Category Archives: Uncategorized

Colombia, Venezuela get opportunity to overcome oil addiction. You’ll believe what happens next.

Venezuela and Colombia, where I’ve been hanging out for the last couple weeks, are terminal oil junkies. Both countries have built economies so oil dependent that with the current low price of crude, people are freaking out.

Of course crisis=opportunity and all that, so what better way to stimulate the local economy and set the countries up for the next cycle than invest in renewable energy? Good time to build some wind farms and microhydro projects, you might think. Good time to lay some solar panels onto reservoirs, you might think. Well, that’s not what’s happening.

In Venezuela, the government is bragging that it’s reactivating mature oil wells. And as the government faces the country’s worst financial crisis since at least the 1990s, it continues to give away gasoline to anyone who can take it. Free. Seriously. Younger people with dollar signs in their eyes are now investing their cash into oil, too. The folks behind Derwick Associates, led by Alejandro Betancourt, have spent about $250 million on shares of Bogota-based oil company Pacific E & P (formerly known as Pacific Rubiales), while their pal Francisco D’Agostino is part of a group that is putting more than $30 million into Harvest Natural Resources, a Texas oil company. Everybody’s betting on oil.

Here in Colombia, I heard Finance Minister Mauricio Cárdenas address an oil conference. He told the crowd that his country is committed to maintaining oil output at 1 million barrels a day or more, despite the fall in oil prices. “That’s why it’s important for the hydrocarbons sector to have all the stimuli, all the incentives, so that in this low-price scenario, it can invest, it can explore, and most of all, increase production. This is fundamental for the national economy, and indispensable for the public finance of the country.” (Link to story about his speech here, but the quote is from my own recording.)

The same day that he spoke, August 26, this report came out:

The consequences of global sea level rise could be even scarier than the worst-case scenarios predicted by the dominant climate models, which don’t fully account for the fast breakup of ice sheets and glaciers, NASA scientists said today (Aug. 26) at a press briefing.

What’s more, sea level rise is already occurring. The open question, NASA scientists say, is just how quickly the seas will rise in the future.

So you have these two tropical, coastal countries, facing the loss of their coral reefs and atolls, not to mention their glaciers and the unique alpine moors called páramos. Two countries that depend on a robust, constant hydrologic cycle for their energy supply and their basic survival. And their reaction to a crisis in the oil industry is to keep investing in oil.

Humanity! Never change.

Gold-oil ratio goes wild

Gold miners can now buy 30.33 barrels of West Texas Intermediate crude oil for every ounce of gold they sell. That is the most in at least 15 years.

Oil-gold ratio

If history is any guide, I’d expect that extreme reading to revert to the mean, which would require cheaper gold or pricier oil. But for now, gold miners are doing great. Which is probably why their stock index looks like this:

GDX index weeklies

Latin American currency: Colombia goes bananas

A good way to monitor Latin American currencies is against the Canadian dollar, rather than the US dollar. The USD, as world reserve currency, is mostly a measure of risk tolerance around the world. People fearing instability (still and despite it all) buy greenbacks. But the CAD, as the currency of a stable, developed, but resource-dependent country, is a nice comparison point for the Latin American currencies, as it cuts out a lot of the USD’s noise.

Against the CAD, the Colombian peso long tracked other currencies in the region, particularly the Peruvian nuevo sol and the Chilean peso. Latin American currencies 2010-2014

This first chart shows currencies against the CAD from 1 Jan 2010 to 1 Oct 2014. The Colombian peso (COP) is the red dotted line, green is Peru, navy blue is the Mexican peso, and fucsia is Chile. Up top, you see the Brazilian real and the Argentine peso doing their wacky and devaluatory deeds in red (solid line) and purple.

Here’s what the same currencies have looked like over the past calendar year:

Latin American currencies 1-year chart to 27 July 2015

This time, Argentina is down there with Peru and Chile, actually appreciating against the Canadian dollar. Mexico is drifting weaker, and Colombia is suddenly tracking Brazil in a big, painful devaluation. The are both big oil producers whose state-controlled companies were once stock market darlings. They are both economies that were overhyped circa 2011, and are now probably in an excessive backlash.

The upshot:

Latin American currencies 5-year chart to 27 July 2015Here’s the 5-year chart. Colombia has detached from its usual peers and is devaluing mightily.

The upshot for me, as a consumer of Colombian Harina P.A.N. precooked corn flour in Canada, is that a kilogram of this white powder has dropped from CAD 4 to CAD 3.3 over the past year.

Given what we already saw in 2014, I suspect Colombia will get a competitive advantage in the production of other white powders. Next year’s coca production reports will likely show Colombian output surging.

 

The lighter (heavier?) side of devaluation

Screen Shot 2015-07-08 at 12.45.25 PMTurns out it can be a good thing to have your biggest banknote worth only USD 0.20. That way nobody can carry a significant amount of money. Just too damn heavy.

Thieves in Caracas today hit a bank at the very moment when its vault was open, allowing them to get the unusually large haul of BSF 2.4 million, newspaper El Nacional reports. However they abandoned a sack with almost 1.8 million bolivars in it outside the bank, and got away with only 647,000. That’s about USD 1,440 at the market rate.

 

ALFA wants to spend billions of dollars on this

Thanks to the indispensable Otto Rock, always with his ear to the ground for community (ahem) issues, I hear about this situation in Puerto Gaitan.

Following several days of protest around the Pacific Rubiales offices in Puerto Gaitan, Meta, a group of about 60 indigenous people entered and took over the multinational’s premises. The natives of the community Vencedor-Pirirí arrived with clubs and bows to demand that Pacific fulfill agreements it had with them, including maintenance of the Puerto Gaitan-Rubiales road, schools, and health centers. The situation in the morning became tense over the situation of Pacific employees, so the police intervened.

A police officer goes on to explain that some workers were briefly held captive until the police moved in. The host comes back to say that several vehicles have been burned in the protest.

In other news, a pal in Bogotá says Pacific has already taken its name down from its headquarters building, and I heard third-hand that signs in the oilfields are being replaced with signs that don’t have Pacific’s name. If anyone could get me a photo of either of those, I’d be quite grateful. I’d be happy to post it here with or without attribution, your choice.

Odebrecht — Just a Brazilian issue?

Marcelo Odebrecht, head of Brazil’s biggest engineering and construction company, is in jail in Brazil on allegations of kickbacks in the procurement of oil industry materials to Petrobras. Without prejudging his guilt or innocence, I think it’s fair to say he isn’t doing himself any favours with e-mails like this:

Brazilian police said on Wednesday they intercepted a note from the jailed chief executive of Odebrecht SA to his lawyers asking to “destroy email,” after he became the highest-profile executive arrested in Brazil’s largest ever corruption investigation.

The handwritten note, reproduced by Federal Police and posted in court documents online, says “destroy email drilling rigs.”

Marcelo Odebrecht, head of Brazil’s largest engineering and construction conglomerate, was arrested Friday in a sweeping investigation into a kickback scheme at the state-run oil company Petrobras. [ID:nL1N0Z50JB]

Dora Cavalcanti, a lawyer for Odebrecht, called the publication of the note “an act of extreme bad faith by the police,” and said there was nothing criminal about its contents or Odebrecht’s intent.

“That phrase ‘destroy email’ meant ‘explain’ or ‘refute’ the allegations about the email,” Cavalcanti told Reuters, adding that it was one of seven points in Odebrecht’s notes for his plea for habeas corpus, or release from unlawful imprisonment.

Yes, clearly, he was only saying that the e-mail needed to be destroyed metaphorically. I’m all for metaphoric destruction. When you growl “I will destroy you” of course you don’t mean that you will put someone in a meat grinder. Rather, you mean you will harm the person’s reputation. Something Mr. Odebrecht is learning all about, now that I think of it.

Joking aside, the question is, does Odebrecht have operations in other oil-producing countries? With an ostensibly weak compliance regime in Brazil, might there be something to investigate in other countries? Happily, the answer is no. Because Odebrecht operates only in strictly controlled, low-corruption jurisdictions:

Odebrecht Oil & Gas offers integrated solutions for the upstream oil and gas industry in Brazil, and selectively, in Angola, Venezuela, Argentina and Mexico, both during the investment as well as the operations phase.

Oh good, nothing to worry about.

Update a few minutes later: I see the NY Times does Angola today:

Corruption Is Killing Children in Angola

This is a video report that I’ll never be able to do again. It’s about Angola, an oil-rich and fabulously corrupt country that also happens to be thedeadliest place in the world to be a child.

Angola, naturally, doesn’t welcome journalists. It took me about five years to get a journalist visa to get into Angola, and after my reporting I doubt I’ll get another visa as long as the current regime remains in power. So at The Times, we poured a lot of time and effort into the story of what corruption does to a country.

For me, the most compelling moments are those of rural Angola, the villages where people live without any access to doctors or dentists. We simply drove down a highway for hours, and then twice took small dirt roads quite randomly to see where they would lead, and then stopped in villages and chatted with people. It’s pretty heartbreaking to see kids suffering untreated from disease and unable to attend school, or to meet a mom who has lost 10 children — and it’s not just sad, but infuriating when you see it in a country that is rich with oil and diamonds. Then you remember that the Angolan president’s daughter is a billionaire, that Western governments are buddying up to the president — and, well, you feel you owe it to the villagers you met to tell their story in their own words. So we shot some videos to run with my columns. May this add pressure on the government to spend its oil wealth not just on Porsches and Champagne for the leaders, but also on health and education for ordinary Angolans.

Go watch Kristof’s video if you can stand it. And don’t worry about Odebrecht because I’m sure they had nothing to do with any of this.