- Geopolitical consultant to Fortune 500 companies in the Americas
- High-level Scottish government official
- Energy consultant to Scottish government
- EU economic analyst in Brussels
Venezuela: The Next Move on the International Stage
On Tuesday, Venezuela’s Supreme Court froze opposition “president in charge” Juan Guaido’s bank accounts and imposed a travel ban on him. Then, by Wednesday morning, a desperate Maduro was pleading with Americans to stop Trump from intervening on Guaido’s behalf and saying he would sit down and talk with the opposition for a peaceful solution. The day before, the US slapped new sanctions on Venezuela’s state-run oil company. Now this is really a game of creditors.
Beijing, in September, threw another $5 billion Maduro’s way to prop up crude production. In total, China is now into Venezuela for $50 billion—money it’s used to buy influence in the country since 2007, mostly in the form of oil-for loan deals. It wasn’t initially a bet on Maduro, who was of no consequence when this all started; rather, it was a bet on Venezuelan oil, and right now, it’s looking increasingly like a losing bet to Beijing. But this is not Russia. China’s relations with Maduro can change on a dime, if the price is right, or if the losses will be mitigated. It’s also a great bargaining chip in the ongoing trade wars with the US. Right now, Beijing is still betting on Maduro because the military is still supporting him against the opposition “president in charge”. From our perspective, the chances that Maduro will survive what is to come are dwindling because, as our experts opine, there is little chance of either Russia or China waging direct war against the United States in its backyard, and Washington is determined to overthrow the Maduro government—a clear design since the formation of the Lima Group. The Russians may be sending in private mercenaries, but that is to avoid conflict in the form of state-run actors fighting against each other. They will simply protect Maduro, but they can’t protect him from the masses, and they won’t be able to protect him if the rank-and-file of the military decide, finally, that their loyalties do not lie with starvation. China wants the oil to keep flowing since it’s got a $50-billion bet on that crude. It doesn’t care about Maduro. While China has condemned US sanctions on PDVSA, that doesn’t mean it’s ready to throw its power behind a bloody run to support Maduro. It will just as easily buy influence with Maduro’s opponents when that window opens up.
But in the meantime, this is a game that is too close to play, and too early to hedge bets on. Everyone’s biding their time, but the climax is nearing. China is waiting to see where it should re-hedge; Russia will keep interfering and prolonging Maduro’s agony. What we would watch, though, is how the trade talks play out because China won’t make a move one way or the other until it sees how it can use Venezuela to increase its leverage over things like the attacks on Huawei and tariffs. As far as the Kremlin is concerned, it never jumped right in to bail Maduro out financially in the first place, so it’s not going to go all out militarily now. Talk is cheap, and all for show.
For analysts it is time to follow the money, which of course leads back to the oil. That in turn, leads back to a massive $65 billion in bonds issued by the Venezuelan state, including PDVSA. Those bonds are primarily held by Western investors who haven’t seen any return since the country defaulted on the bulk of them over a year ago. Those bond holders make up the anti-Maduro faction and it has nothing to do with ideology. Those bonds aren’t going to be paid out under Maduro, and the IMF isn’t going to help Maduro to do that. China and Russia don’t have this same financial tie-up with Venezuela—they made oil-based credit deals. Turkey has a similar deal. At the end of this trip, money will win out over geopolitics. So, again, follow the money.
Why and How Scotland Might Take Its Oil and Run
Scotland is firmly in the camp that would like to remain in the EU at this point because it is extremely concerned about Brexit and the impact it will have on the Scottish economy. While the ruling Scottish National Party (SNP) and its leader, Nicola Sturgeon, have continuously indicated that the Brexit model is not compatible with the Scottish government’s views, the Scottish government has continuously put forward recommendations on how the UK should proceed in terms of Brexit.
However, there is an underlying expectation within the UK that if negotiations don’t reach a reasonable outcome, there is a strong possibility that Scotland may try to remain in the EU by seeking independence from the UK.
Given that Scotland voted with an overwhelming majority to stay in the EU, there is a growing sense that people are looking more favorably towards an independence vote now, and Nicola Sturgeon is preparing to put forward her plan for independence in the next couple of weeks.
But once again as with the Brexit debate, there is a divided camp on whether Scotland will be able to survive financially as an independent state. It is accepted by all involved parties and has been highlighted by a Scottish government official that Scotland does have something that the rest of the country wouldn’t want to lose – oil.
According to an energy consultant operating in Scotland with knowledge of Scotland’s current energy policy, “there is no question that Scotland has a lot going for it in terms of its energy sector both within the oil and gas sector as well as renewables”. With more than 90% of tax revenues from oil and gas being generated in Scotland, this could have a negative impact on the UK’s economy if Scotland is no longer part of the Union. The same source also noted that “Scotland can easily establish a successful oil investment fund by replicating Norway’s model and with North Sea oil and gas anticipated to last for decades, it would provide an excellent financial resource for Scotland”. In addition, Scotland has also demonstrated its pioneering presence in tidal, wave and wind energy and has already claimed a well-respected position within the international renewables industry because of it.
But there is one question that lingers within Scottish government circles: Will its energy sector dominance within the UK be enough to support its economy if it becomes independent. An EU analyst noted that “the EU would welcome Scotland as a member and will ensure that it would provide the support and ‘know how’ on how to remain a valued member of the EU”. This view is completely the opposite of the view from Brussels when the EU was trying to persuade Scotland not to pursue independence status in 2014 – providing another indication that Scottish independence is currently a more viable option.
But the question then becomes: What will that mean for Scotland’s relationship with the rest of the UK? It is uncertain how the UK Parliament would react should Scotland pursue independence by choosing EU membership over being part of the UK.
Unquestionably, Scotland does not want to jeopardize its relationship with the rest of the UK, but it also needs to consider its best options for the future. Given the uncertainty that currently surrounds Brexit, the Scottish government is preparing itself for all possible scenarios.
Global Oil & Gas Playbook
Deals, Mergers & Acquisitions
- Aramco will spend $1.6 billion on acquiring a stake in South Korean refiner Hyundai Oilbank. The almost 20% interest will expand the Saudi state company’s presence on a key market in one of the world’s top oil importers and consumers. Aramco already owns a majority stake of over 63% in a Hyundai Oilbank rival, S-Oil Corp, the third-largest refiner in South Korea.
- Eni and OMV will acquire stakes of 20% and 15%, respectively, in Abu Dhabi ADNOC’s refining business. Eni’s stake will cost it $3.3 billion, while the Austrian company will pay $2.5 billion for its acquisition. ADNOC’s refining business was spun off in 1999. It operates three refineries with a total daily capacity of 922,000 bpd of crude oil.
Tenders, Auctions & Contracts
- Uganda and Tanzania will wrap up the negotiations on a joint oil pipeline projects that will send Ugandan crude to the Tanzanian cost and from there to international markets by June this year. The talks on how the responsibilities and, more importantly, the costs of the projects will be shared have been long and difficult, not least because the pipeline has a price tag of $3.5 billion but, according to African media, they are nearing a final investment decision. Uganda holds an estimated 6.5 billion barrels of oil but it is not producing any yet. Chinese CNOOC, one of the field operators in the country, said it expected commercial production to begin in 2021.
- LNG Canada has so far awarded more than $700 million in contracts pertaining to the project. This is the first LNG project in Canada that might actually see the light of day after Petronas quit an earlier one amid a global LNG price slump. The $40-billion project is led by Shell and the final investment decision was made last year. The project, however, is already attracting opposition from environmentalists in British Columbia.
- Saudi Arabia has inked contracts worth $54.4 billion with local and foreign investors as part of a ten-year program to diversify its economy away from crude oil that will require total investments of almost $430 billion. The areas that Riyadh wants to diversify into include logistics, mining, industrial production, and energy.
Discovery & Development
- Eni began production at a new field offshore Angola at a rate of 13,000 bpd. The field, Vandumbu, is located in the West Hub of Block 15/06, and production began from the VAN-102 well via a floating production, storage, and offloading vessel. This is the second well Eni fired up recently in Block 15/06, after Mpungi. With the two new fields, the block produces around 170,000 bpd of oil equivalent.
- Libya has allocated $50 billion for the development of its battered oil and gas industry this year, seeking to boost production to 1.6 million barrels daily. The country currently pumps around 1 million bpd of crude but outages are a frequent interference with the production growth plans of the government. Technical difficulties such as fuel shortages are also slowing down output growth and will be addressed with the new budget.
- Iran’s state oil company has discovered a new oil deposit near the city of Abadan, a hitherto untapped area. Although no details about the size of discovery were made public it is the latest indication from Tehran that oil exploration continues despite falling exports as a result of the U.S. sanctions, introduced last November. A separate announcement revealed natural gas production at the South Pars field, possibly the biggest in the world, had doubled to 600 million cubic meters daily over the past five years.
- Premier Oil announced what it called excellent results from a drilling project in the Zama oil discovery offshore Mexico. This is the second well drilled in the Zama discovery, which contains an estimated 400 to 800 million barrels of oil equivalent. Production at the field is expected to start within the next four to five years. Premier Oil is a minority partner in the consortium developing the field, with operator Talos holding 35%, Premier Oil with 35%, and German DEA with a 40% interest.
- China’s CNOOC announced a new discovery in the UK’s central North Sea, at the Glengorm exploration well in the P2215 license. According to CNOOC’s partner in the project, Total, the discovery may hold up to 250 million barrels of crude and gas. It is located close to two Total-operated fields, so it could be tied in to the existing production infrastructure, which would speed up the launch of commercial production.
- BP has invested $5 million in a startup focused on artificial intelligence whose solutions the supermajor plans to deploy in order to improve both exploration and production results. The software developed by the Houston-based startup, Belmont Technology, could reduce by up to 90% the time needed for the collection, interpretation, and simulation of data, BP said. The Belmont Technology product, a platform called Sandy, is cloud-based and will be fed enormous amounts of data linked to oil and gas exploration to be able to deploy the neural networks of the platform to perform rapid simulations, potentially granting BP experts insight into the company’s resources and how best to exploit them.
- Exxon has finalized approval for the massive expansion project at the Beaumont, Texas, refinery—an expansion plan that will almost double the size of the refinery. The refinery currently handles 365,000 bpd. The expansion would make it the largest in the US.