Tag Archives: Oil and Gas

Mexican congressman to colleagues: “Privatize This”

So, as you may or may not have heard, Mexican Congress has just passed some rather historic oil reforms, much to the consternation of a lot of people. Herein, one congressman’s protest at the lack of transparency surrounding this historic occasion (with thanks to @NetasMX):

2013.12.MX oil reforms

Charts Of The Day: Economic Potential In MENA

The most recent Milken Global Conference in Los Angeles featured a panel entitled, “Two, Three, Many Middle Easts: A Region’s Economic Prospects”, whose commentary is really only for the hard core MENA geeks, but I thought these charts were worth drawing attention to:

This one was the leader, showing average real GDP per capita from 1980 to 2000:

MENA Economic Development Variation 1

Here we have slides showing variation in GDP per capita across the Middle East and North Africa since 2001. Notice the y-axis scale difference between the Gulf states in the rightmost chart versus North Africa and “core” Middle East:

MENA Economic Development Variation 2

An approximate comparison of just how miniscule FDI flows to the region relative to the world:

MENA Economic Development Variation 3

Of the FDI that does go to the region, we shouldn’t be surprised to find more of it going to the oil producers than to the non-oil producers:

MENA Economic Development Variation 4

And yet expected GDP growth for the coming few years is expected to be mostly uniform:

MENA Economic Development Variation 5

Finally, intra-regional FDI against total FDI to the region:

MENA Economic Development Variation 6

The link to the full hour panel discussion is here and embedded below. If MENA development is your gig, I guarantee there’s something in there for everyone, from diplomats to venture capitalists and anyone in between. For my time, by far the best bang for the buck commentary comes from Chris Schroeder, who starts speaking at approximately minute 36. This man talks way too fast for me to transcribe or bother quoting any of it, but suffice it to say he depicts in words far more illustrious than any of these charts the economic potential the Arab World possesses.

Making Sense Of Angola Stock Exchange Plans

Africa Stock Market Cap FiguresBloomberg had a story out late last week about plans for an Angola Stock Exchange, entitled, “Angola Plans 6th-Biggest Africa Bourse With Value at 10% of GDP”. Since we (and by we, I mean you and me, in an apparently small minority) are resolved to have a realistic approach in discussing economic prospects anywhere, here are the main points of interest from the article once we strip away all the spin and optimism:

  • Angola, Africa’s second-biggest oil producer, expects its stock exchange to have a market value of 10 percent of gross domestic product within 18 months of its startup, making it at least the continent’s sixth biggest.
  • The capitalization of the exchange, set to start in 2015, would be a minimum of $11 billion based on last year’s output of $114 billion.
  • The Angolan government is forecasting economic growth of 7.1 percent this year, down from 7.4 percent in 2012.
  • A secondary bond market will start this year to help develop a yield curve.
  • South Africa’s bourse is the continent’s largest at $842 billion, more than double its GDP.
  • Angola ranks 157th out of 176 countries on Transparency International’s 2012 Corruption Perceptions Index.

The investment bank Imara just put together this brief which summarizes some key data points for other stock markets in Africa. There’s some good trading info in there but missing is any indication of market capitalization figures. I should add that this isn’t Imara’s fault necessarily as this data is generally pretty hard to come by.

The thing is, this isn’t the first time Angola has made efforts at opening a stock exchange. In December 2007, allAfrica.com ran a story entitled, “Angola: Stock Exchange Opens in 2008”, but I definitely remember hearing about this before then, though not as far back as 2003, which is when this article dates the beginning of the process.

In any event, here’s a more “recent” take on the Angola stock exchange prediction, from How We Made It In Africa in 2010. Apparently, Angola’s planned exchange was then expected to be the third largest in Africa. Particularly striking from the 2010 article was this little snippet:
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A Brief Review Of The Biggest Obstacles Facing Mexico’s Moment

2013.04.08.Pemex statsHuge kudos are in order for the FT’s Adam Thomson for finally coming around to spelling out the all-uphill battle Pemex faces. Kudos so huge, in fact, that I’m willing to forget all about this pandering portrayal of Mexico as “Aztec Tiger” at the beginning of the year. Some numbers from “Rusty wheels of Pemex require much oiling” that should give any go-go-pro-Mexico cheerleader pause:

  • Although Pemex reported sales last year of about 1.6 trillion pesos ($130bn), only exploration and production, one of its four subsidiaries, regularly turns a profit: 95.5bn pesos last year. Its other three subsidiaries racked up a combined net loss of 111.6bn pesos – about the same as the entire government budget of Bolivia.
  • Of the three lossmaking subsidiaries, the worst offender is Pemex Refining, which last year posted net losses of 100.5bn pesos. That helped increase the company’s net debt, which in December stood at $51.4bn, about 29 per cent higher than in 2008, though it has fallen as a percentage of revenues over the past three years.
  • Pemex pays the fourth-highest tax rate in a sample of 15 oil-producing nations, including the UK, Iraq, Venezuela and Norway. Little wonder the company provides more than one-third of the federal government’s revenue.
  • Mexico’s state oil company is woefully inefficient. The refining subsidiary accounts for about 40,000 of the company’s roughly 150,000 employees and the average workforce at a Pemex refinery is three times that of one with comparable output abroad. Refining capacity has not increased in years and Mexico today imports almost half of its gasoline needs.
  • Pension liabilities were a staggering $52.3bn at the end of 2011, only 8 per cent of which are funded, and with total contractual obligations standing at $141bn.
  • Contractual rigidities leave about 11,000 Pemex workers receiving salaries without actually having any work to do.
  • As the headcount swells – it has increased more than 10 per cent since 2001 – Pemex’s production figures have crumbled and today stand at less than 2.6m barrels a day compared with about 3.4m in 2004.

If the Peña Nieto Administration comes up with a way to fix this — and that’s HUGE if — you can be sure it will not happen without some well-positioned person behind some closed door to take a little extra for himself.

Related reading: I never thought I’d find myself in so much agreement with Counterpunch, but those looking for current run-down of all the other, non-Pemex reasons to be skeptical of the Aztec Tiger are strongly advised to read in full Paul Imison’s latest here.

How Oil Divides The Economies Of Africa Into Winners And Losers

I can’t get this article from the FT’s William Wallis out of my head. The headline is “Currencies pressed by trade imbalances” but this really only captures a small slice of the picture. Check it out:

With import demand outstripping export growth in some of the continent’s fastest expanding economies, rising trade imbalances are putting pressure on currencies. African and international investors hedge against this by spreading risk – one factor that is driving African banks and businesses across borders.

But even an expansive footprint is not always enough. MTN, the continent’s leading telecoms provider with a presence in 21 African countries, announced that currency swings had weighed heavily on its earnings.

More broadly says Razia Khan, head of Africa research at Standard Chartered Bank, widening current account deficits are the result of an investment and consumption boom, new resource exploration activity and “the scaling up of output”. Ghana fits into this category. It is also on the risk radar this year as heavy investment in oil and gas infrastructure continues, with only modest increases forecast for oil output.

A weak currency does not help those African countries with limited capacity to ramp up exports in response. Kenya cannot for example suddenly double tea production. So, it is forced to defend its currency to avert importing inflation.

Loose monetary policy in major developed economies has driven a rush of short-term funds into African markets. David Cowan, Africa economist at Citibank, says the way in which central banks defend their currencies and the margins that foreign investors earn will be one determining factor in how long the appetite endures.

I don’t disagree with any of this but would point out that this is all just the tip of the iceberg and there are a lot of ways to slice this.

One is that just six of Africa’s 53 countries account for two-thirds of the entirety of Africa’s $2.0 trillion economy. In descending order of nominal GDP: South Africa, Nigeria, Egypt, Algeria, Angola and Morocco. I think a pie chart best demonstrates this relationship:

2013.03.20.Africa 2013 GDP composition

Another is to think about how much of Africa’s total economy is driven by oil exports. Let’s try the following table to demonstrate this:

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InfoGraph of the Day: Chinese Companies and Risk in Africa

This is really impressive and makes me really rethink my previous notions of a political risk framework, particularly in the context of Africa. No more preface necessary:

2013.03.14.China risk in Africa

Sourced from Africa-Asia Confidential.

China Latin America Trade: Who’s Dependent On Whom?

Yes, I am obsessed with charts. And if you’re still reading this blog with any regularity, you are too. Especially if they’re about China Latin America trade.

I finally had a chance to dig through a BBVA report from last month entitled, “How dependent is Latin America’s Economy on China?” Following are the essential takeaways.

  • Commodities have always taken a significant share of Latin American exports; the level of commodity exports concentration had been declining until the start of this century, which coincides with the further involvement of China in global markets.
  • The shift of China’s economic model makes it the biggest contributor to world commodity demand and the top importer of Latin America’s natural resources.
  • There is a positive China effect on commodity exports concentration; the dependency on Chinese demand for sample commodities has indeed increased during the last decade.
  • However, Latin American countries’ economic growth is far less dependent on China than the commodity exports figures might imply.

Now with those overview bullets out of the way, the first chart that strikes me is shown a few different ways but all with the same conclusion. This is one of the versions, demonstrating the proportion of each country’s exports that are commodities:

2013.03.12.Latam-China commodity exports percent share total

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Map Of The Day: Emerging and Frontier Markets Dominate Global Reserves of Key Commodities

Why does it not surprise me that a map showing commodities reserves of emerging and frontier markets would have come from a Glencore report?

2013.02.20.Map of the day EM FM dominate global resereves of key commodities 2

Looking at it in these terms kind of raises an obvious question: how is it that these countries aren’t in more dominant positions of setting the global agenda, policymaking, or development? Chalking it up to corruption is a bit too easy,  and I’m honestly coming around to the opinion that nobody is totally free from corruption. It’s partly corruption, sure, but it’s also just simple logistics.

Forecasting for the Masses: The Macro Outlook, as told to Mom and Pop

How do you know an investment trend has officially peaked? There’s the old legend about how John D. Rockfeller knew it was time to get out of the stock market when his shoeshine boy started giving him tips. More recently, I know a lot of people of the opinion that when you see an investment trend story in the New York Times, it’s time to close the position. Even more recently, Fast Company Magazine ran some stories about how Brazil is the “hot new” destination for American startup geeks…cue another curtain call.

So I was going through my inbox over the weekend when I noticed an email from my mortgage lender, Wells Fargo, with this subject line: “2013 Economic and Market Outlook for Ulysses De La Torre”.

Maybe this is a new thing, but nobody else I know receives this sort of thing from any commercial or mortgage banker of theirs. Very well then. Is everybody ready for this?

Ladies, Gentlemen, Buyers, Sellers, presenting Wells Fargo Advisors’ Investment Strategy Committee:

2012.12.17.WF Macro outlook 2

2012.12.17.WF Macro outlook 3

Because I really have no room for diplomatic euphemisms, let’s get right to the point: Fixed Income is where it’s at here. Continue reading

Chart of the day: Natural Gas in Africa

From Ernst & Young’s “Natural Gas in Africa: the frontiers of the Golden Age”:

The overview…


…and the risk table…

Full report available here.

Migrant Remittances Update

I’m doing some catching up today after being on holiday for most of the past week and wanted to make sure this World Bank brief on global remittances didn’t go unnoticed.

At this point, remittances have drawn enough attention that there are all kinds of ways to crunch the data, so I’m going to assume everyone reading this has the basics down on the who-what-where. With that said, a few of the charts from the report are worth comment.

Not one of the top 10 economies most dependent on remittances as a proportion of GDP is investable on a retail level and all of them pose serious difficulties for investment even at the institutional level. I would simply point out right now that eight of these countries have had armed conflict of some sort in recent memory, which for the sake of this discussion I’m going to define as beginning from the end of the Cold War. The other two (Lesotho and Samoa), for what it’s worth, happen to be islands, one literal, one figurative. Read into that whatever metaphorical meaning you wish:


Outward migrant remittances from Russia to the CIS countries appear to be correlated with the price of oil. The next logical question to ask is what outward remittances look like for GCC states, which the report briefly confirms have a similar correlation though there is no accompanying chart, perhaps because the Russia-CIS chart is visually striking enough:

There is also some loose attempt to correlate or at least compare remittance flows with FX rates:

I appreciate the curiosity here, but I personally think this is stretching it a bit. Each of these countries has different market-specific things happening that influence local currency rates and to suggest that remittances might have some relationship here might need a bit more proof.

Finally, the steadiness of remittances in relation to other types of capital flows I find pretty striking:

Get the report here.

Related reading: “Harnessing Remittances and Diaspora Knowledge to Build Productive Capacities” from UNCTAD here.

Rapid Growth Markets: Behold THE FUTURE

I’ve just spent way too much time playing with Ernst & Young’s interactive spider graph thingy that allows you to compare their 25 “rapid-growth” markets across a range of macroeconomic indicators. According to E&Y, these 25 countries possess the most promising “long-term potential to generate strong business opportunities.”

So since a picture is worth a thousand words, here’s how all 25 of these economies will change from 2011 to 2016 from the meta-macro view, compared against each other:

Okay! Is everybody ready to go out and make some money?
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The (tenuous) link between sovereign wealth funds and corruption

Is it just me or are people becoming more and more desperate for certainty? This is the thought that occurs to me after reading Quartz’s recent attempt to draw out some sort of corruption forecast from the recent news that Angola has created a $5 billion sovereign wealth fund. To their credit, they did produce this handy chart as a good starting point for thinking about this topic:

The higher number on the x-axis is meant to convey a worse ranking in Transparency International’s Corruption Perceptions Index for oil producing nations around the world. Quartz readily acknowledges that this chart simply shows a static comparison taken today, without any notion of time-elapsed changes in corruption perceptions (not corruption). Its attempt to rectify that shortcoming is apparently this table:
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Brief review of Iran’s reserves position as the rial collapses

I’ve looked through a lot of the reports on Iran’s ongoing currency collapse and actually the only source I could find for a comprehensive visual on this was Business Insider, with the following chart that tracks the past 70 days:

By the way, the year “1391” apparently refers to the Persian calendar.

For the sake of comparison, here’s the past 90 days of NYMEX Texas light sweet, or as you city slickers like callin’ it, “dubya tee ah”: Continue reading

Quote of the day: The real problem with electric cars

Dr. Richard Mignogna, renewable energy guru, writes:

“Much has been written in the popular and technical press lately about the emerging electric vehicle, both pro and con. In spite of wishful thinking, don’t expect significant penetration any time this decade. There is probably a role for EVs but it is not the widespread consumer market. Rather, it is more likely to be various fleet applications such as delivery vehicles or limited urban transit applications. For all but the most dedicated clean energy afficionados and hobbyists, or those who can afford a third vehicle, how many consumers can afford to pay the prices being charged for a vehicle with such limited capability? Most cannot. Second, there is still the issue that, in most places, the electricity used to recharge an EV will come predominantly from coal. So, the environmental benefits, at best, are muted. But, cost and performance aside, there is another difficulty with an electric transportation infrastructure that few seem to speak about. If you loved Big Oil, you will really love Big Monopoly Electric Utility extending its dominance to the transportation sector. Gasoline prices have at least been shown to be sufficiently elastic that they respond to consumer demand. And, within a limited range, consumers still have a choice of providers. Hence, there is at least some semblance of a free market at play — even if it is an oligopoly. In contrast, a consumer’s only choice for recharging that overpriced EV is the local monopoly utility and to pay whatever its regulator-approved rate is. Good luck there. So, there is a use for electro-motive transportation. It just isn’t the one everyone is talking about.”
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Infograph: Updated investment profile for Myanmar

An updated profile of investors and foreign direct investment in Myanmar:

Sourced from here.

Hype vs. growth: China’s Yuan Renminbi in international payments

I’m VERY skeptical about the race to declare dollar extinction/renminbi dominance, but two items have been brought to my attention in the past few days that I thought would look rather nice when mashed up together. The first is this chart, from SWIFT:

How alarmed you are as a result looking at this chart I suppose depends on some combination of what your biases are, how unplugged you are and how alarmed you tend to become at things that contradict your expectations. Let’s consider the observations to make from this chart and some other things and then we’ll come back to what our response should be.
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Commodities lead investment performance since financial crisis began

Corn, gold, silver and oil have been the biggest gainers of major financial assets around the world in the past five years. From Deutsche Bank via Also Sprach Analyst:

U.S. Export-Import Bank Approves $1.2 Billion in Financing for Pemex

From an Ex-Im Bank press release:

Washington, D.C. – The Export-Import Bank of the United States (Ex-Im Bank) has authorized $1.2 billion in export financing in four separate transactions to support the export of U.S. goods and services to Petroleos Mexicanos (Pemex), Mexico’s national oil and gas company. The amount includes a $200 million small-business facility, which will support exports from U.S. small businesses.

For the first time, Pemex will offer Ex-Im-guaranteed bond issuances to capital markets to fund the transactions. Pemex anticipates four-to-seven bond offerings that will occur from June to September 2012. In the event the funding cost is prohibitive, Pemex may exercise the option to seek Ex-Im direct loans. Continue reading

Colombia’s Ecopetrol = Brazil’s Petrobras means it’s time to sell

I’m in transit at the moment so I don’t have time for daily headlines today, but I do have a piece on Ecopetrol running on Emerging Money:

Last week’s announcement that Colombian oil company Ecopetrol passed Brazilian giant Petrobras to become Latin America’s largest company by market capitalization was a tribute to how far Colombia has come since the 1990s. It was also a nice complement to the effective start of the country’s free trade pact with the United States. And it was a sign that investors should think about selling Ecopetrol.

Petrobras is already back on top in the market cap rivalry. The Colombian economy may be a model, with 5% real GDP growth, low inflation, booming foreign direct investment and a successful dismantling of what was once the world’s largest black market for dollars.

Even emigres are returning home to this tiger that used to be better known for cocaine trafficking.

But virtue cannot put hydrocarbons in the ground. Brazil’s proven oil reserves are estimated at six times the size of Colombia’s, according to the CIA Factbook. That means Petrobras is virtually destined to be a much bigger oil company that Ecopetrol.

Ecopetrol could not have managed its recent rapid growth much better than it has. It has better efficiencies of scale than Petrobras, but that efficiency is at least close to being fully priced in.

The company has quadrupled in price since the end of 2008.

Ecopetrol’s drawing even with the mighty Petrobras also reflects a Colombian peso that is stronger – or should we say less weak – than the Brazilian real. But that situation also cannot last forever, given how integrated both countries are in trade with the US, trade with China, and global commodities markets.

Colombia cannot afford to have the peso/dollar relationship diverge significantly from the real/dollar; its exports will become too expensive.

The Colombian central bank may not be anywhere near as vocal (desperate?) as its Brazilian counterpart in what is effectively a managed currency devaluation, but the Colombian peso is approaching its maximum appreciation limit. The higher it goes from here, the sooner we should expect monetary authorities to intervene to weaken it.

Nor can Ecopetrol buck a global macro “risk-off” environment forever. If the result of the current queasy market mood is not a weaker peso, it may be lower oil prices, which would imply a stronger US dollar, which leads to a weaker peso.

If it’s not slower growth at home, it’s slower growth elsewhere, which lowers demand for exports. Colombia’s trade is already more US-dependent and less diversified than Brazil’s, and the implementation of the free trade pact is only going to make it more so.

This does not mean that Ecopetrol shares are due to crash. They may even have a bit more room to run, as Colombia continues to meet its challenges and investors overcome past stereotypes and realize what the country has achieved. But the end of the upside for this stock cannot be far away.
This article was originally published here.