How do you know there’s a bull market in energy? Governments are salivating over domestic oil and gas supplies.
Straight-out nationalization a la the Mideast in the 1970s is a bit too blunt a tool in a media-savvy world of the 21st century. That forces states to employ a bit more finesse in their “acquisitions.” The Kremlin’s been a master at this, managing to take control of large chunks of formerly private energy properties in recent years.

The newest member of the club is Bolivia, which just elected Evo Morales as president. As it happens, Bolivia is home to the second-largest natural gas reserves in South America, second only to Venezuela, according to the Energy Information Administration. In addition, the country suffers the ignominious fate of being among the poorest nations in the hemisphere. Those two realities are about to be put to the test, although if history is a guide, there’s context to study and respect in such evolutions.
Perhaps, then, it’s no coincidence that Bolivia’s new chief executive is a protege of Venezuela’s Hugo Chavez, another South American president intent on bringing an already nationalized oil industry into closer orbit with the ideals of his Bolivarian revolution, albeit one step at a time. The latest step is Venezuela’s requirement that all foreign oil companies form joint ventures with the government, or else hit the road. “Those [companies] that don’t accept it,” Chavez explained in October, “should pick up their things and go, and hand over all the [oil] wells,” according to AP via NCTimes.com.
Bolivia’s new president looks likely to follow the Chavez model. Toward that goal, Morales wasted no time in announcing his plans for the country’s gas reserves. “Property rights at the well head are over,” he declared this week, the Times of London. “That’s finished. We need partners, not owners.” In a nod to the times, including the need for nuance in such delicate matters as taking control of private property, Bolivia’s leader clarified his position, counseling, “If [foreign oil companies] accept Bolivian rules, they are welcome as partners. But they cannot be the ones that have ownership control.”
Writing from Bolivia, Jim Schultz of the Democracy Center, a human rights group and a Morales supporter, opines, “If you want to see which way Morales…will govern, keep your eye on what he does on gas and oil.” Among the choices: “Will he quickly tell foreign oil producers holding current contracts with Bolivia that all those contracts are now going to be renegotiated from scratch? Will he put Bolivia’s state-owned oil company back into business exploring and exploiting underground reserves?”
These are no idle questions for the foreign companies that have poured billions of dollars into Bolivia over the years in an effort to develop the country’s natural gas reserves. The largest player in Bolivia in this capacity is Repsol-YPF, a Spain-based energy company. Perhaps it’s no surprise to learn that the company’s stock price has been sagging since Morales’ election.
As for natural gas prices, there’s no obvious effect of late in the wake of Morales’ triumph. Then again, natural gas prices had soared previously. Higher prices, of course, make natural gas properties all the more compelling to governments eyeing opportunities for re-engineering existing business contracts. Just ask President Chavez. With that in mind, take note that the January 2006 contract continues to hover near all-time record highs.
The people of Bolivia are obviously enamored with Morales, but the newly elected president has another constituency: traders with long positions in natural gas futures.

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