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Energy & Resources
Turmoil in Latin America
Mineral of the Month: Dimension stone

Turmoil in Latin America

Latin America’s energy-producing countries are pursuing a menagerie of strategies for developing their energy resources. While countries such as Peru and Brazil try to attract additional foreign investment in their oil and gas sectors to pump up production, countries such as Bolivia and Venezuela are going the other way, with their leaders proposing controversial new energy plans.

There’s little doubt that a lot is happening in Latin America’s energy sector right now, says Matthew Cline, an analyst with the Energy Information Administration (EIA). However, Cline says, these activities are not likely to impact the global energy markets, particularly because Venezuela and Bolivia are turning inward in their pursuit of conventional resources, while the rest of the world is beginning to pursue unconventional energy resources wherever they may be.

As the world begins to move on from conventional oil, countries, such as Bolivia ... “could get left behind.”
Scott Tinker,
Bureau of Economic Geology, Austin, Texas.

Venezuela has close to 80 billion barrels of proven conventional oil reserves, according to EIA, with estimates of 270 billion barrels of additional unconventional reserves in the form of oil sands and super-heavy crude oil. The oil sector accounts for one-third of Venezuela’s gross domestic product, and more than three-quarters of its annual export revenues. The country consistently ranks as one of the top oil suppliers to the United States.

Between 1975 and 1976, the Venezuelan government nationalized its oil industry, creating a government-owned oil company called PdVSA. Two decades later, the country opened its oil sector to private investment, which led to 22 different foreign companies operating Venezuelan fields.

Led by President Hugo Chavez, the Venezuelan government changed the rules over the past five years, however, increasing the oil companies’ taxes to 50 percent, upping the royalties the Venezuelan government collects to 20 to 30 percent, and reestablishing government ownership over the reserves. In response, some major companies are deciding to pull out of projects, as ExxonMobil did in December, according to a report in the Jan. 23 Investor’s Business Daily.

“It is tough to say if these changes will encourage or block investment potential in Venezuela,” Cline says. Although the “drastic increase in royalties and taxes change the profitability” of operating in Venezuela, the country has “a lot of oil, so people want to get in there.” Indeed, some foreign operators, including Petrobras (Brazil) and Repsol (Spain), have already consented to Venezuela’s new demands.

Regardless, Venezuela is “just not a pleasant place to do business right now,” says Bob Esser, director of Global Oil and Gas Resources at Cambridge Energy Research Associates. And, unfortunately, he says, Bolivia is following Venezuela. It is “another bad situation”: Industry is discovering “huge amounts” of gas, “but the government is taking over and making it impossible to do business.”

Bolivia is one of the poorest countries in South America, but could be one of the richest, Esser says. The country boasts South America’s second-largest proven natural gas reserves (second to Venezuela) at 24 trillion to 26 trillion cubic feet, according to EIA, with more yet to be discovered.

The government privatized the energy sector in the mid-1990s, selling off the oil and gas reserves and breaking up the government-owned production companies. Foreign companies, namely Petrobras and Repsol, own most of the energy sector. Since denationalization, the country has seen a $3 billion investment in its energy sector and its reserves increase sevenfold. For years, however, Bolivia’s vast natural gas resources have caused considerable social tension, Esser says, leading to the ousting of several governments and the eventual election in December of President Evo Morales, a noted nationalist.

Last May, the Bolivian government — in response to protests surrounding the development of the nation’s natural gas — passed a new hydrocarbon law that, like Venezuela’s, significantly “jacks up the tax for production,” says Scott Tinker, director of the Bureau of Economic Geology at the University of Texas in Austin.

The law levies a tax of about 50 percent on oil and gas production at the wellhead, he says. Furthermore, as widely reported, Morales has promised that he will seize all oil and gas reserves owned by international companies and require them to sign new production contracts that would require the companies to operate on a for-fees basis.

With taxes that high, Tinker says, Bolivia is going to lose any outside investment. Even with oil and natural gas prices as high as they are, it will not be economically viable for companies to produce the reserves. And “Bolivia doesn’t have the capital to develop its own resources,” he says, so the end result will be that the country’s economy will suffer.

Although South America is an important energy region, what matters more in a broader context is the “predictable transition going on right now in the energy sector of the world,” Tinker says. Much of the world is addicted to oil, he says, echoing President Bush’s comments in the State of the Union Address in January, and the energy industry is looking for new ways to feed that addiction. Companies are more aggressively pursuing unconventional resources, he says, such as tar sands, heavy oil and oil shales, as well as clean coal and, to a lesser extent, renewable energy. As the world begins to move on from conventional oil, countries, such as Bolivia, mired in political debates about how to develop conventional resources “could get left behind.”

Still, Bolivia and several other Latin American nations, including Brazil and Venezuela, have set goals for increasing their oil and gas production, Cline says. Petrobras, which controls more than 90 percent of the oil and gas production in Brazil, recently announced an investment of $18 billion to further develop the country’s natural gas resources. PdVSA, likewise, will spend an additional $26 billion by 2009 to expand its hydrocarbon production from under 3 million barrels per day to at least 5 million barrels per day.

Megan Sever

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Mineral of the Month: Dimension stone

Thomas P. Dolley, the U.S. Geological Survey dimension stone commodity specialist, has compiled the following information on dimension stone, an abundant natural resource that is produced by one of the world’s oldest industries.

Well-recognized in architecture around the world, dimension stone is a natural rock material quarried for the purpose of obtaining blocks or slabs that meet size and shape specifications. The color, surface finish, grain texture and pattern of the stone, as well as durability, strength and the ability of the stone to take a polish, are other important selection criteria.

The Fletcher Granite Quarry in North Chelmsford, Mass., is one of many dimension stone quarries in the United States. Image courtesy of U.S. Geological Survey.

Although numerous varieties of igneous, metamorphic and sedimentary rocks are used as dimension stone, the principal rock types used are granite, limestone, marble, sandstone and slate. Less commonly used rock types are alabaster (massive gypsum) and soapstone (massive talc).

Since antiquity, various civilizations have used dimension stone in many ancient buildings and monuments that have survived to the present day. With the advent of construction methods using reinforced concrete and steel in the 19th and 20th centuries, dimension stone ceased to be a major structural component in building construction. In recent years, most dimension stone has been used in construction applications (about 47 percent), with another major use in monuments, including memorials of various kinds.

In the last two decades, demand has increased for the aesthetic qualities of dimension stone, and the industry slowly has started to exploit and diversify into the growing markets for home improvements, including the use of dimension stone in kitchen countertops, home restoration, historic preservation, and new home and commercial construction.

Production of dimension stone starts with rough stone blocks that are split or cut from a quarry face and are then transported to processing plants that are typically located at the quarry site, at least for preliminary sizing. Final sizing and finishing operations, such as decorating, edging and polishing, may be completed at the quarry site or elsewhere.

Found on every continent on Earth, global resources of dimension stone are virtually limitless. Significant granite and marble resources can be found from Alabama to Maine in the United States. Additionally, the Carrara District in northern Italy has long been a significant producer of marble, along with China and Spain. Granite production and reserves are also significant in Brazil, Canada, China, the Scandinavian countries and South Africa. Worldwide production of dimension stone in 2004 was estimated to be 89 million metric tons.

For more information on dimension stone and other mineral resources, visit

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