Three
scenarios…
By Asha Javeed
The Trinidad Guardian
Port
Spain
Petroleumworldtt.com
02 25 07
Enrique
Sira, associate director of Massachusetts-based
Cambridge Energy Research Associates, said global
oil and gas trends revolved around three scenarios.
1.
Asian Phoenix:
This
could happen as the centre of economic and political
gravity shifts to Asia. The strong growth in China
and India puts them on a path to eventually challenge
the United States for global pre-eminence.
Sira
explained that in the Asian Phoenix model, oil prices
will reach as high as US$63 and fall, but not lower
than US$40, before going up again.
2.
Break Point:
Oil
supply difficulties limit production growth. Oil
prices reach US$120 per barrel. Fear of “peak
oil” encourages moves to enhance energy efficiency
and accelerate growth of alternative fuels.
In
this scenario, Sira said that prices continue to
move upward and reach a break point of US$91 before
plummeting downward.
3.
Global Fissures:
Widespread
political backlash against free trade and globalisation
combined with global trade and political disputes
lower economic growth and weaken energy prices with
little or no effort to limit carbon emissions.
This
scenario is most uncertain as oil prices tumble
down to as low as US$36 and then fluctuate.
Enrique
Sira, associate director of Massachusetts-based
Cambridge Energy Research Associates, predicted
that the external environment is likely to move
against Latin America in the future.
This
could be prompted by possible declines in oil and
other commodity prices as global Gross Domestic
Product (GDP) growth slows from its recent record
pace and a reduction in the risk appetite among
global investors.
He
said the political promises from recent elections
in the region will push all countries toward higher
government spending which opens the risk of rising
debt levels and continued pressure to capture energy
sector rents to support public spending.
The
disparity in investment climates across countries
and across the value chain makes an integration
strategy challenging as countries with the highest
market opportunity also tend to be the least attractive
as governments target greater share of rents.
Oil
sector
Sira
said exporting countries need to avoid killing the
goose that laid the golden egg ie their desire for
higher revenues must be balanced with the need to
attract investment and avoid the risk of destroying
demand.
For
importing countries, Sira said the focus must be
on diversification. They must first diversify sources
potentially including exotic liquids such as gas
to liquids (GTL), ethanol and bio-diesel, diversify
their energy matrix including coal, renewables and
nuclear and improve energy efficiency.
Advice
for private players?
Pick
your poison.
Sira
said the wide range of possible solutions give companies
more strategic flexibility to play their strengths
and risks will remain high and must be closely managed.
Natural
gas sector
The
tightening markets and resource nationalism have
reduced interest in regional integration but demand
growth remains strong, driven by the power sector.
However,
Sira said a closer eye should be kept on Bolivia
as it is the centre of the Southern Cone Gas Supply
puzzle.
He
added that a new interconnected gas world is emerging
with the region turning to liquefied natural gas
(LNG).
Sira
said both exporters and importers value the benefits
of being able to tap into a global market for natural
gas. This will greatly increase price linkages with
the rest of the world but tight LNG availability
may limit the region’s ability to fully shift
to the new strategy.
Regional
politics shaping oil & gas
Latin
America’s changing political climate will
directly impact on oil and gas policy in the coming
years and could make the region unattractive to
big oil companies, according to Enrique Sira, associate
director of Massachusetts-based Cambridge Energy
Research Associates (Cera) Andean Energy Focus Area.
Sira
observed that Latin America’s macroeconomic
climate is the strongest it has been in decades.
He
said since 2003, there has been no major Latin American
country in recession and overall current account
balances have improved with external debt being
reduced.
But
the regional political climate is shifting with
two poles emerging: increasing resource nationalism
and state intervention and a confirmed commitment
to attracting foreign investment.
He
was speaking about oil and gas industry trends in
Latin America at an information sharing seminar
hosted by Illuminat, the Neal and Massy subsidiary,
at the Hilton Tobago on February 2.
Venezuela’s
president, Hugo Chavez, has said he will nationalise
a series of oil projects in the Orinoco river belt
by the beginning of May. If Chavez has his way,
Venezuela will take majority stakes of 60 per cent
in four projects. Chavez has expressed the hope
that foreign firms would remain as minority partners
but energy minister Rafael Ramirez has countered
that the government would seize the operations if
no agreement was reached. The decision affects oil
majors Chevron, Exxon Mobil, Conoco Phillips, Statoil
and BP.
Sira
said the higher government take from nationalised
energy industries is a latent temptation but one
which is less attractive to private investors, especially
international investors.
He
noted that in Latin America, energy sector policies
fall into three categories: social capitalism, pragmatic
socialism and nationalism and populism.
Sira
said populism is a welcome change from the previous
neo-liberalism but it has come with many flavours:
greater focus on social spending is apparent in
all elections with nationalism and radical change
only appearing in a few countries.
He
noted that fears of a “swing to the left”
in the region under Chavez still prevail although
Bolivia and Ecuador are the only countries which
have followed the Chavez model.
Last
week, Bolivian president Evo Morales announced that
the government would seize control of the country’s
largest, privately-run tin smelter complex.
Last
year, he nationalised the country’s energy
industry.
In
Nicaragua, former leftist leader Daniel Ortega was
re-elected as president in November.
On
the other hand Peru, Mexico and Brazil have voted
for the continuation of current policies.
Sira
said these new governments will face pressure to
maintain social spending but remain vulnerable to
the downturn in the external environment.
Energy
sector implications
Sira
explained that election spending has helped keep
economic growth strong, this keeps up the pressure
on energy supply but with the risk of returning
inflation in Venezuela and Argentina.
He
said their focus is on political projects, not reforms:
-
Headline grabbing infrastructure projects: Hugo
Pipe, Chavez’ proposed pipeline to Colombia.
-
Controversial reforms remain on hold: Mexico’s
energy reforms
-
Price controls to limit inflationary pressure: Argentina
and Venezuela.
According
to Sira, the changing governments point to diverging
approaches to energy security.
He
cited Colombia as one example of an economy that
was not as rigid as Venezuela’s. He said the
factors which determine its energy policy would
focus on its increasing oil production and reserve
levels, gas exports to Venezuela and potentially
to Panama and diversification of electricity generation
mix.
He
identified Venezuela as the populist extreme, saying
the country has been pushing for oil price support
and a new gas pipeline to Colombia while Ecuador
has introduced a new hydrocarbon law increasing
state fiscal take.
However,
there have been many “street” protests
which could have a direct effect on energy policy.
Ecuador has agreed to an energy co-operation agreement
with Venezuela.
Sira
explained that a state ownership social model in
the region would lead to their national oil companies
leading their investment programme. He said this
could lead to investments being made based on a
political and social agenda which would take precedence
over profit, renegotiation of existing contracts
or change of existing legislation to increase government
take, as well as regulatory and operational uncertainties.
This
makes Venezuela highly unattractive, observed Sira.
On
the other hand, a private sector model—such
as what exists in Colombia and Peru—would
allow for a competitive framework.
This
would allow for private sector participation based
on competence and financial resources, high incorporation
of new technologies and capital resources, a fiscal
framework with incentives that make some opportunities
attractive with a pragmatic approach to policy making.
According
to Sira, Chile—with limited market opportunities
in oil and gas—is the most attractive country
for investment.
The
Trinidad Guardian
Thursday 22nd February, 2007
Copyright
©2007 The Trinidad Guardian. All Rights Reserved.
