By Carlos Monge, RWI Latin America Regional Coordinator
With Claudia Viale and León Portocarrero
Outputs from Latin American hydrocarbon companies fall in the first half of 2009.
Latin American hydrocarbon companies have faced a variety of problems that have together contributed to a decline in production compared to 2008 levels. State-owned companies such as PDVSA from Venezuela and Pemex from Mexico faced challenges related to production capacity, while the oil companies in the Peruvian Amazon temporarily halted production due to the strike carried out by indigenous peoples. With a range of reasons for the dips in production, we can expect the duration of the low production period to differ from country to country.
In Venezuela, Hugo Chavez' government deepened the State's involvement in all stages of oil extraction by nationalizing the assets of companies that provide services to PDVSA in North Monagas and Lake Maracaibo. This step has apparently led to a drop in production in those areas. As energy expert Nelson Hernandez has pointed out, the nationalized companies were carrying out very specialized projects (for example, the re-injection of water in Lake Maracaibo developed by the SIMCO Group) and the State, newly in charge of the work, does not have the same level skill in running these operations. Venezuela has also been cutting oil production because of an agreement with OPEP to keep international prices at a certain level.
In Mexico, oil production plummeted by 18.2% in April when compared to the same month in 2008, reaching a low not seen since 1990. This sharp fall was mainly due to a decrease in productivity at the Cantarell oil field, which produced 2 million barrels a day in 2004 and has since dropped to 713 thousand barrels as of April, according to Pemex. Even though this field is already in its last stage of production, extraction in new areas such as Chicontepec could offset the fall in the country's production. The new field would only begin to produce oil in July, however and, according to Energy secretary Georgina Kessel, production in this field would only reach 3 million barrels a day in 2015.
In Peru, the strikes in the Amazon region, which continued for almost two months, included the takeover of oil fields operated by the Argentinean Company Pluspetrol and the state-owned oil company PetroPerú. On May 25, Pluspetrol announced it would reduce its production in blocks 8 and 1AB in the northern jungle, and on June 4th it was force to halt operations completely due to road blocks which did not allow for oil transport or storage. In late May, PetroPerú also announced it would stop pumping oil in Stations 5 and 6 of the North Peruvian Pipeline, which had been taken over by indigenous peoples. There was also news that on May 30th, 200 indigenous people from Urubamba had taken over two sections of the Camisea pipeline, which supplies gas to the Peruvian coast.
While Venezuela's production decline is the result of a political decision to nationalize oil sector service providers, in Mexico it is due to the exhaustion of Pemex's main well. By contrast, Peruvian companies were forced to halt operations in the Amazon due to social conflicts, a factor unrelated to their productive capacity. Regardless of the initial causes, these all these production drops will impact the rent each State will receive in the upcoming months.
Ecuador signs agreements with other Latin American countries to increase its mining production.
In recent weeks, Ecuador announced the signature of two large scale mining agreements, with Chile, Bolivia and Venezuela. These projects could lead to an increase in the country's mining production, reduce its budget dependency on oil exports and improve its non-oil balance of trade, which has had a persistent deficit that reached as high as US$ 7,500 million in 2008. Government representatives are hoping the new agreements do not remain only on paper, as have 73% of bilateral projects signed with Venezuela in the last year.
On May 26, former Minister of Energy and Petroleum Derlis Palacios announced that Ecuador, Bolivia and Venezuela would establish a mixed property mining company to exploit some of the projects that reverted back to the Ecuadorian State during the contract renegotiation process. The first is a gold extraction project based in Portovelo, in the province of El Oro.
The second agreement, which was announced on June 4th, was with the Chilean state company Codelco, whose representatives had met with the Ecuador's mining ministry in February. Although officials didn’t specify the projects the Chilean company would take on (it had previously expressed its interest in the Panantza– San Carlos project), they did announce that if exploration was successful, the minerals would then be exploited through a mixed property company. The next day, sources reported that Codelco would explore areas in the southeast of Ecuador, in Morona, Santiago, Zamora and Loja, through a risk contract. The exploration sites awarded to Codelco will add up to 60 hectares, divided into 20 exploration areas.
These agreements fall within the framework of Ecuador's strategy to develop the mining sector, as established in the new Mining Law approved in January of this year. Part of this strategy is the creation of a state-owned mining company, which will have to seek strategic partners to provide the necessary technology and capital to develop large-scale projects.
The rising trend in international oil prices has generated positive expectations for net exporters in Latin America.
The environment of conflict within Peru worsened during the first months of 2009, according to the Ombudsman's Office report. Almost two dozen new conflicts were in March alone, bringing the total number to 238, since 2004 when these reports began to be published. Of those, 49% are socio-environmental conflicts, almost all of them related to extractive industries (71% to mining and 7% to hydrocarbons). Among many conflicts, the mobilization of indigenous communities from the Amazon area and the strike by Doe Run workers stand out.
On April 9th, a general strike of indigenous peoples from the Amazon area broke out under the leadership of the Interethnic Association for the Development of the Peruvian Jungle (AIDESEP) and their local allies such as the Regional Organization of Indigenous Peoples of the Northern Amazon (ORPIAN). The motive for this protest was the demand that Congress revokes the legal decrees approved by Alan García's government after the signature of the FTA with the US. Approved without any public consultation, these decrees endanger the rights of indigenous peoples as well as the integrity of their territories, in order to pave the way for agro, industrial, forestry and hydrocarbon activities in the Amazon.
In August 2008, the Amazon communities carried out a national mobilization that achieved the repeal of legal decrees 1015 and 1073, which had lowered the required attendance for meetings on land sale decisions. However, 12 other decrees that have been questioned by indigenous groups are still valid, such as DL 1090 which excludes deforested areas from the national heritage and allows them to be considered agricultural lands and therefore available for sale. The current strike comes as a response by the indigenous peoples to seven months with no further response by the state to the outcry over the 2008 decrees.
During April, there were reported takeovers at an oil block operated by Pluspetrol, as well as at a regional airport and on the Tambo, Urubamba and Napo rivers. The Navy intervened by destroying the barrier created by Kichuas and Arabelas groups, permitting boats from the Perenco oil company to go through. Though the protests were ongoing, ten more oil concessions for the jungle area were awarded on April 16. In response to this announcement, and to the continued lack of dialogue with the state, AIDESEP president Alberto Pizango announced in late April that the protest would become more radical and that the groups would also approach oil and gas companies in order to seek support against the aforementioned decrees.
In the mining sector, a conflict erupted at the company Doe Run, property of the Renco Group, after a halt in the majority of their operations led to the temporary suspension of 75% of their 3,500 workers. These workers began a strike on Tuesday April 21, blocking the roads and stopping activities at La Oroya. The striking workers demanded an end to the suspension, which began with the company's loss of US$ 175 million needed to purchase the minerals it refines. Doe Run has now sought a loan from the Peruvian Government, but this may not have been necessary, since a group of companies had offered their own loan. Doe Run will face continued uncertainty if while it looks to the state or other companies to solve its problems, instead taking internal actions, such as seeking additional contributions from its stakeholders or drawing on the huge profits which it has reportedly been repatriating illegally at the expense of its own financial solvency and the fulfillment of its environmental obligations.
The increase in conflict related to the extractive industries in Peru demands urgent attention from Peru's leaders. The risk of greater violence will increase as long as the lack of attention and dialogue continues and the interests of extractive companies are placed ahead of those of the population.
Sources: El Mercurio, El Universal, El Comercio (Peru), ElDeber.com.bo, El País, La Razón, La Republica.com.co (Columbia), La República (Peru), The Trinidad Guardian, Perú 21, Elcomercio.com (Ecuador), La Jornada, Página|12, Folha Online
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