In recent weeks, both Bolivian president Evo Morales and
Ecuador's president Alfredo Palacio have taken a page out of
Venezuelan populist president Hugo Chavez's natural resources
It's the page that features politicizing the oil and gas
industries and nationalizing them - keeping more of the petro
dollars at home but alienating longtime foreign investors. A good
model? Many oil industry analysts are skeptical.
While the government denies it and high oil prices mask it,
analysts say Venezuelan oil production is declining. Since Chavez
took over in 1999, production in the state-run oil fields has fallen
almost 50 percent, say analysts at PFC Energy, a global energy
consulting firm based in Washington, D.C., who spoke on condition of
anonymity rather than risk the wrath of the Venezuelan government.
During the same period, no new significant oil reserves have been
discovered. And with new, smaller profit margins for outside
companies, foreign investors are now slowing the rate of investment
in the jointly run oil and gas fields.
"The outlook for increases in the future is starting to go up in
smoke and we see a petroleum industry in contraction," said Luis
Giusti, the former president of Petroleos de Venezuela (PDVSA), in
an interview earlier this month with Venezuela's Union Radio. "The
day the prices change, the situation is going to be evident once and
for all," he said.
The Venezuelan government and PDVSA declined repeated requests
for comment. Official figures show oil production has bounced back
after a 2002 strike and decline, but oil analysts doubt the veracity
of those figures.
It's not clear how many fields are operated solely by PDVSA
because the company reports production totals without details as to
how many fields or wells are under their control and how many are
But such claims of a poorly managed oil industry don't seem to
bother the neighboring countries.
On May 1, Morales announced that "foreign companies will not be
able to steal from Bolivia any longer," and summarily nationalized
the country's gas industry. A week later, in the middle of a
contract dispute, Mr. Palacio endorsed the confiscation of assets of
the US company Occidental Petroleum Corp., the biggest producer of
hydrocarbons in Ecuador.
The moves played well at home. Bolivia and Ecuador, like
Venezuela, are countries where anti-Americanism is on the rise and
poverty is often blamed on foreign companies, who, according to the
argument, are exploiting the natural resources, making exorbitant
profits and leaving insufficient money behind for anti-poverty
And yet, while popular, and clearly profitable initially, such
nationalizations - and more particularly the way in which they are
carried out - are unwise, say critics, and are likely, in the long-
term, to hurt those who are applauding now.
"These are politically and ideologically inspired moves and are
not in the national best interest," argues Orlando Ochoa, an
economist at Caracas' Catholic University. Presidents Morales and
Palacio should look carefully at Venezuela's example and take heed,
he suggests. "It's clear this oil-rich country is moving backward
and eventually it will all end badly."
That Venezuela, the world's fifth-largest oil exporter, is moving
backwards is not clear to everyone.
The state oil company, PDVSA, reports production of 3.3 million
barrels a day. There is no way to independently confirm this, and
most outside analysts, including the International Energy Agency,
say PDVSA's numbers are inflated and production is closer to 2.6
million barrels per day. The Financial Times reported this month
that Venezuela's shortfall in production is such that it was
actually forced to strike a $2 billion deal to buy about 100,000
barrels per day of crude oil from Russia to avoid defaulting on
contracts - a claim the Chavez government says is false. …