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Shell Exits Permian In $9.5 Billion Deal

Shell Exits Permian In $9.5 Billion Deal

Anglo-Dutch oil supermajor Shell is…

Resource Nationalism Becomes Major Threat For Oil Companies, Miners

Resource nationalism has spiked in more than 30 countries over the last year and more than half of those nations are key producers of minerals and hydrocarbons, a new study reveals.

The growing trend, paired with the economic impacts of covid-19, has heightened governments’ rising appetite for greater control over mineral revenues, the latest research from risk consultancy Verisk Maplecroft shows.

The consultancy identified 34 countries in which a trend to take control over its natural resources or ensure higher profits from them has grown since 2017. At least 18 of those nations, including Ghana, Mali, Colombia, Chile and Canada, are resource-dependent economies.

Verisk Maplecroft warns that miners in Africa and Latin America are expected to bear the brunt of new government measures to cash in on its resources over the next two years. Interventionism, expropriation and indigenization are expected to be the key mechanisms states will use to claw back lost revenue during the pandemic-triggered economic slowdown.

Talks of a new supercycle fuelled by a sustained surge in commodity prices, will only worsen the situation, the experts say.

Copper prices heading for new all-time highs, surging agricultural markets and oil prices back at pre-pandemic levels are driving exciting predictions as economies, juiced by massive stimulus, rev up post lockdowns. The theory is that this could be just the start of a years-long rally in demand for raw materials across the board.

“The countries to watch closest are the mining jurisdictions characterized by both a painful covid-related economic contraction and a rise in less explicit forms of resource nationalism,” Verisk Maplecroft’s head of Americas, Jimena Blanco, says.

“These governments are becoming more willing to intervene in the economy, use indirect expropriation, or demand increases in local content requirements – opening the door to a more sophisticated resource nationalism path.”

Related: Houthi Rebels Claim Missile Attack On Saudi Aramco Facility

Source: Verisk Maplecroft’s Political Risk Outlook 2021.

Last year, miners experienced a pronounced increase in subtle forms of resource nationalism, such as higher taxation or more arduous regulation, in major mineral producers.

Mexico, the world’s largest silver producer and foreign investment magnet, took the 14th position among the world’s highest risk jurisdiction in Verisk Maplecroft’s Resource Nationalism Index (RNI).

The country, which has made cracking down on tax breaks a priority, has locked horns with a few resources companies in the past year. On Wednesday, Canada’s First Majestic Silver (NYSE:AG) (TSX:FR) announced it had kicked off arbitration proceedings against the López Obrador government, as it’s being asked to pay over $500 million in allegedly owed taxes.

Other mineral-rich nations in the ranking were Liberia (41st), Colombia (44th), Mauritania (74th), Mali (85th), Chile (97th) and Canada (140th). But going back to the tail end of 2019, the consultancy also signalled out Brazil (53rd) and Peru (117th).

Source: Verisk Maplecroft’s Political Risk Outlook 2021.

The line between resource nationalism and legitimate national interest isn’t always easy to draw, and this can exacerbate tensions.

Verisk Maplecroft’s RNI tracks incidents of direct expropriation and nationalization. The highest scores go to cases where there hasn’t been adequate compensation, no compensation, or in which a government hasn’t paid an award to a company following arbitration.

The motive behind direct expropriation could be short-term political gain or a genuine attempt to save a vital but ailing industry to support the national interest. “The adequacy of compensation is the key factor from a business perspective,” the consultancy says.

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In Latin America, the push to gain greater benefit from natural resources generally hinges on two factors. In Mexico and Argentina, the main driving force is ideology, while in Colombia and Chile pressure comes from communities – both those hosting mining projects and civil society.

In Africa, motivations are much more diverse. The interventionism seen in Liberia and Mauritania is driven by structural governance shortcomings, not nationalist sentiment, Verisk Maplecroft points out.

“In Mali, the political concerns of the transitional government are the issue, while in Guinea it is the need to maximise revenue from bauxite – both countries are looking to review existing contracts,” the report says.

Beyond covid

According to Verisk Maplecroft, the economic effects of the coronavirus pandemic alone cannot explain last year’s hike in resource nationalism. The consultancy believes the virus did exacerbate a pre-existing trend witnessed in the index since 2017. The experts anticipate the pandemic’s impact will rise up over the next two years.

Price cycles also remain an important factor, the analysts say, but miners that stay on top of each country’s ESG (environmental, social and governance) landscape, will be able to keep ahead of the resource nationalism curve.

“Issues around income distribution, poverty, access to education and healthcare – to name but a few – can trigger socio-political processes that demand more from the state,” Mariano Machado, senior analyst at Verisk Maplecroft, says.

The experts says that in advanced economies, turning to the mining industry to ask for (or take) more has become a subtle and varied art.

“Operators must prepare for the latter to overtake classic methods of resource nationalism – as the more common type of state interventionism – over the coming decade,” Machado says.

What is key for miners, the report says, is to detect the signals early on, so they can adapt their investment strategies and exploration portfolios to mitigate future exposure to nationalism trends.

By doing so, the consultancy concludes, companies can also prioritize investment in jurisdictions where they can be part of the solution. They can work with local stakeholders to find a balance between community needs and industry profitability to secure long-term social license to operate.

By Mining.com

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  • Mamdouh Salameh on March 04 2021 said:
    Even before the onset of the COVID-19 pandemic, resource nationalism was on the rise around the world underpinned by governments wanting to fully control whatever hydrocarbons and mineral resources they have in order to maximize their revenues, growing global demand for these resources and also growing influence of the National Oil Companies (NOCs).

    This explains why oil supermajors particularly Shell and BP have been talking about peak oil production. Their crude oil reserves are declining fast and they can’t replace what they produce because of rising resource nationalism.

    Any new crude oil discoveries are being snapped up by the NOCs.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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