Wednesday, February 26, 2020

Venezuela: What happens when socialism fails

Hugo Ch├ívez and Nicolas Maduro 
Hugo Chavez - Nicholas Maduro

In 1998, a career military officer was elected president of the wealthiest country in Latin America on a platform of socialism. It was an election victory that shocked the world, as many believed that the catastrophic failure of the Soviet Union had closed the book on socialism as a form of government.

"The philosopher Francis Fukuyama famously declared that history itself had ended," narrated Fox News anchor Bret Baier in Fox Nation's  "The Unauthorized History of Socialism."

"Western liberal democracy had emerged, as what he called, the final form of human government," continued Baier, "But did the collapse of communism really mean the end of socialism?"

Today, Hugo Chavez is gone, but his socialist "Bolivarian Revolution" drags on, trapping oil-rich Venezuela in an escalating state of crisis.

After assuming power, Chavez instituted a traditional socialist agenda, hiking taxes, nationalizing private industries and increasing spending on social programs to 40 percent of GDP.

From 2007 to 2010, the Chavez regime seized majority control of four massive oil projects and American-owned oil rigs, and implemented a new tax on oil production, among other measures.

"Chavez won four national elections in a row," said Baier in the Fox Nation piece, "But when oil prices fell, the flaws of what was now called Chavismo were starkly revealed."

"What happens is that concentrated power and coercion that is a necessary part of socialism will distort the economy and then breed the need for more power for the government in the future to try to correct the inefficiencies that they've created in the past," argued American Enterprise Institute scholar Mark Perry.

"Once the government starts to take over the economy, and uses force and coercion and creates distortions that breed future government interventions to correct their past mistakes, and then you're down the road to serfdom," said Perry.

Chavez died in 2013 and his successor, Nicolas Maduro, a former bus driver, doubled down on Chavismo.

In 2018, 80 percent of the country was living below the poverty line and the annual rate of inflation reached 1 million percent, rendering the wealth of most Venezulan's nearly worthless.

A study published by the United Nations on Sunday found that one of out every three people in Venezuela is unable to secure enough food to meet their daily basic dietary requirements.

The assessment, conducted by the U.N.'s World Food Programme, found that 9.3 million people are "food insecure." Seventy percent of Venezuelans said that while food is available, they cannot afford it.

"The economy imploded and the country has collapsed to the point that it is generating more refugees now than the Middle East, than Syria," said Niall Ferguson, a senior fellow at the Hoover Institution.

In fact, in the last three years, 15 percent of the population of Venezuela has fled the country.

"It's been a catastrophe and it's a catastrophe that was predictable if you understood what socialism does," concluded Ferguson. "I think it is important because so few people on the left in Europe and in the United States recognized Chavez for what he was."

To watch the entire six-part series, "The Unauthorized History of Socialism" go to Fox Nation and sign up today.

Monday, February 24, 2020

Mexico's Pemex Signs Contracts for New Oil Projects -CEO

Pemex Logo

Mexican national oil company Pemex has begun signing contracts with oilfield service firms specifically invited to submit bids for a new batch of priority exploration and production projects, the state-owned company’s chief executive said.

EO Octavio Romero said on the sidelines of an energy event in Ciudad del Carmen, home to numerous Pemex installations in the southern Gulf Coast state of Campeche, that the closed bidding process offers Pemex cost savings.

“We invite the companies, who form consortia to carry out these comprehensive projects, from construction of the facilities, the drilling of wells, laying both marine and onshore pipelines … and the consortium that offers the best price wins,” Romero told reporters late on Thursday.

The CEO said he expects all the related contracting for this year’s projects to be finalized by the middle of this year.

Romero, a close confidant of President Andres Manuel Lopez Obrador, has previously said Pemex aims to discover and develop 20 new oil and gas fields each year, targets viewed as extremely optimistic by industry analysts.

Only three of the 20 priority projects selected last year reported crude production as of last December, according to data from Mexican oil regulator CNH.

Last year marked the first full year of the government of Lopez Obrador, a leftist nationalist who has pushed a state-centric energy model while rejecting the need for transparent oil auctions open to private producers championed by his centrist predecessor.

Romero added in brief comments to Reuters that he does not expect a quick resolution to talks between Pemex and U.S.-based Talos Energy Inc TALO.N over which firm will run operations for a major, shared oil find in the southern Gulf.

The so-called Zama offshore discovery was made in 2017 by a Talos-led consortium which also includes Germany’s Wintershall Dea and Britain’s Premier Oil PMO.L.

Late last year, Talos formally notified the government that the deposit likely extends into Pemex’s neighboring block. Both companies claim to hold the majority of the nearly 700 million-barrel find, which is another point of contention the ongoing negotiations are aimed at resolving.
“I think that’s going to still take more time,” said Romero.

The struggle over who will run the Zama operations has emerged as a major test case for Lopez Obrador, who has repeatedly pledged to boost Pemex and downplayed the role of private oil companies.

Friday, February 21, 2020

U.S. gasoline prices rise as fire, outages hit six refineries

HOUSTON (Reuters) - U.S. gasoline prices on Tuesday continued a week-long climb as unplanned weekend refinery outages compounded earlier shutdowns at major U.S. Gulf Coast and East Coast plants, gasoline traders said. 

Over the weekend, four refineries in Texas and Louisiana shut units directly making gasoline or portions of it, according to refinery sources and energy industry intelligence service Genscape. 

Those new outages are expected to tighten U.S. gasoline supply as refineries prepare for planned shutdowns that typically begin in spring and prepare the plants for summer driving-season production. 

The average retail price for a gallon of unleaded gasoline was $2.45, up from $2.33 a year ago, according to petroleum analytics firm Gas Buddy. Prices have been falling this year as inventories rose and crude oil prices slumped. 

On Tuesday, unleaded gasoline futures rose 1.47%, or 2.30 cents, to $1.6066 a gallon on the New York Mercantile Exchange. The futures are up nearly 7% since Feb. 12, when a major fire shut most of Exxon Mobil Corp’s Baton Rouge, Louisiana, refinery, the fifth-largest in the United States. 

Exxon aims to restore production at three shut crude distillation units (CDUs) as quickly as possible and raise production on a fourth, which is operating at a minimal level, said sources familiar with operations. CDUs convert crude oil into feedstock for all other production units. 

An Exxon spokesman said operations continue but declined to comment on the status of individual units. 

That outage accounted for most of the increase in gasoline prices while adding to the market impact of the Feb. 7 shutdown of the gasoline-producing unit at Phillips 66’s Bayway Refinery in Linden, New Jersey, the largest on the East Coast. Repairs there are expected to last until early to mid-March, according to sources familiar with plant operations. 

A company spokesman said planned maintenance was underway. 

Over the three-day Presidents Day holiday weekend, the gasoline-producing units at Houston-area refineries operated by LyondellBasell Industries and Chevron Corp were shut, according to refinery sources and Genscape. 

Restart timelines for those units were not available from sources or the companies. Neither Chevron nor Lyondell replied to requests for comment. 

Reformers, which produce octane-boosting components mixed into gasoline, also were shut at Royal Dutch Shell Plc’s Convent, Louisiana, refinery and Marathon Petroleum Corp’s Galveston Bay Refinery in Texas City, Texas, over the weekend. Shell declined to comment on the unit’s status. Marathon was not immediately available to comment. 

Restart timelines were also unavailable for those units. 

Reporting by Erwin Seba, additional reporting by Stephanie Kelly and Laura Sanicola in New York; Editing by Steve Orlofsky

Thursday, February 20, 2020

Seized Oil Cargo Is Latest Twist in Venezuela’s Political Fight

File:Bow of Gerd Knutsen.jpg
  • Citgo weighs insurance claim over seized crude oil cargo
  • Cargo returns to Venezuela after floating for a year
A crude tanker stuck at sea for over a year has become the latest front in the battle over Venezuela’s oil riches after being seized last week.

Citgo Petroleum Corp., led by appointees of Venezuelan opposition leader Juan Guaido, was weighing filing an insurance claim last week for theft after a tanker holding almost 1 million barrels of oil was seized by Venezuela, according to a person familiar with the matter.

The contested oil, purchased by Citgo and loaded on the tanker Gerd Knutsen, floated offshore Venezuela for more than a year. In December, a shadow board of Citgo directors chosen by President Nicolas Maduro attempted to seize the cargo but was blocked by a U.S. court. The roughly 960,000 barrels of Venezuelan crude that was once bound for a Citgo refinery in the U.S. was instead discharging in the Port of Jose at a terminal run by Petroleos de Venezuela SA, the national oil company controlled by Maduro, according to people familiar with the matter and ship-tracking data compiled by Bloomberg.

Tuesday, February 18, 2020

Why gold prices topped $1,600 and may soon hit a more than 7-year high

 Gold futures topped $1,600 on Tuesday for the first time since 2013.

Gold futures surpassed $1,600 an ounce on Tuesday and analysts believe the precious metal has the fuel it needs to climb to its highest level in more than seven years.

Gold’s big move on Tuesday “isn’t due to worries over a greater economic fallout from the coronavirus, but rather in anticipation of the flood of central bank stimulus that is all but guaranteed by the effects to date,” said Brien Lundin, editor of Gold Newsletter.

Gold’s rally is due to ‘anticipation of the flood of central bank stimulus that is all but guaranteed by the effects [of COVID-19] to date.’ Brien Lundin, Gold Newsletter

On Tuesday, the April gold futures contract GCJ20, +1.17%  rallied by $17.20, or 1.1%, to settle at $1,603.60 an ounce after touching an intraday high of $1,608.20. The settlement was the highest for a most-active contract since late March 2013, according to FactSet data. Prices also posted for their biggest one-day dollar and percentage gain since Jan. 3 of this year.

The sharp rise for gold comes as the World Health Organization reported on Tuesday 73,332 confirmed cases of COVID-19, the new coronavirus that was first identified late last year in Wuhan, China. There have been at least 1,873 deaths from the virus, WHO said.

China has taken steps to boost its economy, and the People's Bank of China reduced its one-year lending rate on Monday.

“The interest rate cut in China and other stimulus measures were expected, but equity markets have become a safe haven in US,” said Jeff Wright, executive vice president of GoldMining Inc. “Risk and exposure to global economy is bad reason to use equities for safety.”

Given that, Wright said he believes “folks are waking up to reality that coronavirus will impact US GDP and global consumption, so gold is moving up as a true safe haven” as the U.S. might need the Federal Open Market Committee to provide support as well. 

He expects gold prices to trade even higher, but they may hold ground in the $1,550 to $1,650 range “for awhile,” he said. 

“Further bad news from the spread of the virus will help boost gold, but I think investors should remember that the U.S. markets were already searching for some excuse to demand ‘more cowbell’” from the U.S. Federal Reserve, said Lundin, referring to a pop-culture catchphrase that suggests the need for more action. “This epidemic is providing the perfect justification,” he said.

“From a technical standpoint, an inverted head-and-shoulders pattern in gold is pointing toward a target of $1,665, which I think is easily achievable from a fundamental standpoint as well,” he added.
A gold futures settlement at that level would be the highest since Feb. 8, 2013, according to FactSet data.

Monday, February 17, 2020

Fugro Picks-Up Ghana’s Pecan Field Survey Award

The study area, Axim, in context of Ghana's offshore oil fields (Reproduced from:

Aker Energy has awarded Fugro a contract for geotechnical and geophysical survey services in relation to the Pecan field, offshore Ghana.

The surveys will obtain critical seabed and sub-seabed information to facilitate the planning and emplacement of the Pecan subsea infrastructure and the floating, production, storage and offloading (FPSO) ship. ‘This project will build on the extensive experience that our vessels and staff have gained in Ghana and the wider West Africa region, and we look forward to using this knowledge to execute a safe and successful campaign,’ said Jaco Stemmet, Fugro’s Director for Africa.

The contract includes surveys performed from two state-of-the-art vessels for a 10-week period starting in March, and subsequent laboratory testing. Geophysical survey data will be acquired using the Fugro Searcher and one of Fugro’s fleet of deepwater AUVs, Echo Surveyor VI; the geotechnical vessel Fugro Scout, specifically designed for geotechnical operations in water depths of up to 3000 m, will then follow to provide drilling, and seabed sampling and in situ testing.

“For Aker Energy, this contract is an important next step as we prepare for the ramp up of the Pecan project,” said Olav Henriksen, Senior Vice President for Projects at Aker Energy. “We are eager and excited to get started and Fugro’s services are world class, making them a natural choice to partner with.”

As part of the contract, an emphasis has been placed on local involvement via Fugro’s Ghanaian office. The shore base for the two ships will be Takoradi, in the west of the country, materials will be locally sourced where possible, and the Fugro team will comprise at least one trainee surveyor and one experienced surveyor from Ghana. In addition, a series of educational and capacity-building activities will be rolled out through partnerships with Ghanaian educational institutions and the Petroleum Commission of Ghana.

Friday, February 14, 2020

The Coronavirus May Mark The End Of Russia-OPEC Cooperation

Chinatopix, via Associated Press

A week ago, at an emergency meeting of the OPEC’s Joint Technical Committee, Russia refused to agree to the cartel’s proposal to reduce production by an additional 600 000 barrels per day (bpd). Explaining Russia’s position, Energy Minister Alexander Novak said that in order to make such a decision, it takes time to evaluate the effect of coronavirus on the oil market.

It is really not yet clear how much the coronavirus will reduce global demand for crude oil. In February, amid the unfolding epidemic, OPEC lowered its demand growth forecast for 2020 by 230 000 bpd to 0.99 million bpd. The Oxford Institute for Energy Studies is more pessimistic: according to its estimates, in China alone, demand in Q1 2020 will decrease by at least 500 000 bpd. Russian Energy Minister Novak, on the other hand, retains moderate optimism, believing that the global decline will not exceed 200 000 bpd.
An Elusive Asian Market

However, even if the coronavirus turns out to cause more damage than the most pessimistic estimates, Russia should still not further reduce its oil production - on the contrary, it’s time to start preparing for a phased exit from the OPEC+ deal. This is first of all, due to increasing competition in the Asian market, where Russian companies have redirected exports in recent years. According to BP, from 2016 to 2018, Russia reduced oil supplies to Europe by 14 percent (from 177.4 million to 153.3 million tons), while increasing exports to China and India by more than a third (from 52.8 million to 73.8 million tons). A similar strategy was employed by Saudi Arabia, which over the same period managed to compensate for the reduction in supplies to Europe (by 1.7 million tons) with their total increase to India and China (by 4.7 million tons). The same applies to the United States, which last year reduced its exports to China by more than twice their original value due to trade war (5.8 million tons compared to 12.6 million tons in 2018, according to Refinitiv). In the next couple of years, the U.S. will inevitably increase exports, as a result of the Phase 1 trade deal, in which China pledged to purchase $52.4 billion worth of oil, liquefied natural gas (LNG), and other energy products from the United States by the end of 2021.  

The increasing competition will complicate entry into Asian markets for Russian companies that intend to monetize East Siberian oil reserves through exports. This is not only the Kuyumbinskoye field of Gazprom Neft and the Yurubcheno-Tokhomskoye field of Rosneft, but also the Lodochnoye, Tagulskoye, Vankorskoye and Payakhskoye fields, which are the basis of the Vostok Oil project, which in itself is worth 10 trillion rubles (over $157 billion), which will increase Russian GDP by 2% annually, according to the estimates of Rosneft CEO Igor Sechin. The increase in production at these fields will inevitably lead to non-compliance with the OPEC+ output cut deal, which the cartel hopes will keep oil prices above $60 per barrel. However, such a price level is disadvantageous for the Chinese and Indian economies, which in 2019 showed the lowest growth rates over the past 30 and 11 years, respectively (6.2% and 4.8%), according to data from IHS Markit. This, in turn, slows down oil demand - the International Energy Agency predicted a quarterly decline for China back in December (from 13.84 million bpd in Q4 2019 to 13.53 million bpd in Q1 2020), when the coronavirus had not yet affected the commodity markets.

The US Market: A Dangerous Alternative
In this regard, the fall in oil prices will certainly spur demand in India and China, and may therefore be beneficial for Russia, for which the Asian market is the only reliable alternative to supplies to Europe. The American market can hardly claim the role of being such an alternative in the long run, even if in 2019, Russia entered the top three largest suppliers of oil and petroleum products to the United States, increasing exports from 9.9 million bpd in January to 20.9 million bpd in October, according to the US Energy Information Administration (EIA). This jump in exports can be credited to the U.S. sanctions on Venezuela, which since July 2019 has not delivered a single barrel of oil or petroleum products to the United States. The same applies to Iran, whose crude exports fell from 1.2 million bpd in January 2019 to 0.1 million bpd in January 2020, according to Refinitiv.

If the geopolitical situation changes, traditional suppliers will surely return to the American market (which is a risk for Russian companies), and at the same time they will face a decrease in US dependence on commodity imports. In reality, this is already happening: in September, American exports of oil and petroleum products exceeded imports for the first time since 1973, when statistical observations began. In November, net exports (exports minus imports) reached 771 000 bpd in the United States - in 2020 it will increase to 790 000 bpd, according to the February forecast by the EIA, and in 2021 this number is expected go up to 1.16 million bpd. It is likely that the actual figures will exceed forecasts, as consolidation has already begun in the American shale industry, which will in turn contribute to its financial recovery. This is evidenced not only by the acquisition of Anadarko by Occidental ($57 billion), which agreed to take over the debt of its former competitor, but also by the recent transactions between relatively small oil-producing companies in the Permian basin - Callon and Carrizo ($2.74 billion), WPX and Felix ($2.50 billion), as well as Parsley and Jagged Peak ($2.27 billion). 

Coronavirus as a Catalyst for Change

Improving financial stability will not only support the growth of oil production, but also future exports. Besides consolidation in the shale patch, increasing investment in the U.S. Gulf Coast export facilities is expected to boost exports to 8.4 million bpd by 2024, according to last year’s IEA forecast. This will help the United States come closer to Russia and Saudi Arabia in terms of export volume (5.5 million and 7.2 million bpd, according to the BP data for 2018). For OPEC and Russia, it is better to prepare for such a turn ahead of time than to wait for the moment when the policy of reducing production will finally lose its economic meaning. In this context, the coronavirus is just a catalyst for processes that have been taking place in the market for a long time. It is self-evident for Russia that it should move towards a phased exit from the OPEC+ deal in order to prevent losing market share to its competitors.

For OPEC, this is nothing new. It has seen its share in global oil production fall from 38.6 percent in Q4 2016 (when the first OPEC + agreement was signed) to 34.1 percent in Q4 2019, according to Refinitiv, while the share of OECD countries grew from 27.6 percent to 32.4 percent. A further decrease in market share will inevitably reduce the cartel's influence on oil prices. Therefore, it is reasonable for Russia to shift the responsibility for reducing oil production entirely to Saudi Arabia, which, within the framework of existing agreements, can expand its own quota for reducing production by 400 000 bpd (up to 900 000 bpd to the level of October 2018).

Such a decision could be a first step towards a gradual suspension of the agreements, which will allow Russia to compete in the global oil market, and not just remain a passive witness.

By Dr. Fares Kilzie for