but they seem to think it is somewhat higher. You see, they actually believe that Venezuela has something to offer the Chinese, like oil or oil fields. But the reality is that Venezuela has little to offer at this time and the Chinese know it, so that Minister Torres is very likely to come back empty handed.

Related:
María Corina, and a unified theory of rationed repression



Keystone XL & Venezuela

Tuesday, November 18th, 2014

Caracas Chronicles (emphasis added):
Keystone XL Isn’t a Threat to the Environment; It’s a Threat to Venezuela

The whole idea that if you stop Keystone XL, somehow less oil is produced and consumed is infantile: the question isn’t “how much?” it’s “where from?” (And if you think exploiting the Orinoco Belt is less environmentally dicey than piping oil through Nebraska, there’s a mountain of coke in Jose I’d like to sell you.)

If the Venezuelan government had the bandwidth to think longer term – which it manifestly doesn’t – it would grasp Keystone XL as a key strategic threat. The main reason anyone would want to take Canadian oil to the Gulf Coast is because that’s where the refineries that can handle crappy, high-sulphur, high-tar content crude are. And the whole reason they’re got built there in the first place is to handle Venezuelan crude. This is why KeystoneXL is such an important piece of the North American Energy Independence puzzle: it’s what it takes to shut Venezuela out of the North American market.

Of course, a government that’s long made it positively a policy goal to shift Venezuelan production away from the U.S. may not be able to register that as a threat. Ideology is always going to prevail with them. But that’s only the umpteenth policy mistake the Venezuelan government made today before breakfast.

Even in a post-Keystone XL future where Venezuela doesn’t have access to North American energy buyers, Venezuela will find buyers for its oil, of course. It’s just that it will have to ship that oil further to get it to refineries that will need to be reconfigured (or built from scratch) to handle it, and each part of that costs money: money Venezuela could use for any of the thousand pressing and growing policy problems going unaddressed right now.

The Communist regime in Venezuela finances itself and its parasites, including Cuba, through oil proceeds, all the more reason to approve KXL.

UPDATE:
Linked to by Dustbury. Thank you!

Venezuela: Oil slide

Saturday, November 15th, 2014

From commenter Kermit,

Venezuela is importing oil as a direct result of its disastrous refinery fires a year ago. What is being imported is light sweet crude to act as diluent when blended with the very heavy crude oil so that it can be pumped from the fields to the terminals/refineries.

Without fully functioning refineries/upgraders, no diluent is being made (kind of like diesel)

Also being imported is diesel and gasoline.

There is severe ship congestion since terminals are not set up to receive the crude oil and refined products. Long waiting times (meaning a lot of extra cost in demmurage to shipowners)

Meanwhile, Venezuela Dollar Income Falls 30% on Lower Oil Prices

Venezuela’s average oil-export price last week fell to $72.80 a barrel, the lowest in four years, pushing the yield on the country’s benchmark bonds to almost 19 percent for the first time since the global financial crisis. Oil accounts for 97 percent of foreign exchange income, which the country needs to pay about $28.5 billion of bond principal due in 2016.

To defend oil prices, Maduro said he sent the country’s foreign minister to five oil producers, including Mexico and Russia, to drum up support ahead of the Nov. 27 meeting of the Organization of the Petroleum Exporting Countries, which Venezuela co-founded. Back in the late 1990s, Venezuela ended a slump in oil prices by cutting production along with other OPEC and non-OPEC producers.

To rumors of selling refineries, Caracas Chronicles says, Go bold, go big

Venezuela: last on property rights

Thursday, October 30th, 2014

Hugo Chavez, who expropriated millions of acres of farmland (along with private properties and businesses) left an enduring legacy:
Venezuela ranks last in Property Rights Index
Lorenzo Montanari, the executive director of the Property Rights Alliance (PRA), said the survey measured the “consistency of property rights in 97 countries” and assessed three aspects: political legal environment, physical property rights and intellectual property rights

The IPRI study, which you can read here, corroborates the fact that

there is a positive, strong, and significant relationship between the strength of property rights protections and a country’s economic performance as measured by GDP per capita.

Mike Birds writes that Venezuela’s Decision To Import Oil Is The Perfect Example Of Just How Screwed The Country Is

In other Venezuelan news, Leopoldo López refused to appear before a court hearing on Tuesday, demanding the government respond to a UN resolution calling for his release.

Judge Susana Barreiros scheduled the hearing while the court was not in session, having suspended proceedings indefinitely on October 14. López’s lawyers regarded the suspension as an attempt to delay the court’s response to the UN Working Group on Arbitrary Detentions, which requested López’s immediate release on October 8.

After Spanish Prime Minister Mariano Rajoy called on the Venezuelan government to free Lopez, Venezuela recalled its ambassador to Spain.

Lilian Tintori, the wife of opposition leader Leopoldo López, learned that he could be transferred from Ramo Verde military prison to another jail.



Venezuela and the falling oil price UPDATED

Friday, October 17th, 2014

Venezuelan oil revenues prop up not only the Maduro government but also Cuba, and other countries receive Venezuelan oil through Petrocaribe.

Venezuela Vulnerable to Oil’s Fall
Fears among investors grow that Caracas could default its debt, as crude’s decline exacerbates the country’s recession and widespread consumer shortages.

Oil exporters from Russia to Iran are suffering with the lowest crude oil prices since June 2012. But few are as vulnerable as Venezuela, where a free-spending populist government had already been grappling with a recession, widespread shortages, and massive protests earlier this year.

Analysts expect that the Venezuelan barrel—heavier and more expensive to process than Middle East oil—will have fallen below $80 when officials announce this week’s price on Friday, which would be the lowest since late 2010. Last Friday, Venezuelan officials said their country’s crude had fallen to $82.72, nearly a $10 tumble in a little over a month.

Years ago I estimated that the chavistas need a minimum of $75/barrel for their agenda.

We’ll see what happens if it goes down to that number.

UPDATE:
Steve Hanke on Oil Price Blues (Read: Dangers) for Some

If oil prices stay below $90 per barrel for any length of time, we will witness massive fiscal squeezes and regime changes in one or more of the following countries: Iran, Bahrain, Ecuador, Venezuela, Algeria, Nigeria, Iraq, or Libya. It will be a movie we have seen before.



Venezuela: The next default

Monday, September 15th, 2014

Mary O’Grady writes on more to come from the ALBA deadbeat zone:
Venezuela Heads to a Default Reckoning
Amid bills for imports and debt servicing, and shrinking dollar liquidity, something has to give.

Venezuelan bond prices swooned last week on renewed speculation that the government of President Nicolás Maduro might soon default on as much as $80 billion of foreign debt. The yield on the government bond due in 2022 hit a six-month high of 15.8% on Sept. 9. David Rees of London-based Capital Economics, who last year warned of the risks of falling oil prices to Venezuelan solvency, told Bloomberg News by telephone that “the bond market is finally beginning to wake up.”

That may be true. It’s clear that the foreign exchange that Venezuela earns from oil exports cannot pay its import bills along with debt service. There are dire shortages of industrial and consumer goods as well as services. Something has to give and odds are that allowing the required adjustment to the economy won’t be the government’s first choice.

Nearly 1 million [corrected] barrels per day (almost one third of the daily 2.3 million barrels of crude OPEC says Venezuela produces) don’t generate revenue: 300,000 bpd go to Cuba, some 100,000 bpd are smuggled into the Colombia by insiders, and 650,000 bpd are sent to China to pay debt. This is even more disastrous when considering how the Venezuelan economy has become more dependent on oil after foreign capital leaves the country and productivity plummets.