Venezuela’s PDVSA to Invest in Argentinean Sea?

Suggestions that PDVSA will invest in oil production off the Argentinean coast represents a major shift in the Venezuelan state company's strategy. However, the investment stands to greatly favor transnational companies.

Following the Argentina-Venezuela business round that took place in Margarita Island, Venezuela on July 23rd, rumors began to spread in Argentina and Brazil that Venezuela’s state-owned oil company PDVSA could participate in an investment plan off the Argentinean coast. This would be a bilateral agreement that was reached on the Venezuelan island as part of the agreements that were signed by the governments of Argentina and Venezuela, in order to develop the multinational business plan of PetroSur.

Despite the hermeticism of the negotiations, information filtered through from private and government sources. All indications were that PDVSA would contribute to a portfolio of investment that is made up of the transnationals Repsol YPF, Petrobras-Energía, Total Austral, Pioneer, PanAmerican Energy, the Chilean state enterprise Sipetrol, and the German company Wintershall-Energy.

According to Walter Schmale, the director of the Argentinean Oil and Gas Institute (IAPG), the total amount of the pre-accord would exceed $300 million. The investment is one that is known among oil industry experts as a “high risk” investment, due to its “off shore” character, with a projected extraction in seven to ten years. The concentration will be in remote areas of the Argentinean Sea, on the coast between Buenos Aires and Tierra del Fuego.

The project was finalized in the past weeks. Multinationals are trying to take advantage of three factors that operate in their favor. First, the high oil prices on the international market ($43.20 per barrel of West Texas crude, on July 31), due to the serious situation of the U.S. in Iraq, the attrition in Afghanistan, and the commercial dirty tricks of the Russian oil company Yukos. The second factor is domestic: the progressive price liberalization of gas that was agreed to between the Argentinean government and the oil companies of that country.

The Third Factor

The third condition of this unexpected investment in which PDVSA could be participating is more complicated because it brings with it risky uncertainties for Venezuelan and its “Bolivarian revolution.”

Last July 27th the U.S. secretary of energy published the most recent report on the U.S.’s energy imports. It says that this largest consumer of energy in the world, followed by the European Union and China, had a dangerous record in energy imports during the third week of July 2004. An average of 11.345 million of barrels per day. This put the oil strategists and geo-politicians who study Venezuela’s role in the world oil market on notice. The presidential candidate John Kerry had already demanded an urgent reduction of U.S. dependency on Arab oil three months ago. Vice-presidential candidate John Edwards repeated this during his July 31 speech at the Democratic convention.

The explanation is simple. They cannot control the Iraqi and Afghan messes, nor are they safe in the Middle East. They control the oil in this area with the same “security” as a lion tamer in a cage full of out of control lions. Still more serious is that 89.7% of the world’s oil wells are in the hands of Muslims, while the world’s largest reservoir of heavy and extra heavy crude is under the control of a nationalist government in Venezuela. All of the U.S. bitumen that remains to be exploited will not suffice for maintaining the U.S. economy. Kerry and others fear an increased dependence upon Arab oil.

It is with regard to this point that Washington’s sights are set on Venezuela. The participation of Venezuela in investment in the southern cone would be part of these longer term sights. The collaboration in high risk investments with transnational imperialist corporations would be a good starting point according to the sources this correspondent consulted.

Flirting in Madrid

Several international oil companies, among them Repsol YPF and Total Austral are trying to seduce PDVSA into participating in strategic alliances in the Argentinean Sea. According to the Spanish daily Expansión, these strategic relations began in mid 2003. Repsol would facilitate the entry of the Venezuelan state oil company in investment packages in the southern cone, as a response to the favor that PDVSA did in October 2003, when it agreed to Repsol’s entry into the eastern coast of Venezuela’s Lake Maracaibo in 2003.

The initial basis of the agreement was the concession of 49% of the exploitation of the productive wells in the Zulia region, which is located in Venezuela’s southwest. In 2004 these produce 100,000 barrels per day at a base production cost of $1.30 per barrel, one of the lowest in the world. It is estimated that the commercial return will be almost $40 billion by 2009, at an average price of $25 per barrel. This, even if peace returns to Iraq.

Repsol YPF would be amply favored because the price of the oil field would be $3 for every recoverable barrel, according to projections provided by Venezuela’s Ministry of Energy and Mines in October 2003. Repsol’s investment would not exceed $700 million.

Luis Vierma, the high PDVSA executive, confirmed this to Expansión. On October 10, 2003 he said that he had “faith that the offers for this oilfield will favor the consortium to which belongs Repsol.” This is exactly what happened. Vierma was the one in charge of all operating agreements between the two companies.

An anonymous source in the Energy Secretariat of the Argentinean Nation maintains that there will be no obstacles to Venezuela’s participation. Not just because it will be part of what has already been agreed to with regard to the agreements around PetroSur. Also because this has been planned in the Ministry of Energy and Mines, in Caracas, since 2003.

If PDVSA’s participation in the investment project of $300 million in the Argentinean Sea is confirmed, then we would be witnessing something completely new. PDVSA would be beginning to transfer its business to the south of the continent, even though slowly and carefully.

Nonetheless, the degree of state benefits of business profits that transnational corporations would obtain is so big that it would put an end to the Venezuelan state’s ability to distribute the oil rent among the poor, as it does today.

To this one must add the vital and strategic interests of the United States, of regaining control over PDVSA. This would be its only insurance in the face of its embroilment in the Middle East, Asia, and its dangerous dependence on “Muslim oil.” This is the real danger. In the face of this one should re-evaluate PDVSA’s possible participation in transnational investments in the Argentinean Sea, or in any other location on the planet.