Resource nationalism on its way out?

The days may be numbered for resource nationalism, Robert Johnson told the Houston World Affairs Council at the Mayer Brown offices late October. ‘Not every country is equally capable of exercising a campaign of resource nationalism,’ said Johnson, a political risk expert who directs the Eurasia Group’s global energy & natural resources practice.

For instance, some governments have put in place nationalistic policies that didn’t go at all the way they were expected. In Bolivia, it went ‘horribly wrong’ following the May 2006 nationalization of hydrocarbons, he said. While there was a short-term windfall, he said, there was no later investment to increase output; demand subsequently dropped.

In Alberta, Canada – ‘one of the worst cases of resource nationalism that we’ve seen’, said Johnson – bad timing played a large role. A 2007 royalty hike followed a ‘fairness review’ and prices dropped in 2H 2008. Shale plays in neighboring British Colombia, which had more inviting terms for investors, lured companies from Alberta. Alberta dropped its royalty hike in March.

Other countries are well-known for a history of resource nationalism, such as Venezuela, Russia and Nigeria. Venezuela, described by Johnson as the most unpredictable of countries to invest in, changed its rules not just in energy, but the legal system and politics. Venezuela is expected to have proven resources of 310 billion barrels by the time its 2012 presidential election rolls around.

But, for a change, the companies may have more leverage than the country. ‘If [President] Chavez loses Chevron and China, and a few other companies, then there’s no one left,’ Johnson said. The companies still working in Venezuela are ‘arguably better off now than they were a few years ago’ although some challenges still exist, he said.

Russia – where legacy resource nationalism flourished in the Soviet era, economic resource nationalism reigned under Yeltsin and revolutionary resource nationalism thrived under Putin – now sees a ‘narrowed’ pool of interested capital, Johnson said. Opportunities exist to exploit the country’s hydrocarbon reserves, he said, but they require partnering with a Russian company. ‘The future of Russian oil & gas is deepwater, Arctic and enhanced oil recovery,’ he said.

According to Johnson, Nigeria’s main concern is that ‘too much money is going to Houston and not enough is staying in Abuja’. A petroleum bill backed by President Goodluck Jonathan is under consideration that could ‘potentially jeopardize the most important source of revenue they have’, he said. Nigeria is not the only deepwater play in West Africa, he said, and ‘companies can redirect their capital to some of these other projects’ if they don’t like the revised terms in Nigeria.

Countries that need external investment, he noted, are ‘very friendly at the very beginning’. Governments welcome companies to invest heavily in new infrastructure and projects. Once those investments are made and the projects are up and running, ‘that’s just when you get the hostage effect’, Johnson said. ‘It comes down to the concept of leverage.’

Other countries, like Brazil, have new resource nationalist policies, but are approaching it in a ‘soft’ fashion. ‘No one’s tearing up contracts,’ he said, noting new contracts have tighter terms but are not retroactive. The huge country’s recent move toward resource nationalism stems from the massive pre-salt deepwater plays that have turned up Tupi, which holds 5-8 billion barrels of recoverable reserves, and other neighboring finds like Carioca and Guara that hold 1-2 billion barrels of recoverables in the same region.

Colombia, infamous in the 1990s for its security issues, has made some changes to its hydrocarbon rules, working to make the country a destination for energy investment. The approach, Johnson said, has led to ‘a massive investment boom in Colombia’s energy sector’. The ‘reverse resource nationalism’ has worked for Colombia, he said, noting the country was poised to jump from 788,000b/d output this August to 1 million b/d by 2012.

Mexico, which has a history of ‘deep-rooted’ legacy resource nationalism, may find that an energy crisis by 2012 will cause the newly elected regime to push for changes to the resource nationalism rules that will move toward bringing in more foreign investment.

Iraq will be a game changer when it comes to resource nationalism, Johnson said, and may be a reason resource nationalism’s days ‘may be numbered. It could be a major new source of oil or the biggest ever experiment in resource nationalism,’ he concluded. OE

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