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Page added on April 29, 2008

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Rise of Nationalism Frays Global Ties

Trade, Environment Face New Threats; Balkanized Internet

…Energy companies have been among the first to feel the new nationalism. Since oil prices started rising in 2004, Russia, Venezuela, Bolivia and Ecuador have nationalized foreign-owned oil assets, the first big wave of nationalization since the 1970s. After Venezuela’s state-owned oil firm doubled its ownership of heavy-oil projects along the Orinoco River last year, ConocoPhillips pulled out, taking a $4.5 billion charge. Exxon Mobil Corp. left as well, and is suing Venezuela for compensation.

Growing petro-nationalism has prompted Royal Dutch Shell PLC to change the global scenarios its economists create to help the company plot its next moves. In the 1990s, Shell’s scenarios assumed government power was diminishing. The company invested heavily in Russia’s Sakhalin oil fields, assuming it would see minimal interference. But as the Kremlin tightened its grip on the energy sector, Shell was forced to sell half of its stake in the project to Russia’s state-owned OAO Gazprom.

In this decade’s models, governments play a more central role. One of Shell’s two current scenarios envisions that government dominion over resources — nearly 80% of world oil reserves are controlled by state-owned firms — will continue. In the other model, governments are still at the center of decision making but recognize a common interest and agree to address climate change, says Jeremy Bentham, Shell’s vice president for global business environment.

Recognizing the powerful role of state-owned oil companies, Shell is investing heavily in unconventional oil sources, many of which have little prospect of expropriation. It recently announced a $10 billion expansion plan in the tar sands of Canada. It has also increased its focus on biofuels made from, among other things, algae and wood chips.

Wall St. Journal

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