Resource nationalism on the retreat in a world of shale

Myths of nationhood come in many forms: epic poets, climactic battles, age-old enemies. Possession of a slippery black liquid is also a popular foundation myth, the bedrock of political beliefs from Venezuela and Mexico to Scotland and Iran. But in a world where oil is not so scarce and valuable, is resource nationalism ebbing?Resource nationalism has been the dominant phenomenon in the past decade of international oil investment. Amid the 1990s’ low oil prices, private companies had been lured back into Latin America, North Africa and Central Asia. But when prices started rising from 2000, governments increased taxes, expropriated or nationalised assets, or engineered the entry of state firms. This happened not only in ideologically hostile jurisdictions such as Argentina, Venezuela and Russia, but in theoretically investor-friendly areas such as Alaska, Alberta, the UK’s North Sea and Australia.International companies were perceived to have taken advantage of countries such as Russia and Kazakhstan at times of national weakness, and foreign “control” of mineral resources had become intolerable to the public.Usually this nationalist rhetoric was a cloak for two other motivations. The first was the simple pursuit of money, as rising oil and gas prices and poorly designed contracts had made fields vastly more lucrative than ever anticipated. Countries that discovered large volumes of hydrocarbons for the first time, such as Uganda and Mozambique, have sought more recently to increase their tax take.The other motive was political power. With oil often the key source of government revenues, and the state firms’ repositories of technical and managerial skills, aspiring authoritarian or revolutionary governments believed that they had to control it. Rafael Ramírez, removed last week as the Venezuelan oil minister, said in 2006 that the state oil company, Petróleos de Venezuela, was “red, very red”, the colour of the ruling party.But with the US shale revolution, this cycle of resource nationalism may be passing. Growing North American shale output has outweighed geopolitical upsets, keeping oil prices stable since 2011, and causing gas prices to fall. Contracts have reached a rough equilibrium where governments have captured the bulk of the “rent” — the profits in excess of a normal return to the investor. Further tax increases would deter new investment, especially at a time of very high development and operating costs.

via Resource nationalism on the retreat in a world of shale | The National.

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