El Taladro Azul Published Originally in Spanish in LA GRAN ALDEA
M. Juan Szabo and Luis A. Pacheco
What at first glance appeared to be a relatively stable international order—emerging from the arrangement between the victorious powers of World War II, the subsequent collapse of the Soviet Union, and a somewhat functional institutional framework (UN, IMF, WHO, WTO, etc.)—now appears to be under attack or at least threatened by the strategy being implemented from Washington. The redefinition of what has traditionally been called the Western alliance (military and commercial) is beginning to emerge as a potential result of a policy that seems to disdain the conventional rules of free trade and substitute globalism with isolationism.
In this new scenario, the American strategy of imposing tariffs on allies and adversaries emerges as a negotiation tool to modify trade exchanges and, by implication, the geopolitical balance. Unexpected changes in Atlantic alliances, combined with economic interests, are beginning to influence international political behavior and will undoubtedly affect the world economy and energy demand. Paradoxically, although globalization is one of the primary targets of criticism from new powers, its success has created interconnected networks through which decisions are made in two or three world capitals of the globe.
Markets strive to interpret and respond efficiently to signals and decisions from the White House and the reactions they elicit, though uncertainty fills the gaps. For instance, the shift in the U.S. stance on the Russia-Ukraine war is perceived as a strategy that could bring the conflict to a close. Additionally, there is speculation regarding either an imposed or negotiated resolution to the Arab-Israeli conflict. Both scenarios would significantly minimize geopolitical risk, particularly concerning restoring the free flow of hydrocarbons.
So, in a week that saw Brent crude prices climb to $76 per barrel due to supply disruption concerns and strong demand, geopolitical developments ultimately pushed prices down on Friday to levels below last week.
GEOPOLITICS
Although much was speculated about what the new American administration would do to end the Russia-Ukraine war, the shift in U.S. diplomatic signals has caused significant discomfort across the European continent, which, along with Zelensky, sees itself as an uninvited guest in negotiations to resolve the conflict. Few anticipated that the Americans, previously firm allies of Ukraine, would make a one-eighty turn and shift responsibility for the conflict from Moscow to Kyiv.
Moreover, the fact that the U.S. and Russia are directly negotiating, with Saudi Arabia mediating, gives the parley a petroleum connotation. We are witnessing meetings of the three largest oil producers in the world, representing 30% of global supply. This is highly significant for the emerging new order.
In the old continent, the perception is that U.S. diplomacy has attempted to empathize with Putin, portraying the aggressor as a victim and establishing precedential conditions that ought to have been negotiated. Some view this as nearly an absolution for Putin. Zelensky has shifted from hero to villain.
For President Trump, Ukraine's sovereignty has become a negotiating chip in shaping the new world order he envisions. The timing may not have been the most appropriate, and the implementation method could have differed. Europe, NATO, and Zelensky may feel betrayed by this situation, but they must quickly adapt to this new reality.
This unfortunate confrontation between allies has devolved into mutual reproaches. Trump has accused Zelensky of delaying elections due to an alleged lack of popularity, labeling him a "dictator." This claim is clearly false; the Ukrainian president enjoys substantial popular support, and elections have been postponed by the martial law established following the Russian invasion. In turn, Zelensky charges Trump with having "bought" into Russian propaganda by justifying the invasion as a defensive measure against Europe and NATO.
Alongside these rhetorical skirmishes, the U.S. urges Ukraine to accept a simplified proposal regarding control of its strategic mineral reserves before negotiating detailed terms. Trump's proposal suggests that in return for his support, a portion of Ukraine's resources would be allocated to the U.S., reportedly establishing that 50% of critical mineral reserves, including graphite, uranium, titanium, and lithium, would be involved. In exchange, investments for reconstruction and security against potential attacks would be guaranteed, according to unofficial sources.
The U.S. aims to establish a pact with Ukraine before authorizing additional military support for Kyiv or proceeding with efforts to mediate peace talks. Keith Kellogg, Trump's envoy, made surprising comments upon leaving Ukraine. He spoke of extensive and positive dialogue and praised Zelensky as "a beleaguered and brave leader of a nation at war."
Meanwhile, as part of the war in Ukraine, Ukrainian drones targeted the Caspian Pipeline Consortium (CPC) oil pipeline this Tuesday, which serves as the primary export route for Kazakhstan. Russia stated that the attack reduced oil flows through the CPC by 30% to 40%.
In the Middle East, the U.S. government has stated that it aims to isolate Iran from the global economy and eliminate its oil export revenues to curb the development of nuclear weapons. Trump also desires that Iraqi Prime Minister Mohammed Shia al-Sudani break economic and military ties with Iran. Last week, Reuters reported that Iraq's central bank blocked access to the dollar for five additional private banks involved in Iranian financial transactions at the request of the U.S. Treasury.
On Monday, Iraq's oil minister announced that exports from Kurdistan would resume next week. This would mark the end of a nearly two-year dispute that has cut the flow of more than 300 MBPD of Kurdish oil through Turkey to global markets. However, this volume will not increase the crude placed on the market, as much of it reaches Iran through smuggling at very low prices.
In any case, the pieces of the puzzle the Trump administration is attempting to assemble are establishing the framework within which it intends to shape its vision of "Make America Great Again," particularly regarding its aim for accessible and affordable energy for growth. However, it is a three-dimensional puzzle with dynamic elements- a highly complex challenge that will undoubtedly yield unexpected consequences. It cannot be ruled out that the rapprochement with Russia follows a strategy aimed at distancing Russia from China, which, in Trump's perspective, is the power that needs to be countered.
FUNDAMENTALS
This week, the most influential variable regarding fundamentals was the unforeseen reduction in crude supply. On the other hand, demand strengthened forecasts of growth of at least one million barrels per day (1 MMbpd) in 2025 as uncertainty regarding China dissipated.
As mentioned in the previous section, a Ukrainian drone attack damaged the Kropotkinskaya pumping station in Russia, reducing crude handling capacity by about four hundred thousand barrels per day (400 Mbpd). Additionally, extreme cold weather conditions in the U.S. and Canada have impacted oil production, especially in North Dakota and northern Alberta, Canada, where production has decreased by approximately 200 MBPD.
OPEC+ is considering postponing opening voluntarily closed barrels due to the lack of firmness in oil market prices. Brazil announced it would join the OPEC+ group, for now, only as an observer, free from quota limitations.
These factors contributed to a tighter supply scenario, which increased prices in the first days of the week. This increase was mitigated by another increase in U.S. commercial crude inventories. According to the EIA report, inventories rose by almost five million barrels (4.6 MMbbls) despite lower crude imports and constant refining levels. Distillate inventories were reduced by about 2.0 MMbbls.
The behavior of drilling activity in the U.S. was quite specific. A net increase of 4 units was recorded, which included a reduction in rigs dedicated to gas and an increase of 7 rigs dedicated to oil. Although this was concentrated in relatively minor basins in Oklahoma, the major producing basins remained unchanged. Aside from the interruptions already mentioned, crude production in the U.S. and OPEC+ remained stable.
The demand for natural gas for liquefaction, electricity generation, and heating has exceeded the available supply. Due to weather conditions, demand peaks coincide at certain times with the lifting of LNG export limitations and the increasing need for electricity for AI-associated data processing centers. Consequently, natural gas is priced above four dollars per million cubic feet ($4/MMcf).
PRICE DYNAMICS
This week was filled with many events, and geopolitics overshadowed conventional logic and fundamentals. Negotiations and potential alliances promising to reshape the world into three poles, with clear repercussions on wars, sanctions, and international trade, are currently in the spotlight. We should not be surprised if hydrocarbon prices exhibit unusual behavior. In a week that saw oil prices climb to $76/bbl due to concerns over supply disruptions and strong demand, significant geopolitical developments pushed oil prices down on Friday to levels below last week's.
As of market close on Friday, February 21, 2025, the benchmark crudes Brent and WTI were quoted at $74.43/bbl and $70.40/bbl, respectively, slightly below the previous week.
HYDROCARBONS IN THE BACKYARD
This week, we will examine the region south of the Rio Grande, which sometimes seems overlooked amidst the clamor of northern geopolitics. This area possesses hydrocarbon resources and an evolving energy sector that will undoubtedly render it globally significant in supply and demand. We will analyze trends in the pertinent countries of the region—nations with the potential to produce over 500 MBPD—while noting that Venezuela is, as always, discussed in a section at the end of this column.
Mexico
The hydrocarbon industry in Mexico has historically operated under the influence of its state monopoly, Pemex. Like many state-owned enterprises, Pemex has suffered from inefficiency, corruption, and political interference, resulting in significant debt and an inability to maintain oil and gas production or meet domestic market demands. This situation persists despite substantial investments in refineries that are only marginally profitable or not profitable at all. The attempt to attract private capital, initiated during President Peña Nieto's administration to revitalize the industry, was subsequently reversed by President López Obrador.
The situation has become alarming, especially given possible tariffs and disagreements with its northern neighbor. The new president, Claudia Sheinbaum, presented a plan for Pemex to collaborate again with private investors. The strategy seeks to share benefits with external companies in specific oil projects, reversing López Obrador's policy. According to the announcement, the agreements could represent up to 10% of Pemex's production.
This shift in direction for Pemex will enable revenue sharing with private partners after recovering the initial investment and paying a 30% royalty on wellhead production. Sheinbaum stated that this model would ensure profitability for both companies and the state oil firm and introduced a bill to facilitate these processes by expediting permits and permitting private investments, all while ensuring that Pemex and the Federal Electricity Commission (CFE) retain control of the energy sector. However, the crucial aspect of these "about-face" transformations is their execution and sustainability.
Colombia
In 2022, newly inaugurated Colombian President Gustavo Petro promised a bold energy transition, capturing the imagination of a young electorate eager for a sustainable future. However, fast-forwarding to 2025 reveals a much more complicated reality. Colombia's conventional oil and gas reserves are declining, leading to unpredictable fiscal impacts. Political tensions are rising around natural gas, which, although it could serve as the only viable bridge to a low-carbon future, currently needs to be imported at high costs. Meanwhile, the ideologized administration is formally and informally hindering the search for and development of new deposits. Although Petro shares the same ideological tendencies as the Mexican president, he has not effectively incentivized his most crucial industry.
Production and reserves are declining despite Ecopetrol recently presenting a reserves certification indicating that in 2024, the volumes produced were offset by additions of new reserves, remaining above one thousand eight hundred million barrels (1,800 MMbbls). Notably, most of the increase does not correspond to exploration but to revisions and secondary recovery, both of which have a highly subjective component.
Guyana
The fourth floating production facility departed from Singapore and was bound for Guyana. This is the FPSO "One Guyana," which will be operated by a consortium led by ExxonMobil and is expected to increase the country's production to nine hundred and forty thousand barrels per day (940 Mbpd) by early 2026; experience with previous units suggests it could happen this year. Plans indicate that at least four more FPSOs will be installed before 2030, increasing oil production to nearly two million barrels per day (2 MMbpd) and providing natural gas for electricity generation and petrochemical development in Guyana.
Brazil
Brazil is the leading country in the Latin American oil industry, both in terms of oil development and domestic market. It has emerged as a major center for technological advancement in deep-water operations, with nearly all of its production, exceeding four million barrels of oil equivalent per day (4.33 MMboed), coming from offshore fields. Although the state-owned Petrobras is the key player in the oil sector, private companies are actively involved in the country's oil development. Unlike some of his regional colleagues, President Lula adopts a policy aimed at maximizing mineral resource utilization despite having to tackle conflicts with the environmentalist faction of his coalition.
Since 2008, when production began from the strata known as "pre-salt," located beneath a thick layer of salt at depths exceeding 7 km, the country's output has been revitalized. However, production has not met the projected growth targets. This shortfall is due to delays in delivering FPSOs necessary for developing these productive fields and an underestimation of energy declines in their reservoirs. The average production for 2024 was 0.5% lower than the previous year. This year, production is expected to rise by adding two new FPSOs and satellite wells to existing production units, reaching a total of 4.68 MMboed, with 280 Mbpd of this increase coming from oil.
Ecuador
Ecuadorians will participate in a runoff election in April following the contentious first round between the current ruler, Daniel Noboa, a right-wing politician aiming to extend his time in office for another four years, and leftist opposition candidate Luisa González, regarded as the political heir of former president Rafael Correa.
The two presidential candidates present various proposals regarding Ecuador's oil sector. These ideas are reflected in their government plans or expressed during their public appearances. Some less favored candidates advocated optimizing oil production through more efficient technologies and reinvesting in renewable energies to support the transition. In contrast, others suggested eliminating Petroamazonas due to its inefficiency and corruption.
Daniel Noboa has indicated that he aims to boost oil production to five hundred and fifty thousand barrels per day by 2025, marking an increase of nearly 50 Mbpd from current levels, and he plans to recover production capacity by bidding rounds on mature fields. Luisa González advocates for transitioning to a post-oil economy, promoting high-value-added sectors and manufacturing, a typical left-wing strategy during elections. Polls favor Luisa González, as the indigenous electorate is leaning towards her candidacy.
Argentina
Argentina will surpass Colombia as Latin America's third-largest oil producer, with 800,000 barrels daily, only behind Brazil and Venezuela. Significant oil and gas production growth has come from developing the Vaca Muerta basin, a world-class shale.
The southern country achieved a fiscal surplus in 2024 by operating pipelines at full capacity and transporting the remaining barrels from Vaca Muerta via tanker truck. It also exports gas to Chile and Brazil through aging pipelines in Bolivia. Oil and gas pipelines are currently under construction, enabling it to reach the goal of 1.0 MMbpd and eventually enter the competitive LNG market.
However, not everything is rosy. Norwegian state-owned Equinor has decided to divest its assets in the unconventional Vaca Muerta basin, and it is not the first company to do so. Previously, ExxonMobil sold its Argentine assets, casting doubt on Argentina's great promise.
Petronas also withdrew from the large gas liquefaction project, but Argentina, with its new pro-investment stance, managed to interest Anglo-Dutch Shell in Petronas's remaining participation. If Shell decides to invest in the project, Argentina will emerge stronger from the obstacle, as Shell is one of the dominant companies in the LNG business. An additional pipeline, which will open early this year, will offer more capacity to send exports to Puerto Rosales, 30 kilometers from Bahía Blanca.
In summary, the net balance of oil activities in Mexico and South America contributes to the global supply, projected at about 400 MBPD in 2025 and expected to grow to more than 600 MBPD by 2026.
VENEZUELA
At your service, Mr. Trump
Illegal Venezuelan immigrants sent to Guantanamo are already in Venezuela. Using Honduras as a bridge, 170 Venezuelans arrived this week in Maiquetía on a Conviasa plane. For now, the guidance from the Venezuelan regime seems to be not to alienate Trump and, in case of any complaint, to blame Secretary of State, Marco Rubio. The regime feels comfortable, for now, with the Trump administration's inaction regarding the elimination or modification of oil licenses, the only tool Caracas can use to obtain foreign currency that prevents a new collapse of the bolivar.
The rapprochement between Trump and Putin is currently viewed as advantageous for sustaining the delegitimized regime, yet it appears to function within the framework of Trumpist geopolitics. We do not know whether this precarious situation instills the confidence required for private oil companies to resume their production growth programs or if they are taking a wait-and-see approach regarding the evolution of the relationship.
In any event, the regime seems willing to follow Trump's lead. There are even rumors that the departure of the Indian company Jindal from the joint venture PetroCedeño has been addressed by handing that "Crown Jewel" over to Harry Sargeant III's company, with the hope that stronger commercial ties with American companies will complicate an eventual rupture.
Low oil prices, political uncertainty for oil companies, and a collapsing economy diminish the possibility of acquiring more foreign currency or collecting higher taxes; the regime is compelled to issue inorganic money to finance reduced public spending. It is easy to predict that the outcome of this scenario will be a continuous devaluation of the Bolivar, leading to increasingly accelerated inflation. The official exchange rate has already reached Bs 63.4/$, pushing the parallel exchange rate to hover around Bs 80/$.
Beyond the deportation of illegal migrants and the repatriation of U.S. citizens, two variables could indicate U.S. policy toward Venezuela. The first is the monthly renewal date of Chevron's General License 41. OFAC's handling of that date will illuminate Venezuela's oil future. Similarly, the AMOS investment fund project in the Gulf of Paria, which is seeking an OFAC license, represents another indicator regarding the willingness to license new players in the Venezuelan oil environment.
Meanwhile, the internal political situation is apathetic. The opposition is engaged in divisive discussions about whether to participate in the general elections called by the regime's CNE.
Oil Operations
The burning and venting of natural gas remain significant operational and environmental concerns. However, reducing these practices would significantly affect the production of light and medium crude necessary for the Merey-16 crude blending operations and as feed for the Puerto la Cruz refinery. The output of these crudes has declined to the point that regular imports of light crudes are required to supplement local production. In the meantime, the shortage of natural gas is forcing the population to use firewood and charcoal for cooking. At the same time, the production of petrochemicals in the Jose complex has had to be limited due to this lack of inputs.
Crude production during the last week remained constant at 860 MBPD, geographically distributed as follows:
• West: 214 (Chevron 99)
• East: 128
• Orinoco Belt: 518 (Chevron 119)
• TOTAL: 860 (Chevron 218)
Refining runs averaged 214 MBPD of crude and intermediate products, with a gasoline yield of 78 MBPD and 74 MBPD of diesel. Exports align with what was scheduled for February: 626 MBPD of crude and around 70 MBPD of products. The average sale price of barrels marketed under OFAC licenses, net of debt payment, was 51.9 $/bbl.
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