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Desperate Argentina Now Seen Begging for Oil Investment

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Thursday, May 10, 2012 – by Staff Report

Argentine Vice President Amado Boudou on Tuesday urged US companies to invest in YPF, the nationalized oil company that Argentina recently expropriated from Spain’s Repsol … “We are very optimistic in terms of what is coming for the Argentine economy in general and the hydrocarbons sector specifically” Boudou said at a Conference on the Americas at the US State Department in Washington. Far from scaring off foreign investment because of the expropriation, the government of President Cristina Fernandez has set the framework for “excellent opportunities for those who want to invest in joint ventures and possibilities of joint work in the energy sector,” he said. The Cristina Fernandez administration is gambling that the discovery in May 2011 of a giant oilfield in Argentina’s Patagonia would be too tempting for foreign oil giants to ignore. YPF needs the know-how and the capital to fully exploit the oil fields in the south-western Nequen province, known as Vaca Muerta (Dead Cow), which according to official estimates holds 150 million barrels of oil. YPF is “open to capital and the possibility of working together with public or private companies in Argentina or abroad,” Boudou said. – Merco Press

Dominant Social Theme: Don’t cry for Argentina. It’s all under control …

Free-Market Analysis: Are Argentina’s top officials having second thoughts about their expropriation of Spain’s Argentine oil-producer? It would seem that way from the above news report via Merco Press.

If the move was as wildly destructive as people think it may have been, then this posture would tend to confirm the idea that one of the world’s more powerful and influential states is simply spinning out of control.

The results may be truly catastrophic, not just for Latin America but for the larger, struggling world.

This boom may well be ending – or certainly growing long-in-the-tooth after a decade or more.

Although the Argentine expropriation of Repsol made major shock waves, the Argentine government under President Cristina Fernandez has portrayed it as a judicious and necessary gambit.

Many other observers regardless of political affiliation have branded the move as a shallow populist one that will bring disaster to Argentina and environs.

As the predictions of damage mount, there is more speculation that Fernandez’s action may bring down not only her own government but other regional governments as well.

These predictions involve inevitably a peso devaluation that will set off a dollar-withdrawal frenzy in big regional banks. Real estate prices – radically inflated after a decade of monetary expansion – may well plunge. The results could affect large swaths of South America.

Countries that could be affected include Uruguay, Brazil, Chile and Peru among others – all countries that have pursued moderate market-based policies and have benefitted from the South American industrial and monetary boom.

Meanwhile, Repsol doesn’t seem apt to surrender. Here’s more from the article.

YPF is “open to capital and the possibility of working together with public or private companies in Argentina or abroad,” Boudou said.

Last week the Argentine president signed a bill expropriating 51% of YPF stock from Repsol, its majority shareholder, sealing a measure that has roiled the country’s trade ties with Europe.

Cristina Fernandez has argued that the move was justified because Argentina faces sharp rises in its bill for imported oil, and Repsol has failed to make agreed investments needed to expand domestic production.

In Madrid, a Repsol spokesman Tuesday said the company has warned its competitors that they will face legal action if they invest in YPF.

“The idea is to protect the assets that were confiscated in Argentina until the situation is resolved in a satisfactory way for the parties that are involved,” the spokesman said.

Conclusion: A cascading crisis in South America may still seem likely …

Source

Oil Wars on the Horizon

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Posted by Michael Klare at 7:42am, May 10, 2012.

There has been much discussion recently about the Obama administration’s “pivot” from the Greater Middle East to Asia: the 250 Marines sent to Darwin, Australia, the littoral combat ships for Singapore, the support for Burmese “democracy,” war games in the Philippines (and a drone strike there as well), and so on.  The U.S. is definitely going offshore in Asian waters, or put another way, after a decade-long hiatus-cum-debacle on the Eurasian continent, the Great Game v. China is back on.

While true, however, the importance of this policy change has been exaggerated.  At the moment, as it happens, the greatest game isn’t in Asia at all; it’s in the Persian Gulf where, off the coast of Iran and in bases around the region, the U.S. is engaged in a staggering build-up of naval and air power.  Most people would have little idea that this was even going on, since it rarely makes its way into the mainstream and even less often onto front pages or into the headlines.  The Washington Times, for instance, has been alone in reporting that, for the U.S. military, “war planning for Iran is now the most pressing scenario.”  It adds that the “U.S. Central Command believes it can destroy or significantly degrade Iran’s conventional armed forces in about three weeks using air and sea strikes.”

Most of the time, however, you have to be a genuine news jockey or read specialist sites to notice the scale of what’s going on, even though the build-up in the Gulf is little short of monumental and evidently not close to finished.  It’s not just the two aircraft carrier task forces now there, but (as the invaluable Danger Room website has reported) the doubling of minesweepers stationed in Bahrain, as well as the addition of minesweeping helicopters and coastal patrol boats that are being retrofitted with Gattling guns and missiles.  Throw in new advanced torpedoes for Gulf waters and mini-drone subs; add in newly outfitted units of F-22s and F-15s heading for bases in the Gulf to make up “the world’s most powerful air-to-air fighting team.”  And don’t forget the major CIA drone surveillance program already in operation over Iran (and undoubtedly still being bolstered).

And then, of course, you would have to add in what we don’t know about, including — you can be sure — the strengthening of special operations activities in the region.  It’s the perfect build-up for a post-presidential-election war season.  After a failed war in Iraq that left that country ever more firmly allied with Iran and another failing war in Afghanistan, you might think that the Pentagon would want to back off.  Well, think again.  To adapt the famed mantra of Bill Clinton’s 1992 presidential run, “It’s the oil heartlands of the planet, stupid.”  And as TomDispatch regular Michael Klare, author of a new, must-read book, The Race for What’s Left: The Global Scramble for the World’s Last Resources, points out, we’re now entering an era when “war” and “oil” may become synonymous. (To catch Timothy MacBain’s latest Tomcast audio interview in which Klare discusses global energy conflicts, click here or download it to your iPod here.) Tom

 

Oil Wars on the Horizon

by MICHAEL T. KLARE

Conflict and intrigue over valuable energy supplies have been features of the international landscape for a long time.  Major wars over oil have been fought every decade or so since World War I, and smaller engagements have erupted every few years; a flare-up or two in 2012, then, would be part of the normal scheme of things.  Instead, what we are now seeing is a whole cluster of oil-related clashes stretching across the globe, involving a dozen or so countries, with more popping up all the time.  Consider these flash-points as signals that we are entering an era of intensified conflict over energy.

Six Recent Clashes and Conflicts on a Planet Heading Into Energy Overdrive

From the Atlantic to the Pacific, Argentina to the Philippines, here are the six areas of conflict — all tied to energy supplies — that have made news in just the first few months of 2012:

* A brewing war between Sudan and South Sudan: On April 10th, forces from the newly independent state of South Sudan occupied the oil center of Heglig, a town granted to Sudan as part of a peace settlement that allowed the southerners to secede in 2011.  The northerners, based in Khartoum, then mobilized their own forces and drove the South Sudanese out of Heglig.  Fighting has since erupted all along the contested border between the two countries, accompanied by air strikes on towns in South Sudan.  Although the fighting has not yet reached the level of a full-scale war, international efforts to negotiate a cease-fire and a peaceful resolution to the dispute have yet to meet with success.

This conflict is being fueled by many factors, including economic disparities between the two Sudans and an abiding animosity between the southerners (who are mostly black Africans and Christians or animists) and the northerners (mostly Arabs and Muslims).  But oil — and the revenues produced by oil — remains at the heart of the matter.  When Sudan was divided in 2011, the most prolific oil fields wound up in the south, while the only pipeline capable of transporting the south’s oil to international markets (and thus generating revenue) remained in the hands of the northerners.  They have been demanding exceptionally high “transit fees” — $32-$36 per barrel compared to the common rate of $1 per barrel — for the privilege of bringing the South’s oil to market.  When the southerners refused to accept such rates, the northerners confiscated money they had already collected from the south’s oil exports, its only significant source of funds.  In response, the southerners stopped producing oil altogether and, it appears, launched their military action against the north.  The situation remains explosive.

* Naval clash in the South China Sea: On April 7th, a Philippine naval warship, the 378-foot Gregorio del Pilar, arrived at Scarborough Shoal, a small island in the South China Sea, and detained eight Chinese fishing boats anchored there, accusing them of illegal fishing activities in Filipino sovereign waters.  China promptly sent two naval vessels of its own to the area, claiming that the Gregorio del Pilar was harassing Chinese ships in Chinese, not Filipino waters.  The fishing boats were eventually allowed to depart without further incident and tensions have eased somewhat.  However, neither side has displayed any inclination to surrender its claim to the island, and both sides continue to deploy warships in the contested area.

As in Sudan, multiple factors are driving this clash, but energy is the dominant motive.  The South China Sea is thought to harbor large deposits of oil and natural gas, and all the countries that encircle it, including China and the Philippines, want to exploit these reserves.  Manila claims a 200-nautical mile “exclusive economic zone” stretching into the South China Sea from its western shores, an area it calls the West Philippine Sea; Filipino companies say they have found large natural gas reserves in this area and have announced plans to begin exploiting them.  Claiming the many small islands that dot the South China Sea (including Scarborough Shoal) as its own, Beijing has asserted sovereignty over the entire region, including the waters claimed by Manila; it, too, has announced plans to drill in the area.  Despite years of talks, no solution has yet been found to the dispute and further clashes are likely.

* Egypt cuts off the natural gas flow to Israel: On April 22nd, the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Companyinformed Israeli energy officials that they were “terminating the gas and purchase agreement” under which Egypt had been supplying gas to Israel.  This followed months of demonstrations in Cairo by the youthful protestors who succeeded in deposing autocrat Hosni Mubarak and are now seeking a more independent Egyptian foreign policy — one less beholden to the United States and Israel.  It also followed scores of attacks on the pipelines carrying the gas across the Negev Desert to Israel, which the Egyptian military has seemed powerless to prevent.

Ostensibly, the decision was taken in response to a dispute over Israeli payments for Egyptian gas, but all parties involved have interpreted it as part of a drive by Egypt’s new government to demonstrate greater distance from the ousted Mubarak regime and his (U.S.-encouraged) policy of cooperation with Israel.  The Egyptian-Israeli gas link was one of the most significant outcomes of the 1979 peace treaty between the two countries, and its annulment clearly signals a period of greater discord; it may also cause energy shortages in Israel, especially during peak summer demand periods.  On a larger scale, the cutoff suggests a new inclination to use energy (or its denial) as a form of political warfare and coercion.

* Argentina seizes YPF: On April 16th, Argentina’s president, Cristina Fernández de Kirchner, announced that her government would seize a majority stake in YPF, the nation’s largest oil company.  Under President Kirchner’s plans, which she detailed on national television, the government would take a 51% controlling stake in YPF, which is now majority-owned by Spain’s largest corporation, the energy firm Repsol YPF.  The seizure of its Argentinean subsidiary is seen in Madrid (and other European capitals) as a major threat that must now be combated.  Spain’s foreign minister, José Manuel García Margallo, said that Kirchner’s move “broke the climate of cordiality and friendship that presided over relations between Spain and Argentina.”  Several days later, in what is reported to be only the first of several retaliatory steps, Spain announced that it would stop importing biofuels from Argentina, its principal supplier — a trade worth nearly $1 billion a year to the Argentineans.

As in the other conflicts, this clash is driven by many urges, including a powerful strain of nationalism stretching back to the Peronist era, along with Kirchner’s apparent desire to boost her standing in the polls.  Just as important, however, is Argentina’s urge to derive greater economic and political benefit from its energy reserves, which include the world’s third-largest deposits of shale gas.  While long-term rival Brazil is gaining immense power and prestige from the development of its offshore “pre-salt”petroleum reserves, Argentina has seen its energy production languish.  Repsol may not be to blame for this, but many Argentineans evidently believe that, with YPF under government control, it will now be possible to accelerate development of the country’s energy endowment, possibly in collaboration with a more aggressive foreign partner like BP or ExxonMobil.

* Argentina re-ignites the Falklands crisis: At an April 15th-16th Summit of the Americas in Cartagena, Colombia — the one at which U.S. Secret Service agents were caught fraternizing with prostitutes — Argentina sought fresh hemispheric condemnation of Britain’s continued occupation of the Falkland Islands (called Las Malvinas by the Argentineans).  It won strong support from every country present save (predictably) Canada and the United States.  Argentina, which says the islands are part of its sovereign territory, has been raising this issue ever since it lost a war over the Falklands in 1982, but has recently stepped up its campaign on several fronts — denouncing London in numerous international venues and preventing British cruise ships that visit the Falklands from docking in Argentinean harbors.  The British have responded by beefing up their military forces in the region and warning the Argentineans to avoid any rash moves.

When Argentina and the U.K. fought their war over the Falklands, little was at stake save national pride, the stature of the country’s respective leaders (Prime Minister Margaret Thatcher vs. an unpopular military junta), and a few sparsely populated islands.  Since then, the stakes have risen immeasurably as a result of recent seismic surveys of the waters surrounding the islands that indicated the existence of massive deposits of oil and natural gas.  Several UK-based energy firms, including Desire Petroleum and Rockhopper Exploration, have begun off-shore drilling in the area and have reported promising discoveries.  Desperate to duplicate Brazil’s success in the development of offshore oil and gas, Argentina claims the discoveries lie in its sovereign territory and that the drilling there is illegal; the British, of course, insist that it’s their territory.  No one knows how this simmering potential crisis will unfold, but a replay of the 1982 war — this time over energy — is hardly out of the question.

* U.S. forces mobilize for war with Iran: Throughout the winter and early spring, it appeared that an armed clash of some sort pitting Iran against Israel and/or the United States was almost inevitable.  Neither side seemed prepared to back down on key demands, especially on Iran’s nuclear program, and any talk of a compromise solution was deemed unrealistic.  Today, however, the risk of war has diminished somewhat – at least through this election year in the U.S. — as talks have finally gotten under way between the major powers and Iran, and as both have adopted (slightly) more accommodating stances.  In addition, U.S. officials have been tamping down war talk and figures in the Israeli military and intelligence communities have spoken out against rash military actions.  However, the Iranians continue to enrich uranium, and leaders on all sides say they are fully prepared to employ force if the peace talks fail.

For the Iranians, this means blocking the Strait of Hormuz, the narrow channel through which one-third of the world’s tradable oil passes every day.  The U.S., for its part, has insisted that it will keep the Strait open and, if necessary, eliminate Iranian nuclear capabilities.  Whether to intimidate Iran, prepare for the real thing, or possibly both, the U.S. has been building up its military capabilities in the Persian Gulf area, deploying two aircraft carrier battle groupsin the neighborhood along with an assortment of air and amphibious-assault capabilities.

One can debate the extent to which Washington’s long-running feud with Iran is driven by oil, but there is no question that the current crisis bears heavily on global oil supply prospects, both through Iran’s threats to close the Strait of Hormuz in retaliation for forthcoming sanctions on Iranian oil exports, and the likelihood that any air strikes on Iranian nuclear facilities will lead to the same thing.  Either way, the U.S. military would undoubtedly assume the lead role in destroying Iranian military capabilities and restoring oil traffic through the Strait of Hormuz. This is the energy-driven crisis that just won’t go away.

How Energy Drives the World

All of these disputes have one thing in common: the conviction of ruling elites around the world that the possession of energy assets — especially oil and gas deposits — is essential to prop up national wealth, power, and prestige.

This is hardly a new phenomenon.  Early in the last century, Winston Churchill was perhaps the first prominent leader to appreciate the strategic importance of oil.  As First Lord of the Admiralty, he converted British warships from coal to oil and then persuaded the cabinet to nationalize the Anglo-Persian Oil Company, the forerunner of British Petroleum (now BP).  The pursuit of energy supplies for both industry and war-fighting played a major role in the diplomacy of the period between the World Wars, as well as in the strategic planning of the Axis powers during World War II.  It also explains America’s long-term drive to remain the dominant power in the Persian Gulf that culminated in the first Gulf War of 1990-91 and its inevitable sequel, the 2003 invasion of Iraq.

The years since World War II have seen a variety of changes in the energy industry, including a shift in many areas from private to state ownership of oil and natural gas reserves.  By and large, however, the industry has been able to deliver ever-increasing quantities of fuel to satisfy the ever-growing needs of a globalizing economy and an expanding, rapidly urbanizing world population.  So long as supplies were abundant and prices remained relatively affordable, energy consumers around the world, including most governments, were largely content with the existing system of collaboration among private and state-owned energy leviathans.

But that energy equation is changing ominously as the challenge of fueling the planet grows more difficult.  Many of the giant oil and gas fields that quenched the world’s energy thirst in years past are being depleted at a rapid pace.  The new fields being brought on line to take their place are, on average, smaller and harder to exploit.  Many of the most promising new sources of energy — like Brazil’s “pre-salt” petroleum reserves deep beneath the Atlantic Ocean, Canadian tar sands, and American shale gas – require the utilization of sophisticated and costly technologies.  Though global energy supplies are continuing to grow, they are doing so at a slower pace than in the past and are continually falling short of demand.  All this adds to the upward pressure on prices, causing anxiety among countries lacking adequate domestic reserves (and joy among those with an abundance).

The world has long been bifurcated between energy-surplus and energy-deficit states, with the former deriving enormous political and economic advantages from their privileged condition and the latter struggling mightily to escape their subordinate position.  Now, that bifurcation is looking more like a chasm.  In such a global environment, friction and conflict over oil and gas reserves — leading to energy conflicts of all sorts — is only likely to increase.

Looking, again, at April’s six energy disputes, one can see clear evidence of these underlying forces in every case.  South Sudan is desperate to sell its oil in order to acquire the income needed to kick-start its economy; Sudan, on the other hand, resents the loss of oil revenues it controlled when the nation was still united, and appears no less determined to keep as much of the South’s oil money as it can for itself.  China and the Philippines both want the right to develop oil and gas reserves in the South China Sea, and even if the deposits around Scarborough Shoal prove meager, China is unwilling to back down in any localized dispute that might undermine its claim to sovereignty over the entire region.

Egypt, although not a major energy producer, clearly seeks to employ its oil and gas supplies for maximum political and economic advantage — an approach sure to be copied by other small and mid-sized suppliers.  Israel, heavily dependent on imports for its energy, must now turn elsewhere for vital supplies or accelerate the development of disputed, newly discovered offshore gas fields, a move that could provoke fresh conflict with Lebanon, which says they lie in its own territorial waters.  And Argentina, jealous of Brazil’s growing clout, appears determined to extract greater advantage from its own energy resources, even if this means inflaming tensions with Spain and Great Britain.

And these are just some of the countries involved in significant disputes over energy.  Any clash with Iran — whatever the motivation — is bound to jeopardize the petroleum supply of every oil-importing country, sparking a major international crisis with unforeseeable consequences.  China’s determination to control its offshore hydrocarbon reserves has pushed it into conflict with other countries with offshore claims in the South China Sea, and into a similar dispute with Japan in the East China Sea.  Energy-related disputes of this sort can also be found in the Caspian Sea and in globally warming, increasingly ice-free Arctic regions.

The seeds of energy conflicts and war sprouting in so many places simultaneously suggest that we are entering a new period in which key state actors will be more inclined to employ force — or the threat of force — to gain control over valuable deposits of oil and natural gas.  In other words, we’re now on a planet heading into energy overdrive.

Michael T. Klare is a professor of peace and world security studies at Hampshire College and the author, most recently, of Rising Powers, Shrinking Planet and The Race for What’s Left.

This article originally appeared on TomDispatch.

Argentina: Vaca Muerta – Argentina’s oil and gas seizure poses new dilemma

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By Vladimir Hernandez BBC Mundo

It is a grim name, though it has nevertheless brought hope of a better future for many in Argentina: Vaca Muerta – translated from the Spanish – means “Dead Cow”.

Vaca Muerta’s barren landscape covers some 30,000 remote sq km of the Patagonian province of Neuquen, in the west of Argentina.

And it was here where energy giant Repsol-YPF struck gold last year. Black gold.

Buried in 250-million-year-old rocks, almost 3km beneath the surface here, are some of the world’s largest reserves of shale oil and gas.

According to the Spanish energy giant Repsol, there are prospective resources equal to more than 21 billion barrels of oil underneath the ground in Vaca Muerta.

Much of it could be shale oil, rather than gas, according to an independent Ryder Scott audit commissioned by Repsol, though this has yet to be proven.

But the presence of shale gas is proven, and it is clear that the reserves found here will make up a big proportion of the country’s estimated 22 trillion cubic-metre total.

That makes Argentina the world’s number three in terms of shale gas reserves – hot on the heels of the US, which has reserves of some 24 trillion cubic metres, and China, which has reserves of some 36 trillion cubic metres, according to the American Energy Information Administration.

Failure to invest

Getting the reserves out would obviously require massive investment.

Argentina’s government believes Repsol – which has been active here ever since it took over YPF when it was privatized during the 1990s – should have done this.

But instead, it says, Repsol has been dragging its feet, invested too little and thus failed to get the resources out of the ground as quickly as it should have done.

The government has even accused Repsol of pulling YPF’s profits out of the country to finance its businesses abroad.

President Cristina Fernandez said:

“If such a situation continued, we would have had big energy problems in the country because of the drop in production and the increasing reliance on fuel imports.”

Renationalized resource

So the government has stepped in to take control of what it sees as a vital, national asset.

Rodrigo Alvarez Argentine economist:

This is the real reason behind the renationalization of YPF”

Renationalizing YPF has in effect helped the government regain control of the Vaca Muerta energy reserves, since the rights to exploit more than a third of the area were held by Repsol-YPF.

The move, and the manner in which it was made, has obviously created a great deal of controversy.

Repsol and others believe the government was motivated by a desire to secure the country’s energy requirements for decades to come, and thus reduce its gas import bill which shot up to $10bn in 2011 and is expected to surge to $14bn this year.

“This could help cope with between 30% and 40% of the gas demand within Argentina, which has been covered with costly imports in the last two years,” says Eduardo Barreiro, an energy consultant and a director at the Society of Petroleum Engineers in Argentina.

Argentine economist Rodrigo Alvarez Litre agrees:

“This is the real reason behind the renationalization of YPF,” he wrote in a column in the Argentine newspaper, Perfil.

“With such shale gas reserves, Argentina could position itself as a nation with cheap and abundant energy, and profit from the high prices in the international market.”

Investment required

Argentina’s government might describe its move as a step towards self-reliance, which it believes is clearly in the nation’s interest.

“Vaca Muerta could be a very important area in the future,” Mr Barreiro says.

“But it needs investment.”

Some $3bn would be required over the next three years to get the shale gas extraction started.

And then, he added: “You’ll need to be excavating constantly to keep the production levels high enough to justify the investment and to make a profit.”

According to Repsol, more could be achieved with more investment. The firm insists that some $25bn per year would be needed to exploit Vaca Muerta’s shale oil and gas potential. This, the company believes, could double the Argentine production in 10 years.

But this would require some 3,000 shale oil and gas wells in an area where there are only 28 at the moment.

Costly subsidies

Without Repsol, the government might well look to other foreign investors for help to make it happen.

But Daniel Kokogian, a geologist who works as an advisor for several foreign energy companies in Argentina, said some companies would be concerned about how they might be treated in the future, following the renationalization of YPF.

“What private investor would put money into a business where national interest will come first, then profits?” he asks.

Others are far more optimistic about Argentina’s chances to attract foreign investors.

The government says it has already had talks with energy giants such as Total of France and Petrobras of Brazil – and local energy analyst Victor Bronstein expects deals to be struck.

“Oil companies are constantly operating in turbulent environments, in problematic countries,” he says.

“If they think there’s a business opportunity, that there’s a possibility of resources, they’ll dive in.”

Besides, cash-rich states may well be keen to get involved, according to Mark Routt, a senior consultant with KBC Advanced Technologies in Houston, Texas.

“Argentina is going to have to look for government-government relationships, particularly with China,” he says.

Polluting process

But Mr Kokogian says he believes the main concern of most investors will be whether or not Vaca Muerta is going to deliver decent margins.

“The main issue here is to determine if these estimated resources can actually be called reserves,” he said.

“A resource becomes a reserve when it is proven that the investment can be recovered with an acceptable profit. In Vaca Muerta, I don’t think that has happened yet.

“If this area was truly the main reason behind the nationalization of YPF, then Argentina may have shot itself in the foot over an unproven source of energy,” he adds.

And if that turns out to be the case, the Argentine efforts to control “Dead Cow” could be a bit like flogging a dead horse.

Source

Bolivian Soldiers Walked Into This Spanish Power Company, Hung A Flag And Seized Control

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AP

LA PAZ, Bolivia (AP) — President Evo Morales announced Tuesday that his government is completing the nationalization of Bolivia’s electricity sector by seizing control of its main power grid from a Spanish-owned company.

Morales took advantage of the symbolism of May Day, the international day of the worker, to order troops to occupy installations of the company, a subsidiary of Red Electrica Corporacion SA.

The president’s placing of another of what he deems basic services under state control comes as neighboring Argentina moves to take control of the country’s oil company, YPF, from the Spanish energy company Repsol SA, which had held a majority interest.

Spain‘s ambassador to Bolivia, Ramon Santos, told reporters the electric grid takeover “is sending a negative message that generates distrust.”

Red Electrica is the sole operator of the transmission grid in Spain, and the Spanish government holds a 20 percent stake in the company.

Morales did not say how much the company would be compensated, but the nationalization decree says the state would negotiate an indemnization fee.

Morales said only $81 million had been invested in Bolivia’s power grid since it was privatized in 1997.

The government, meanwhile, “invested $220 million in generation and others profited. For that reason, brothers and sisters, we have decided to nationalize electricity transmission,” he said.

Bolivian soldiers peacefully took over the company’s offices in the central city of Cochabamba, hanging Bolivia’s flag across its entry.

Red Electrica had no immediate comment. A security guard reached at its headquarters in Spain said a statement was expected later.

The company owned 74 percent of Bolivia’s electrical transmission network, or 1,720 miles (2,772 kilometers) of high voltage lines.

Two years ago, on May Day, Morales’ government took control of most of Bolivia’s electrical generation, nationalizing its main hydroelectric plants.

Morales, Bolivia’s first indigenous president, has moved to put energy, water and telecommunications under state control.

But analyst Joao de Castro Neves of the Eurasia Group said the president has been far more pragmatic and less radical than the leftist leaders of Venezuela or Argentina.

“He knows his limits,” Castro Neves said. “The Bolivian state doesn’t have the capacity to take over all these sectors (including mining) and maintain the high levels of investment they need.”

He noted that Morales still hasn’t come to terms for taking over several small mines whose nationalization he announced last May Day.

Bolivia’s government also has not been able to negotiate compensation for the power plants taken from GDF Suez of France and Rurelec PLC of Britain.

Morales continues to deal with multinational companies such as Brazil’s oil company, Petrobras, and Repsol, whose president, Antonio Brufau, he met with on Tuesday after announcing the power grid takeover.

The two men inaugurated a $528 million natural gas plant in eastern Bolivia that represents the single biggest foreign investment in the country under Morales. It is designed to triple the amount of gas sent to Argentina and the local market to 9 million cubic meters a day, said Carlos Villegas, president of Bolivia’s state energy company, YPFB.

In the case of electricity, the government is following a policy of returning to the public domain a sector privatized during the 1990s.

“Just to make it clear to national and international public opinion, we are nationalizing a company that previously was ours,” Morales said.

The 20 percent of the industry the government does not own is in the hands of small companies serving cities in the eastern lowlands that are not connected to the national grid.

In his first year in office in 2006, Morales announced he was “nationalizing” the oil and gas sector. He began extracting concessions from multinational energy companies, renegotiating contracts to give Bolivians greater control of and a bigger share of profits from the natural gas industry, the country’s biggest ahead of mining.

In 2008, he used May Day to announce the completion of the nationalization of Bolivia’s leading telecommunications company, Entel, from Telecom Italia SpA

The nationalizations have not saved Morales from widespread criticism by Bolivians upset over rising consumer prices, lower domestic oil production and discontent over government plans to build a highway through a lowlands nature preserve inhabited by Indians.

Morales’ approval rating is down to about 40 percent from 69 percent when he began his second term in January 2010.

Read more: BI

Leftist economist masterminds Argentina’s YPF grab

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By Hilary Burke and Magdalena Morales
BUENOS AIRES 
Fri Apr 20, 2012 12:42pm EDT

(Reuters) – Government economist Axel Kicillof stormed the world stage this week when Argentina moved to nationalize energy company YPF, defending the plan he helped devise in a fiery speech worthy of Venezuelan President Hugo Chavez.

Charismatic and polarizing, the 40-year-old Kicillof lambasted “free-market fundamentalists” as he defended the push to seize control of YPF from Spain’s Repsol.

Just four months after taking the deputy economy minister post, Kicillof has penetrated the small circle of trusted advisers to President Cristina Fernandez, who singles him out for praise in her speeches.

Sporting sideburns and an open collar, Kicillof told Congress that only “morons” would think the state was stupid enough to play by Repsol’s rules and make an offer to buy 100 percent of its shares. He blasted economic theories that “justify the looting of our resources and our companies.”

People who know Kicillof say they are not surprised to see him become the public face of a move that has prompted howls of protest from abroad. They say he has always been brilliant, hard-working and even messianic.

One classmate remembered a high school camping trip where Kicillof and a group of friends played at him being God, surrounded by his chanting followers.

“It was child’s play, but it’s striking that Axel was God,” she said, speaking on condition of anonymity.

Kicillof, who declined to be interviewed for this story, spent most of his career in academia, giving classes and writing about the theories of economists such as John Maynard Keynes and Karl Marx.

His first foray into business administration came in 2009, when he took a key position at flagship carrier Aerolineas Argentinas, which the government had expropriated from Spanish travel group Marsans.

Last year, he rose to prominence when Fernandez’s administration fought to appoint him as state representative on the board of directors at steelmaker Siderar, despite company resistance.

With that, local media at odds with the government crowned him the new radical boogeyman.

As a college student, Kicillof co-founded TNT, a group that used irony and humor to tackle corruption and raise standards inside state-run Buenos Aires University’s economics department.

Later, during the 1999 presidential election, he helped organize a protest against Argentina’s obligatory vote because he said the field of candidates was too narrow.

“He’s a brilliant guy. He’s one of the most intelligent people I know, very honest and with strong ideals,” said Leo Piccioli, general manager of Staples Argentina and a fellow member of TNT in the 1990s.

SALVATION

Despite his youthful appearance, Kicillof is an old-school ideologue who shuns the tenets of 21st Century globalism and believes Argentina must find its own way to economic development and industrial prominence.

In his Tuesday speech, he mocked the concept of the “rule of law,” saying this was designed to protect big business. He also compared the Spanish operators of YPF and Aerolineas Argentinas, who received no compensation after the airline was expropriated.

“Spanish officials decide what is done at YPF … in the same way that (Marsans) was bent on lobotomizing Aerolineas Argentinas,” Kicillof said. “This is a transnational group that doesn’t think about the Argentine worker.”

Kicillof helped put together a strategic plan for Aerolineas, which critics say has failed because the company keeps losing money. Others say it is impossible to evaluate his administration of the airline’s finances when so much tax revenue has been used to revamp the company.

Admirers call him captivating while critics see him as inflexible and verbose. His influence is growing where it counts — with the president.

At both Siderar and YPF, Kicillof urged company officials to make fewer dividend payments abroad and invest more locally. Fernandez ended up enshrining that view in government policy.

“He was the main architect of this concept,” said a personal acquaintance who met Kicillof in the last few years. “He is absolutely convinced that (his vision) will be Argentina’s salvation and not its death knell.”

Some people view Kicillof as a threat to the country’s future, saying he will scare off private investors. Emerging markets analyst Walter Molano at U.S.-based BCP Securities called Kicillof “a flaming red Marxist” on Thursday.

One old friend said his lack of political experience, and his impulsive, irreverent style, could eventually cause a rift with the president and end with him being scapegoated.

But that view might underestimate the loyalty shown by Fernandez to another controversial government figure, price and import czar Guillermo Moreno, famed for his vulgar talk and his fanatical work ethic.

Like Moreno, Kicillof isn’t seen giving an inch.

“He is intelligent,” his old schoolmate said. “But he won’t listen to other opinions or other points of view. He won’t learn from past mistakes.”

(Writing by Hilary Burke; Editing by Helen Popper and David Gregorio)

Britain reassures banks over Argentina’s Falklands threats

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The British Government has told the Falklands and companies working there that it will defend the protectorate against Argentine aggression. Photo: Reuters

The Foreign Office has sought to reassure British and American banks threatened by the Argentine government over their involvement in the Falkland Islands oil industry.

By James Quinn
9:30PM BST 21 Apr 2012

The Government, in a move designed to ease concern among the investment community about the Argentine legal threats, has written to some 15 banks and oil exploration companies operating in the region.

The move comes as Argentina faces international condemnation for its seizure of Repsol’s majority stake in YPF, Argentina’s largest oil company, last week.

In the new letter, the Foreign Office says it is “deeply sceptical” that Argentina would be able to enforce “any penalties” in courts outside its own borders. It adds that the government of the Falklands “is entitled to develop” oil and fishing industries in its own waters “without interference from Argentina.”

“The British Government has no doubt about our sovereignty over the Falkland Islands and surrounding maritime areas,” it adds.

News of the letter follows The Sunday Telegraph’s revelation that the Argentine government had written to banks involved in the Falkland oil industry threatening them with legal action. In writing to the banks concerned, including broker Oriel Securities and Royal Bank of Scotland, the Government has sought to not jeopardies the fledgling Falkland oil industry.

Related Articles

Edison Investment Research, which has published research on the value of oil around the islands , slammed the attempts to silence it.

“Edison Investment Research firmly believes in the right for all financial institutions, publishers and in particular financial research houses such as ours to be able to exercise their right to provide independent analysis of all quoted companies wherever they are listed and wherever their operations may be carried out,” said Edison’s Fraser Thorne.

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Incensed Spain threatens Argentina after YPF seizure

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MADRID – An incensed Spain threatened swift economic retaliation against Argentina on Tuesday after it announced plans to seize YPF, the South American nation’s biggest oil company, in a move which pushed down shares in Spanish energy giant Repsol, the controlling shareholder.

Madrid called in the Argentine ambassador in a rapidly escalating row over the nationalization order by Argentina’s populist and increasingly assertive president, Cristina Fernandez, a move which delighted many of her compatriots but alarmed some foreign governments and investors.

Promising action in the coming days, Spanish industry minister Jose Manuel Soria said: “With this attitude, this hostility from the Argentine authorities, there will be consequences that we’ll see over the next few days. They will be in the diplomatic field, the industrial field, and on energy.”

“Argentina has shot itself in the foot,” said Foreign Minister Jose Manual Garcia-Margallo.

Despite the rhetoric, Spain appeared to have little leverage over Buenos Aires – any action to be taken will be determined at a cabinet meeting on Friday – and Argentina has proven impervious to such pressure in the past.

Repsol said YPF was worth $18 billion as a whole and it would be seeking compensation on that basis, but the Spanish oil major’s shares fell by 7.5 percent in Madrid on Tuesday. The company said it could raise money in the bond market and sell some assets to help its cash flow.

Repsol described Argentina’s move as “clearly unlawful and seriously discriminatory” and said it would take legal action.

“This battle is not over,” Repsol Chairman Antonio Brufau said. “The expropriation is nothing more than a way of covering over the social and economic crisis facing Argentina right now.”

But Fernandez dismissed the risk of reprisals. “This president isn’t going to respond to any threats … because I represent the Argentine people. I’m the head of state, not a thug,” she said.

European Commission President Jose Manuel Barroso said he expected Argentina to uphold international agreements on business protection with Spain. “I am seriously disappointed about yesterday’s announcement,” he said in Brussels.

But action against Argentina appeared limited in scope. The EU Trade Commissioner would write to Argentina’s trade minister to “reiterate our serious concerns” while an EU-Argentine meeting this week would be postponed.

“It’s absolutely shameful considering everything that Spain has done for Argentina,” said a woman called Domi, who was filling her tank at a Repsol petrol station in Madrid.

“I hope the government takes measures and does something serious. They’ve pulled our leg long enough!”

Spanish media condemned the Argentine action, believed to be the biggest nationalization in the natural resources field since the seizure of Russia’s Yukos oil giant a decade ago.

La Razon newspaper carried a photograph of Fernandez on its front page in a pool of oil with the headline: “Kirchner’s Dirty War”, referring to her full name. The business newspaper La Gaceta de los Negocios called the takeover “an act of pillage”.

El Periodico spoke of “The New Evita”, pointing out that Fernandez had announced the nationalization in a room decorated with a large portrait of Eva Peron, the actress who was married to a president and revered by many Argentines as a populist mother of the nation and champion of the poor.

Repsol’s Brufau said he suspected nationalization of YPF was imminent when he tried to contact Fernandez last Friday and was told that the president “was angry” and did not want to speak.

YPF has been under pressure from Fernandez’s centre-left government to boost oil production, and its share price has plunged in recent months on speculation about a state takeover.

Spanish investment in Argentina may now be at risk after the move on YPF. In the “reconquista” or reconquest, of the 1990s, newly privatized Spanish businesses bought Latin American banks, telephone companies and utilities, much as their armor-clad ancestors had conquered the region 500 years earlier.

Through its latest nationalization move, Argentina runs the risk of frightening off foreign investors, key to contributing money to help develop one of the world’s largest reserves of shale oil and gas recently discovered in the Vaca Muerta area.

ACE UP ITS SLEEVE?

This led some analysts to question whether Argentina might have an ace up its sleeve in the form of a new partner such as China Petrochemical Corp (Sinopec Group).

Repsol has, however, identified Vaca Muerta as “the cause of the pillage”, or the reason Argentina went after its YPF share.

A Chinese website said Sinopec was in talks with Repsol to buy YPF for more than $15 billion, although other sources said the nationalization move would probably get in the way of such a deal. Sinopec dismissed the report as a rumor.

Fernandez said the government would ask Congress, which she controls, to approve a bill to expropriate a controlling 51 percent stake in YPF by seizing shares held exclusively by Repsol, saying energy was a “vital resource”.

“If this policy continues – draining fields dry, no exploration and practically no investment – the country will end up having no viable future, not because of a lack of resources but because of business policies,” she said.

YPF’s market value is $10.6 billion, although an Argentine tribunal will be responsible for valuing the company as part of the takeover. Central bank reserves or state pension funds could be used for compensation.

Fernandez, who still wears the black of mourning 18 months after the death of her husband and predecessor as president Nestor Kirchner, stunned investors in 2008 when she nationalized private pension funds. She has also renationalized the country’s flagship airline, Aerolineas Argentinas.

Such measures are popular with ordinary Argentines, many of whom blame free-market policies such as the privatizations of the 1990s for the economic crisis and debt default of 2001/02.

Her announcement of the YPF takeover plan, however, drew strong warnings from Spain, Mexico and the European Union, a key market for Argentina’s soymeal exports.

Mexico’s President Felipe Calderon said Fernandez’s plan would damage chances for future foreign investment in Argentina and hurt Repsol, in which Mexico’s state oil monopoly Pemex holds a 10-percent stake.

Venezuela, where socialist President Hugo Chavez has nationalized almost all the oil industry, applauded her move.

The row over YPF comes as Fernandez heaps pressure on Britain over oil exploration off the Falkland Islands, over which Argentina claims sovereignty.

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Argentina’s shale potential at risk

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April 14, 2012 10:27 pm by Jude Webber

Any hostile moves on YPF, the Spanish-controlled oil company, by the pro-nationalisation government in Buenos Aires could have implications that go way beyond the companies and investors at the heart of this bitter tug-of-war.

Why? Because Argentina is sitting on what geologists and energy experts widely agree is one of the world’s most attractive reserves of unconventional gas and oil – known as shale – which are trapped deep in the bedrock below ground.

Shale is potentially a very big deal indeed. It turned the US from energy importer to exporter – something that Argentina, which spent $9bn importing fuel last year, ought to take note of.

Argentina has about a third of the US shale reserves, but they are less deep (which makes them cheaper and easier to access), seams are two to three times thicker than in the US and, for now at least, Argentine shale is concentrated in the Vaca Muerta (Dead Cow) formation, rather than being spread out across the country.

So all other things being equal, shale producers should be brushing up their Spanish and heading south. Several big players – including ExxonMobil, Total and Apache – and smaller companies already have. But it is YPF which has the biggest acreage, and it estimates that as much as $250bn will be needed to develop a viable shale industry over the next decade.

No one’s pockets are that deep, so partnerships are the way to go. Except that regulatory concerns are raising red flags before investors’ eyes now.

YPF has been publicly criticised, stripped of a string of concessions after being accused of underinvestment and now the government is analysing how to give the Argentine state a bigger role in the company – something that, according to some proposals circulating in the government, could translate into the expropriation of as much as 50.01 per cent of the company.YPF is currently controlled by Repsol of Spain, which has 57.43 per cent, and 25.46 per cent is in the hands of the Eskenazi family’s Petersen Group. Just over 17 per cent is traded on stock markets.

So enthusiasm among potential new players in the shale sector – where some were prepared to invest as much as $10,000 to $12,000 per hectare, according to industry sources – is screeching to a halt. “This is damaging shale (prospects), of course,” Alieto Guadagni, a former energy secretary, told beyondbrics.

The government has been berating YPF for what it perceives as a failure to invest enough, yet the concerns its nationalization dream are raising risks reducing investor appetite – which is perverse. And if concerns over contracts were not enough to dampen investors’ spirits, the prospect of partnering with a state that likes fast results and dislikes repatriation of dividends may give pause for thought.

What is worse is that the shale prospects represent energy that Argentina badly needs. Underinvestment in the sector, analysts and industry players say, is the direct result of a regulatory regime that keeps prices in Argentina well below the international market.

As Guadagni put it, Argentina pays domestic gas producers some $2.8 per million British Thermal Units, yet shells out some $11 per million BTU for gas from Bolivia (produced, ironically, by Repsol YPF), and some $17 for liquefied natural gas to plug its huge energy deficit.

Meanwhile, the cost to Argentines for their domestic gas is about 50 US cents per million BTU of gas, and drivers of vehicles that run on compressed natural gas pay around $1.

“The big question is whether these plans for YPF will improve or worsen Argentina’s prospects for recovering its energy self-sufficiency,” Guadagni said.

Argentina had a $3bn energy surplus in 2006. This year, Guadagni reckons the deficit will be $6bn to $7bn, ballooning to $12bn in 2013. Argentina’s policy of cheap domestic energy to stoke demand and economic growth worked well after the country’s default of nearly $100bn in 2001. But it isn’t working now.

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