Nicaragua is prioritising Venezuela ’s $2.5 billion oil refinery project in the country’s Pacific coast region, political leaders from Managua have told Emerging Markets.
Nicaraguan vice president Jaime Morales said that the government is “totally supporting” the 150,000 barrels per day refinery.
There has long been talk of building a regional refinery, perhaps in Panama , but Morales implied the Nicaragua project – for which Venezuelan engineers this month started doing land surveys – was not a competitor. It would “not necessarily” be a regional refinery, he said.
Nicaraguan finance minister Alberto Guevara said: “This can be an impetus for generating jobs and local development.”
Jed Bailey, director at Cambridge Energy Research Associates, told Emerging Markets: “There’s a need for new refinery capacity, particularly to take heavy crude. Whether that will be, or should be, in central America or elsewhere depends on regional development issues and geopolitics issues as well.”
Venezuelan president Hugo Chavez’s initiative on the Nicaraguan refinery was in part a response to US-backed Mexican and Colombian development projects in central America, Bailey said. It is possible that both Nicaraguan and Panamanian refinery projects will move forward, he added.
Guatemalan vice president Eduardo Stein commented that the project could be as many as eight years from completion. “The real market impact would not be felt for a long time.”
Meanwhile concerns are mounting about the long-term impact on oil production of Venezuela ’s dispute with international oil companies and the crisis at Pemex, the Mexican oil company.
Analysts say that if Chavez’s clash with Exxon over projects in Orinoco turns into a wider campaign, there will be serious consequences for the upstream investment environment.
Bailey at Cambridge Energy said that “the big open question” concerns Chavez’s personality and goals. “If he just wants to be in control, then it’s in his interest to keep the oil flowing. Deals will be made under which the government can take control, but there will be sufficient upside for the oil companies to stay involved.
“But if Chavez is a true believer in ‘21st century socialism’, then there is a risk that he will squeeze the oil sector, and promise to do more with oil revenues than he can deliver – both domestically and internationally.”
On Pemex, Bailey said that “it’s not out of the question that you could see [Mexican] oil production decline quite dramatically if important decisions aren’t made”.
Venezuela says it will fund long-term investment itself, and finance minister Rodrigo Cabeza told Emerging Markets at the weekend that $50 billion will go into the industry over the next ten years.
But Fadhil Chalabi of the Global Centre for Energy Studies, a former OPEC general secretary, said there is “a danger of underinvestment long-term”. The hemming-in of oil companies by left-wing governments with heavier royalties and tax burdens is an international phenomenon, he argued.