Oil’s fall pinches Latin nations Oil’s fall pinches Latin nations

BOGOTÁ, COLOMBIA — During the five-year bonanza of rising oil prices, resource nationalism took hold across Latin America, and energy-producing countries boosted spending, raised taxes on foreign oil companies and salted away billions in petrodollars.

But with the onset of the global economic crisis and the collapse in oil prices, Venezuela, Mexico and other regional energy producers are feeling the squeeze.

If prices don’t rebound soon, the countries will be forced to cut spending on popular programs or dig into their reserves. Governments also will probably see slowdowns or cancellations of energy pro-jects ranging from explorations to biofuels plants.

" The old assumptions are out the window," said RoseAnne Franco, a Latin America analyst at PFC Energy in Washington. Lower prices "are forcing a very strong readjustment for all concerned.’’

Benchmark light, sweet crude has dropped to near $40 a barrel from its record close above $145 in July.

Venezuela, the world’s seventh-largest exporter, saw the price of its oil — which sells for less than the benchmark crude because of its higher viscosity and sulfur content — drop to $39 per barrel, its lowest level since May 2005. Venezuela uses oil revenue to fund much of its $77 billion annual budget.

Venezuelan President Hugo Chavez has said the country, which has built up reserves of some $76 billion, will practice "austerity" in the 2009 budget.

If Chavez decides to cut the budget, he likely will slash foreign aid to other countries in the region before cutting domestic spending programs.

Chavez, who wants to remain in office "as long as God wants and the people demand it," is trying to overturn a constitutional limit on presidential terms. His supporters are working on getting a referendum to the voters by February, and Chavez does not intend to alienate poor and working-class voters who are the spending programs’ recipients.

After passing laws to take over privately managed energy projects, Venezuela and other Latin American countries are once again courting international oil companies.

In the past, Chavez has focused on deals with state energy companies in Russia, China and Iran. But recently his oil minister announced that 21 international companies were preparing bids to develop fields of heavy crude in the Orinoco belt in central Venezuela. Reforms in Mexico

Elsewhere, Mexico’s Congress approved a long-awaited package of energy reforms last month to allow limited foreign investment in the state oil monopoly, Petróleos Mexicanos, or Pemex.

Yet some experts described the move as too little, too late for the Mexican government, which derives 35 percent of its total revenue from oil income. The new legislation, they said, will do little in the short term to boost oil production, which is rapidly declining.

Mexico’s output has fallen from 3.4 million barrels per day in 2004 to the current 2.8 million barrels. Increased demand and declining production could turn Mexico into a net oil importer by 2015, according to Pemex estimates.

New enterprises will take years to come on line. Yet Mexico’s expensive deep-water projects in the Gulf of Mexico now look less profitable for outside companies.

"When oil is at $140 per barrel, there is a lot of expensive oil that’s worth producing," said Michael Goldberg, a senior partner at the Houston office of Baker Botts, the international law firm whose clients include major oil companies. "At $50, it is not. So projects that were being considered just six months ago are now on hold."

A recent report from the Eurasia Group, a global consulting firm, seemed even more bleak.

"President Felipe Calderon and Pemex bureaucrats all say the reform package will help the company undertake badly needed exploration projects and boost declining production," it said. "However, there is a strong argument that Mexico’s energy reform will do little to help improve the company’s condition in the near, medium or long term."

To cope with the twin plagues of falling production and prices, Mexico’s Finance Ministry announced that it had hedged all of the country’s oil exports for next year, a deal that will guarantee the country at least $70 per barrel on an estimated 330 million barrels. Brazil’s deep finds

In Brazil, Latin America’s third-largest oil producer, state energy company Petrobras has announced a string of discoveries. But most are deep-water reserves far beneath the sea bottom and will require a massive infusion of capital to bring on line.

The credit crunch, however, has hurt Petrobras’ ability to raise money and finance huge investments, said Erasto Almeida, who tracks the region for the Eurasia Group. And in a case of bad timing, Brazilian lawmakers are planning to consider an energy bill that would give the government more control over the industry, not less.

Brazil ranks as the world’s second-largest producer of ethanol after the United States, and a leading exporter. But in Brazil, ethanol is no longer profitable when oil prices fall below $40 per barrel, said Johanna Mendelson Forman, an expert on biofuels at the Center for Strategic and International Studies in Washington.

Colombia also has invested heavily in ethanol and biodiesel plants, but interest could diminish if oil prices continue to drop.

"The big question is: How will this stimulate or inhibit investment in ethanol in Colombia and Brazil?" Mendelson Forman said. "We could see a reduction, which is also happening in the United States." Flat prices predicted

How long will the low oil prices last? The U.S. Energy Information Administration has forecast that world prices will be relatively flat in 2009. The global economy’s condition, it said, is expected to remain the most important factor driving world oil prices.

The Latin American energy producers have some wiggle room. Because oil prices rose to record heights this year and some countries based their spending on conservative revenue estimates, they may not face a severe shortfall for several months, some analysts said.

"This will allow them to resist for some time, and then it becomes a matter of how long the world economic crisis lasts," Almeida said. "If it lasts more than one or two years, then we will start seeing a serious impact.’’