Global Oil Reserves: A Shift in Power
By S.R. Nunnally
In this article
If he can swing it, Chavez can leapfrog Saudi Arabia and take over the number one position in crude oil reserves.
These companies doubt Venezuela can develop the Orinoco Basin on its own, or even that help from China or India will be as effective.
The “takeover” celebration this afternoon included red-clad oil workers, soldiers and a fly over by Russian-made fighter jets.
Global Oil Reserves: A Shift in Power
Today, our muy macho southern neighbor, Hugo Chavez, assumed a majority stake in the remaining private oil fields, mostly in the Orinoco Basin.
Okay, okay, it's the Venezuelan government that took control… But really, let's face it: Chavez is the government. Sunday, he said, “We are going to take over some oil fields that have continued to be in the hands of transnationals.”
Sounds like a fun Tuesday. My Dominos “Two-Times-Tuesday” pizza deal doesn't hold a light to that… But let's get back to the task at hand.
How long this control will last depends on a couple things: whether Chavez can afford to buy out most of Big Oil's stakes in the fields, and if Venezuela has the chops to actually develop the massive Orinoco Basin without external expertise.
There's a lot riding on Venezuela's technological “prowess.” The Orinoco Basin is absolutely huge. If he can swing it, Chavez can leapfrog Saudi Arabia and take over the number-one position in crude oil reserves.
That's how big this basin is.
Standing in the way are the Who's Who of Big Oil: Exxon Mobil (XOM:NYSE), BP plc (BP:NYSE), Chevron (CVX:NYSE), ConocoPhillips (COP:NYSE), Total S.A. (TOT:NYSE), and Statoil A.S.A. (STO:NYSE).
Reuters notes, “These companies remain locked in a behind-the-scenes struggle with the Chavez government, and appear to be taking a decisive stand, demanding conditions -- and presumably compensation -- to convince them that Venezuela will continue to be good business.”
These companies doubt Venezuela can develop the Orinoco Basin on its own, or even that help from China or India will be as effective.
Global Oil Reserves: Throwing in the Towel?
But let's assume that it can… and the “state-owned” nation rises to the head of the OPEC class. Where does that leave the United States?
Our supposed friend, Saudi Arabia will most likely remain our number-one supplier, particularly if Big Oil decides to throw in the towel in Venezuela. (I don't think that will happen, though. And if major producers do stay -- as even minority stakes in the world's largest oil field could prove to be very lucrative -- the United States may just have to deal with Chavez. I'm sure that will tickle him…)
Here's the issue, though. Chavez can't wait to rub our nose in our own capitalistic style. He could up and decide to make China and India his top consumers, effectively cutting the United States off from the majority of new supply.
Want a little stereotypical proof? The “takeover” celebration this afternoon included red-clad oil workers, soldiers and a flyover by Russian-made fighter jets.
Of course, the rationale for this whole situation is “financing widespread programs for the poor. [Chavez] has built new clinics, refurbished state hospitals and sent thousands of doctors to live in poor neighborhoods and provide free medical care,” reports the AP.
Awww… I'm all warm and fuzzy inside.
Global Oil Reserves: Best Interests
In my opinion -- and just so you know, I haven't seen a financial write up -- taking over electric companies, telecommunications, and the oil industry is a bit of an overkill for these social programs…
The nation repaid its IMF debt five years early, and is pulling away from the organization. In fact, the IMF closed its Venezuelan offices in late 2006. So while Venezuela may just have those good intentions, and be following through with them, I'd be wary of all this state control.
Citizens are trusting one man to make all their decisions for them, believing he has the best interests of the people at heart.
I may remind them that certain governments and factions had the same intentions (see Nigeria).
So this hasn't exactly worked out for the best: Nigeria's received $400 billion in oil cash over the last 30 years, and its citizens still live on less than $2 a day. Now, rebellion in the West African nation has shut down more than 25% of oil production.
All it'll take to knock Chavez's house of cards down is a little whiff of greed…
***
S.R. Nunnally is a commodities expert and technical analyst for Taipan Financial News. She is the editor of Material Profits, a monthly newsletter providing in-depth, cutting-edge research in the commodities sector. She is also the founder of Material Profits Wildcatter, employing an elite group of aggressive investment strategies.
Did you like this article? Get Market Report everyday! Sign up Free!
Related Articles
Crude Oil Trading: The current dip in oil prices is a gift
Crude Oil Investing: A Leg Up
Chinese Energy: A Multi-pronged Approach
Related Resources
Venezuela pulls control: President Hugo Chavez makes an attempt to reclaim resources by taking operational control of the Orinoco Belt.
Big Oil: Chavez Takes Over Venezuela's Last Private Oil Fields, but Seeks to Entice Big Oil to Stay
Chavez: Venezuela to pull out of IMF, World Bank