Oil Companies Face Hurdles in Latin America

By Leandro Prada | July 7, 2008 | 8:18 PM EDT


(CNSNews.com) - Following the latest in a series of disputes between the Argentine government and Royal Dutch Shell, the company's sole refinery in Argentina was allowed to resume activities on Tuesday.

Argentina's Secretariat of the Environment and Sustainable Development confirmed the decision in a statement. It had ordered the refinery closed last Wednesday over environmental concerns, a step that led to a shortage of premium fuel and diesel throughout the country.

The statement said that Shell Capsa, the local subsidiary of the Anglo-Dutch oil company, had submitted a $60-million environmental investment plan.

This would include steps to improve the air and soil conditions around its Dock Sud refinery, located in the Southern Buenos Aires area. The plant was ordered to shut down -- a process taking four to five days -- after soil samples from the site were found to be contaminated.

This isn't the first time the government and oil giant have clashed.

In 2005, President Nestor Kirchner openly called on citizens to boycott Shell based on allegations that its gas stations had a shortage of diesel -- a violation of a rarely invoked 1974 Law of Supply that penalizes fuel hoarding, including imprisonment for companies' directors.

Juan Jose Aranguren, Shell's CEO in Argentina, played down the latest dispute, telling the local newspaper Clarin, "This is not a conflict."

He dismissed speculation that Shell may pull out of Argentina, recalling that when similar rumors circulated in 2004 he had declared that Shell had made a decision to continue operating "in some countries in the region, and one of them is Argentina."

Aranguren's assurance comes just days after Esso, Exxon Mobil's local subsidiary, announced that it was selling all of its assets and leaving the country.

Esso and Shell, major players in the international oil industry, are only small-sized companies in the Argentine market, because they do not operate upstream operations of exploration and production of crude. They are relegated to refining crude which they purchase from Spanish-Argentine Repsol YPF and Brazilian Petrobras.

With Esso having only 12 percent of the local oil market and Shell 19 percent, neither is profiting much from the sector, according to Argentine commentator Roly Villani.

"If one adds to this situation the fact that the country's known oil reserves are nearly over, the scenario for companies which depend on other oil producers to refine their fuel can only get worse," he wrote on the Argentine news portal, MinutoUno.com.

Elsewhere in Latin America, left-wing Venezuelan President Hugo Chavez last June created "mixed companies," partnering state oil company PDVSA with foreign firms such as American Chevron Texaco, French Total, and British Petroleum (BP). Those companies did not receive compensation for the new distribution of shares, but were permitted to operate in the Orinoco River belt, believed to be the world's largest petroleum reserve.

Exxon Mobil and ConocoPhillips refused to enter into such agreements and are leaving the Venezuelan oil market.

In Nicaragua, the government of leftist President Daniel Ortega seized storage tanks belonging to Esso last August, claiming that the oil company had evaded taxes for $2.9 million on the importation of crude oil.

Ortega said he wanted good relations with America. During his earlier tenure, however, Ortega confiscated and nationalized American-owned property.

The American Embassy in Nicaragua stated in a statement that the seizure of tanks "has the potential to seriously damage economic relations between the United States and Nicaragua. It also has the potential of damaging Nicaragua's foreign investment climate."

The Nicaraguan government said last week it had reversed the step, although Esso's International Relations Manager, Milton Chavez, said during a press conference following Managua's announcement that it had not been notified of any decision.

Some of the difficulties faced by multinational oil companies in Latin American countries have their root in one key player, Chavez, according to former Bolivian President Jorge Quiroga.

"This five-year period ... coincides with the open flagrant incursion of the most dangerous and most powerful interference in the history of Latin America," Quiroga said in a recent interview with the Peruvian newspaper, El Comercio.

"Hugo Chavez works around the clock to consolidate himself in countries where he has set up 'branch offices,' such as those in Bolivia, Ecuador or Nicaragua," he said. Quiroga, a conservative, served as president of Bolivia in 2001-2002 and ran again in 2005, but was defeated by Evo Morales, a close ally of Chavez.

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