In late January, Spain's Repsol began drilling in the Northbelt Thrust, a stretch of the offshore Caribbean that may contain 6 billion barrels of oil. Between now and next month, Repsol will learn whether its part of the Thrust has commercial oil. But the company will be judicious with any news (pictured above, Repsol rig), uncertain whether it will be greeted with the hoots and cheers with which the industry typically greets word of a fresh discovery.
The Northbelt Thrust falls into a curious category on the global oil patch. Like dark matter in the universe, it is a blank spot, one of a few places with big proven and potential reserves that are wholly ignored in official forecasts. For it is offshore from Cuba, a political pariah in the U.S.
Wall Street, major commercial consultant firms, and government energy agencies appear to feel uncomfortable lending serious public attention to Cuba's potential for big strikes this year, as I write at EnergyWire. For differing reasons, Venezuela, too, is part of this alter-reality.
I asked a senior Wall Street contact why his firm's reporting excludes Cuba and Venezuela. "They have no oil supply growth," he replied, which at the moment technically is true -- yet may turn out not to be in a matter of weeks in the case of Cuba.
Jorge Pinon, who worked for years as an Amoco executive in Latin America, told me that companies and firms are simply heeding U.S. political reality, starting with the role of Cuban-American Ileana Ros-Lehtinen as a leader of the Republican majority in the House of Representatives. He said:
When you have a Cuban delegation in Congress that is very powerful, and among them is the chairman of the House Foreign Relations Committee, you have to be extremely careful how you play Cuba.
Adalberto Roque AFP/Getty Images
In a profession that prizes the illusion of reality, Hugo Chavez is one of politics' best -- a consummate actor whose connection with the Venezuelan masses has kept opponents off balance for 13 years. We never know if the Venezuelan president is putting us on.
So is he now?
For the last several months, Venezuelans have witnessed the drama of a cancer-stricken Chavez shuttling back and forth to Cuba for treatment, all the while taunting opponents seeking his ouster in October presidential elections. Last week, they were treated to scenes of the usually feisty Chavez in church, tears rolling down his cheeks, hands clasped in his parents', and beseeching Christ, "Don't take me yet." Meanwhile, a rumor went around that he was giving up on Cuba, and heading imminently for superior treatment in Brazil. Only to turn up yesterday in Havana, where he was met by Raul Castro.
"He is pulling all the stops for sympathy and will likely get it from his support base," a skeptical Stephen Johnson, director of the Latin America program at the Center for Strategic and International Studies in Washington, told me in an email exchange. He said:
Yet what all this theater means is very hard to determine, since few verifiable facts are available on what may be wrong with him. Offers of treatment in Brazil have been spurned before, either because he is not really ill, or because he really believes the best medicine is in Cuba.
We are watching the flow of events in Venezuela in large part because of the potential impact in the greater region, given Chavez's penchant for projecting influence through the use of the country's oil proceeds.
Leo Ramirez AFP/Getty Images
When Patrick Duddy, the former U.S. ambassador to Venezuela, thinks about the ailing Venezuelan president, Hugo Chavez, he is reminded of the 1961 epic El Cid. In the climatic finish, a dead hero's men, fearing they cannot defeat North African invaders without him, secure his corpse upon his horse, and send it onto the battlefield in order to intimidate their enemies. Sure enough, the dead El Cid's Castillian army goes on to final victory.
With seven months to go until October presidential elections, Chavez returned to Caracas over the weekend after a second cancer operation in Havana. Chavez's health has thrown the election into disarray, raising questions about what will happen not only in Venezuela should he be incapacitated, but in the country's projection of influence around the region. Until 2008, Chavez, fueled by the income of some 2.5 million barrels of oil exports a day, provided hundreds of millions of dollars of support for Colombia's hyper-violent rebel opposition FARC movement. Venezuela also was a key to cocaine smuggling. Meanwhile, Chavez has had a tense relationship with foreign oil companies during his 13 years of power, sometimes nationalizing their fields, or unilaterally changing contractual terms. ExxonMobil and ConocoPhillips left the country.
On arriving home, Chavez sang and danced with his daughter on a balcony (pictured above), a demonstration of rigor intended to dispel talk that, despite chemotherapy he is to undergo, he is not up to the challenge of a tough campaign. "The beating we're going to give the Venezuelan right will be memorable ... not just in the history of Venezuela but in almost all the world," Reuters quoted Chavez as telling the crowd.
Duddy is sure of only one thing -- that, whether or not Chavez is healthy, he will in fact appear as the ruling candidate for president on Oct. 7. There simply is no serious alternative in the Chavista camp to face the popular opposition candidate, Henrique Capriles Radonski. And there is too much at stake in the way of power and wealth to leave victory to chance.
"I think they're going to try to stick with Chavez to the very end," Duddy told me. "And they think [they will triumph] through a combination of aggressive spending on the social program, incessant election publicity. They dominate the [broadcast media]. They have immense resources. They're going to put those resources to use in the serve of the president's campaign for re-election."
Juan Barreto AFP/Getty Images
Venezuela President Hugo Chavez's disclosure that his cancer has recurred raises hard questions about his ability to campaign for re-election in October. If he lacks the stamina or is incapacitated, what happens next -- will fair elections proceed, or will his ruling circle frustrate any potential transfer of power?
In short, if there is new leadership, can one imagine a shift in which Venezuela stops using its oil wealth to support a violent Colombian guerrilla movement? And will Venezuela lift constraints on oil production, and become a tipping point in the fast-changing geopolitics of oil?
The evidence to date is that Chavez, who has led Venezuela for 13 years, has prepared a tough strategy "to defend the revolution," says Stephen Johnson, director of the America's Program at the Center for Strategic and International Studies. The most recent datapoint came Monday, when a congressman's son was injured in a shooting by red-shirted Chavez supporters at a rally for opposition candidate Henrique Capriles Radonski.
The 39-year-old Radonski (pictured above), who is governor of Miranda state, appears to represent a serious popular threat to Chavez. He was elected as the united opposition candidate by a resounding majority last month. Among his platforms is a new day for the Venezuelan economy, fueled by a modern export oil industry pumping out far more crude.
Juan Barreto AFP/Getty Images
If Venezuelan President Hugo Chavez is forced to drop his bid for re-election for health reasons, will the primary repercussion for the West be the exit of a voluble thorn in the side? Perhaps, but it will also mean the prospect of yet more newly available oil reserves -- on top of the widely projected U.S. shale oil bonanza. The takeaway: If the shale oil projections are accurate, and Chavez leaves politics under whatever scenario, we have the prospect of a geopolitical shakeup analogous to what has accompanied the rise of shale gas.
Venezuela has the largest proven oil reserves on the planet -- 296 billion barrels, according to OPEC figures. The number is slightly misleading: Saudi Arabia's 264 billion barrels are higher quality and cheaper to produce than the extremely heavy crude of Venezuela's Orinoco Basin; yet Venezuela's reserves are so massive that such details almost don't matter.
The trouble has been that, since Chavez took power 13 years ago, Venezuela's oil production has fallen to 3 million barrels a day, 16 percent less than the 3.5 million barrels a day it produced in the 1990s. This has resulted from Chavez forcing out key members of the skilled labor force and management of the state oil company, known as PDVSA, and his marginalizing of the other source of oil patch expertise -- foreign oil companies such as Chevron and Shell.
Yesterday however, Chavez said his cancer may have recurred, reports the Associated Press -- he must go to Cuba for further treatment and scale back his frenetic pace. That bodes ominous for his attempt to hold back a groundswell of apparent support for Henrique Capriles (pictured above), his 39-year-old opponent in October elections. What distinguishes Venezuela from some other petro-states -- Russia, Kazakhstan, Azerbaijan and Iran among them -- is that power can actually change hands through the ballot box. So even though polls show Chavez with sustained popularity, he still must win. Capriles already was a serious challenger, and now he is more so.
Capriles has already said that, if elected, he will boost oil production. He also has suggested that foreign expertise will be permitted back into the country.
Leo Ramirez AFP/Getty Images
The war of tight oil: Are we in an age of oil plenty, or a stubborn era of scarcity? The folks with skin in the game are among those who cannot agree. At Citigroup, Seth Kleinman leads a group of analysts (including the venerable Ed Morse) who issued a note to clients this week declaring "the death of the peak oil hypothesis," a belief that there is a limit to how much oil can be produced. The actor in this murder is shale oil, the sister to shale gas, which is being unleashed from hard underground shale through the application of hydraulic fracturing. "The U.S. appears to be on course, after many weak starts, to achieve energy independence this decade," Kleinman writes. In a shot over the bow of doubters, the Citi team snickers at those who cannot notice the truth before their eyes: "We expect industry expectations to lag behind reality, just as they did with shale gas for many years." They go on to tally up how they see the new oil patch:
U.S. crude and product imports are now about 11 million barrels a day, with about 3 million barrels a day of product exports. This leaves import reliance at 8 million barrels a day. If shale oil grows by 2 million barrels a day, which we think is conservative, and California adds its 1 million barrels a day to the Gulf of Mexico's 2 million barrels a day, we reduce import reliance to 3 million barrels a day. Canadian production is expected to rise by 1.6 million barrels a day by 2020, and much of this will effectively be stranded in North America, and there is the potential to cut demand both through conservation and a shift in transportation demand to natural gas by at least 1 million barrels a day and by some calculations by 2 million barrels a day.
Voila, U.S. energy independence.
Not so fast, say the analysts at Barclays Capital, who issued their own, nearly simultaneous note to clients saying the opposite. The note, by Paul Horsnell and Amrita Sen, suggests that Barclays' clientele guard against "the near-euphoria surrounding the potential of oil shales in the U.S., together with a natural bias in the market to be overly optimistic on oil supplies." The oil market is extremely tight, made the more so by political upheaval, says the Barclays team. They write:
While posing some stirring prospects following almost a decade of dismal performance by non-OPEC supply, oil shales alone are simply not enough to offset the decline in other parts of non-OPEC and meet all the incremental demand growth. The scale of growth in U.S. output really needs to be put into perspective. North Dakota still only produces 0.5 million barrels a day, which in a weak year, incremental Chinese oil demand alone can consume all of and more. Does shale oil help the U.S. reduce its dependence on foreign oil? Yes, it does. But does it remake the U.S. into the next Saudi Arabia? No, at least not yet.
There you have it.
Go to the Jump for more of the Wrap.
STRDEL AFP/Getty Images
The spreading turmoil in the Middle East is spooking oil traders, who have bid up the price of oil and gasoline to two-year highs, and may be about to claim its third official victim -- President Ali Abdullah Saleh of Yemen has agreed to state by the end of the year when he will leave office, suggesting to critics that the date will be soon after. Even the relatively mild King Mohammed VI of Morocco appears to be in trouble. But should all the region's petro-monarchs and -dictators be detested with equal venom?
In an interesting essay in the Financial Times, Robert Kaplan argues no, they should not. For instance Libya's Col. Moammar Qaddafi and Oman's Qaboos bin Said (pictured above) are both rulers of Middle East petrostates, producing a combined 2.7 million barrels a day, or 3 percent of the world's total supply. But the two men are "not remotely in the same category," Kaplan says -- the former should be overthrown, but not the latter, who is a "benevolent dictator."
Yet the paradox is that, for different reasons -- because benevolent dictators such as Qaboos observe a social contract with their people, and their youth come to "expect more and more -- he, too, faces people in the street and possibly "his own eventual downfall."
This particular brand of turbulence in the always-roiling Middle East looks unlikely to die down soon. A peace deal could quiet Libya, as reports suggested this morning. Yet everyone, including the region's more visionary rulers, seems less solidly in place than just a month ago.
That is what is also roiling the oil markets, and seems likely to continue to do so. The first quarter of this year is looking more and more like 2008, when a perfect storm of events kept sending up prices. Even though it's highly unlikely that every single ruler of every petro-state in the region will be swallowed up in this tidal wave, oil traders -- finding their wedge in the uncertainty -- are bidding up the price. Where will it end -- can the wave reach the Caspian Sea's own dug-in autocrats?
One hopes that the outside world continues to keep a distance and not go to war -- the strength of the movement is that it's been indigenous. That said, on a coda, one notes that not only are U.S. warships headed to the Libyan coast, but so are four Chinese planes and a frigate.
Mohammed Mahjoub/AFP/Getty Images
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.