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WASHINGTON (Reuters) – The U.S. Federal Reserve on Wednesday is expected to hold interest rates steady, shave the number of hikes projected for the rest of the year, and release long-awaited details of a plan to end the monthly reduction of its massive balance sheet.

The U.S. central bank since early this year has signaled a “patient” approach to increasing borrowing costs, drawing an end to a gradual, three-year cycle of monetary tightening marked by nine rate hikes, including seven during the 2017-2018 period.

Investors now put a 75 percent probability on the likelihood the Fed won’t raise its overnight benchmark interest rate, or federal funds rate, any more this year, according to CME Group’s FedWatch tool. The fed funds rate is currently set in a range of 2.25 percent to 2.50 percent.

New quarterly economic and rate projections to be released with the latest Fed policy statement at 2 p.m. EDT (1800 GMT) will show how closely policymakers align with that view. The Fed’s December projection called for two hikes this year, but that is widely expected to be cut to a single increase at the conclusion of the two-day policy meeting on Wednesday.

It would take a downward move by seven policymakers to bring the median expected number of hikes to zero for the year, a full half-percentage-point change that has happened only once since the Fed began making its “dot plot” of projections public in 2012.

The more intense focus among investors may be on the balance sheet, and the Fed’s plans to stop reducing its holdings of Treasury bonds and mortgage-backed securities each month by as much as $50 billion.

Details of that plan are also expected to be released on Wednesday, providing investors with a sense of how much longer the drawdown will continue, and what will likely be left in the Fed’s portfolio of assets when it stops.

Minutes of the Fed’s policy meeting in late January showed officials wanted “to announce before too long a plan to stop reducing … asset holdings later this year,” a statement many have construed to mean an endgame for the balance sheet would be revealed this week.

Fed Chairman Jerome Powell is due to hold a press conference half an hour after the release of the policy statement.

STEADY REDUCTION
Fed officials have generally pointed to the rundown ending sooner rather than later, with perhaps just a few more months to go before the central bank hits a level where it is comfortable stopping.

“Assuming the shrinking process stops in October … the balance sheet should end up in the $3.75 trillion region,” Cornerstone Macro analyst Roberto Perli wrote in a preview of this week’s Fed meeting.

That is more than triple the size of the Fed’s holdings before it began three rounds of quantitative easing in which it purchased trillions of dollars of Treasuries and mortgage-backed securities in response to the 2007-2009 economic crisis and recession.

Having built up its balance sheet during the crisis and its aftermath, the Fed began to “normalize” its holdings in October 2017 with a steady reduction of up to $50 billion per month.

Having studied the reaction of financial markets to the reductions, as well as the use of reserves held by financial institutions at the Fed, the central bank concluded the most effective way of managing interest rates moving forward was to keep the supply of reserves “ample,” and pay interest on any excess kept at the Fed beyond the statutory minimums required, for example, to meet customer withdrawal demands.

With banks now demanding more reserves for a variety of uses, coupled with growth in the amount of cash in circulation and other items, the Fed feels it is close to an appropriate size for its balance sheet.

The preferred final mix of assets and how to reach it is still being debated.

LONDON (Reuters) – Prime Minister Theresa May will request a short delay to Brexit on Wednesday after her failure to get a deal ratified by parliament left the United Kingdom’s divorce from the European Union in turmoil.

Nearly three years since the United Kingdom voted to leave the European Union, British politicians are still arguing over how, when or even if the world’s fifth largest economy should leave the bloc it first joined 1973.

When May set the March 29 exit date two years ago by serving the formal Article 50 divorce papers, she declared there would be “no turning back” but parliament’s refusal to ratify the withdrawal deal she agreed with the EU has thrust her government into crisis.

Now, just nine days before the exit date, May is to write to European Council President Donald Tusk to ask for a short delay.

May “won’t be asking for a long extension,” said a source in her Downing Street office, who spoke on condition of anonymity. May had warned lawmakers that she could seek an extension beyond June 30 if they voted down her treaty a third time.

While the United Kingdom remains divided over Brexit, most agree that it will shape the prosperity of generations to come and, if it goes badly, could undermine the West and threaten London’s position as the dominant global financial capital.

The loss of Britain for the EU is the biggest blow yet to more than 60 years of effort to forge European unity in the wake of two world wars, though the 27 other members of the bloc have shown surprising unity during the tortuous negotiations.

Britain’s almost three-year crisis over Brexit has left allies and investors puzzled by a country that for decades seemed a confident pillar of Western economic and political stability.

“NO NEW NEGOTIATIONS”

While the bloc hoped for an amicable divorce of its most distant member, there is growing frustration that May is losing control over Britain’s most important political and economic decision since at least the 1956 Suez crisis.

EU leaders are expected to discuss May’s request for a Brexit delay at a summit in Brussels on Thursday and Friday.

European Commission head Jean-Claude Juncker said the EU has done much to accommodate Britain and can go no further.

“There will be no renegotiations, no new negotiations, no additional guarantees in addition to those already given,” Juncker told Germany’s Deutschlandfunk radio. “We have intensively moved toward Britain, there can be no more.”

He said as far as he knew, a letter from May seeking a delay to Brexit to the EU had not yet arrived.

EU diplomats said the 27 leaders will give May a mid-April deadline to decide whether the UK would take part in European Parliament elections in May. Without that, Britain would not get a long Brexit delay, they said.

WAITING

The divorce deal May agreed with the EU in November has been crushed twice by the British parliament, by 230 votes on Jan. 15 and 149 votes on March 12, though May hopes to put the deal to another vote, possibly as early as next week.

“There is a case for giving parliament a bit more time to agree a way forward,” the Downing Street source said.

“But the people of this country have been waiting nearly three years now,” the source said. “They are fed up with parliament’s failure to take a decision and the PM shares their frustration.”

She needs to win over at least 75 lawmakers – dozens of rebels in her own Conservative Party, some Labour lawmakers and the Northern Irish Democratic Unionist Party (DUP), which props up her minority government.

May’s premiership has been characterized by obduracy in the face of repeated crises, but her authority was in meltdown on the eve of the EU summit with reports that she admitted at a cabinet meeting that rivals wanted her job.

“She basically said that if we get this wrong in the next few days there might not be a job to inherit,” one cabinet minister was quoted as saying by The Times.

A delay to Brexit can only be justified if May can change her withdrawal deal, former Conservative Party leader Iain Duncan Smith said on Wednesday.

Steve Baker, a prominent Brexit supporting rebel in May’s party, wrote in the Daily Telegraph newspaper: “If we vote for this deal, we will have locked ourselves in a prison with no voice and no exit.”

“We will escape only with the permission of those whose authority we rejected. The PM won’t resign if the agreement goes through. She will stay and drag us miserably into deeper political disaster.”

WASHINGTON (Reuters) – The Supreme Court on Tuesday endorsed the U.S. government’s authority to detain immigrants awaiting deportation anytime – potentially even years – after they have completed prison terms for criminal convictions, handing President Donald Trump a victory as he pursues hardline immigration policies.

The court ruled 5-4 along ideological lines, with its conservative justices in the majority and its liberal justices dissenting, that federal authorities could place such immigrants into indefinite detention anytime without the possibility of bail, not just immediately after they finish prison sentences.

The ruling, authored by conservative Justice Samuel Alito, left open the possibility that some immigrants could challenge their detention. These immigrants potentially could argue that the use of the 1996 federal law involved in the case, the Illegal Immigration Reform and Immigrant Responsibility Act, against them long after finishing their sentences would violate their due process rights under the U.S. Constitution.

Most of the plaintiffs in the case are legal immigrants.

The law states the government can detain convicted immigrants “when the alien is released” from criminal detention. Civil rights lawyers in the case argued that the language of the law shows that it applies only immediately after immigrants are released. The Trump administration said the government should have the power to detain such immigrants anytime.

In dissent, liberal Justice Stephen Breyer said the ruling raises serious due process questions.

“It runs the gravest risk of depriving those whom the government has detained of one of the oldest and most important of our constitutionally guaranteed freedoms,” Breyer wrote.

But Alito wrote that it is not the court’s job to impose a time limit for when immigrants can be detained after serving a prison sentence. Alito noted that the court has previously said that “an official’s crucial duties are better carried out late than never.” Alito said the challengers’ assertion that immigrants had to be detained within 24 hours of ending a prison sentence is “especially hard to swallow.”

It marked Trump’s latest immigration victory at the court. The conservative justices also were in the majority in June 2018 when the court upheld on a 5-4 vote Trump’s travel ban targeting people from several Muslim-majority countries.

Tuesday’s decision follows a February 2018 ruling in a similar case in which the conservative majority, over liberal dissent, curbed the ability of immigrants held in long-term detention during deportation proceedings to argue for release.

‘MOST EXTREME INTERPRETATION’

American Civil Liberties Union lawyer Cecilia Wang, who argued the newly decided case for the challengers, said that in both rulings “the Supreme Court has endorsed the most extreme interpretation of immigration detention statutes, allowing mass incarceration of people without any hearing, simply because they are defending themselves against a deportation charge.”

Wang said the ACLU is “looking into follow-up litigation along various avenues.”

Trump has backed limits on legal and illegal immigrants since taking office in January 2017.

Kerri Kupec, a U.S. Justice Department spokeswoman, said administration officials were pleased with the ruling.

The case’s plaintiffs included two legal U.S. residents involved in separate lawsuits filed in 2013, a Cambodian immigrant named Mony Preap convicted of marijuana possession and a Palestinian immigrant named Bassam Yusuf Khoury convicted of attempting to manufacture a controlled substance.

In the two detention case rulings, the Supreme Court reversed the San Francisco-based 9th U.S. Circuit Court of Appeals, a liberal leaning court with jurisdiction over a large part of the western United States that Trump has frequently criticized. In both cases, litigation against the federal government started before Trump took office.

In the latest case, the administration had appealed a 2016 9th Circuit ruling that favored immigrants, a decision it said would undermine the government’s ability to deport immigrants who have committed crimes.

The 9th Circuit had ruled that convicted immigrants who are not immediately detained by immigration authorities after finishing their sentences but then later picked up by immigration authorities could seek bond hearings to argue for their release.

Other regional federal appeals courts that have addressed the issue did not rule the same way as the 9th Circuit and were more in line with the Supreme Court’s ruling. That means immigrants in those regions who were subject to mandatory detention already were not entitled to bond hearings.

Under federal immigration law, immigrants convicted of certain offenses are subject to mandatory detention during their deportation process. They can be held indefinitely without a bond hearing after completing their sentences.

In April 2018, conservative Trump appointee Neil Gorsuch joined the court’s four liberals in a 5-4 ruling that could hinder the administration’s ability to step up the removal of immigrants with criminal records, invalidating a provision in another law, the Immigration and Nationality Act.

SEATTLE (Reuters) – Boeing Co’s commercial airplane division, facing its biggest crisis in years following deadly crashes of its flagship 737 MAX aircraft, has brought in a new vice president of engineering while dedicating another top executive to the aircraft investigations, a company email showed on Tuesday.

The management reshuffle comes as Europe and Canada said they would seek their own guarantees over the safety of Boeing’s 737 MAX, further complicating plans to get the aircraft flying worldwide after they were grounded in the wake of crashes that killed more than 300 people.

John Hamilton, formerly both vice president and chief engineer in Boeing’s Commercial Airplanes division, will focus solely on the role of chief engineer, the unit’s Chief Executive Officer Kevin McAllister told employees on Tuesday in an email seen by Reuters.

“This will allow him to fully dedicate his attention to the ongoing accident investigations,” McAllister said, adding that the staffing changes were needed as “we prioritize and bring on additional resources for the ongoing accident investigations.”

Lynne Hopper – who previously led Test & Evaluation in Boeing’s Engineering, Test & Technology group – has been named vice president of Engineering, McAllister said.

A Boeing spokesman declined to comment but confirmed the authenticity of the email.

The shakeup showed how the world’s largest planemaker was freeing up engineering resources as it faces scrutiny during crash investigations while also maintaining production of its money-spinning 737 single-aisle aircrafts.

Previously, Hamilton served as the vice president of engineering for Boeing Commercial Airplanes from April 2016 through March 2019, according to a biography on Boeing’s website.

From July 2013 through March 2016, Hamilton served as the vice president of Safety, Security and Compliance and oversaw the Commercial Airplanes Organization Designation Authorization – a program that takes on specific safety certification duties on behalf of the U.S. Federal Aviation Administration.

Lawmakers and safety experts are questioning how thoroughly regulators vetted the MAX model and how well pilots were trained on new features.

For now, global regulators have grounded the existing fleet of more than 300 MAX aircraft, and deliveries of nearly 5,000 more – worth well over $500 billion – are on hold.

Boeing shares rose 0.3 percent on Tuesday, to close at $373.43. They are still down more than 11 percent since the crash in Ethiopia, wiping out over $25 billion off its market share.

WASHINGTON (Reuters) – Democratic congressional leaders have asked the FBI to investigate the founder of a Florida massage parlor chain who is an alleged acquaintance of President Donald Trump, according to a letter released on Monday.

House of Representatives Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer released the letter, signed by four other lawmakers. It asked investigators to look into “public reports about alleged activities by Ms. Li ‘Cindy’ Yang and her apparent relationship with the president.”

A chain of massage parlors founded by Yang is “suspected of involvement” in human trafficking and prostitution which involves female immigrants being forced to serve as “sex workers,” said the letter to the FBI and other federal investigative agencies.

Senators Mark Warner and Dianne Feinstein and Representatives Adam Schiff and Jerry Nadler signed the letter. It said Yang also reportedly created a business called GY US investments which they allege “may be selling access to the president and members of his family to clients from China.”

Michelle Merson, a Florida lawyer who says she is representing Yang, could not immediately be reached for comment. On a website, Merson posted a video in which she said Yang is scared and in hiding.

Merson said Yang denies the allegations made against her. “Ms. Yang is not concerned because she feels she’s speaking the truth and the truth will free her,” Merson said in the video.

The Democrats’ letter said Yang’s website, which has been taken down, once offered clients the “opportunity to interact” with Trump and other political figures as well as participation in White House and Capitol Hill dinners.

The letter said that, if proven, such allegations “raise serious counterintelligence concerns.”

It asked if Yang had been the focus of earlier federal or state probes and for an assessment of “counterintelligence risks” which Yang’s activities might have posed.

The Democrats also asked if other individuals have used Mar-a-Lago, the president’s Palm Beach estate, to offer foreigners access to Trump or people around him, as well as whether Yang or her foreign clients have had access to Trump or U.S. officials at the White House, Mar-a-Lago, or other Trump properties.

The FBI had no comment on the legislators’ letter. The White House, the Office of Director of National Intelligence, and the Secret Service did not immediately respond to requests for comment.

Asked about the case, Chinese foreign ministry spokesman Geng Shuang said the Chinese government followed the principle of not interfering in the internal politics of other countries.

“This is what we say and this is what we do,” he told a daily news briefing, without elaborating.

LONDON (Reuters) – Prime Minister Theresa May’s Brexit plans were in disarray on Tuesday as her government sought to plot a way around the speaker of parliament’s ruling that she had to change her twice-defeated divorce deal to put it to a third vote.

After two-and-a-half years of negotiations with the EU, Brexit remains uncertain – with options including a long postponement, exiting with May’s deal, a economically disruptive exit without a deal, or even another EU membership referendum.

Speaker John Bercow blindsided May’s office on Monday by ruling the government could not put the same Brexit deal to another vote in parliament unless it was substantially different to the ones defeated on Jan. 15 and March 12.

Brexit Secretary Steve Barclay said the ruling meant a vote this week on May’s deal was more unlikely but said ministers were studying a way out of the impasse and indicated the government still planed a third vote on May’s deal.

“This is a moment of crisis for our country,” Barclay said. “The ruling from the speaker has raised the bar and I think that makes it more unlikely the vote will be this week.”

“We always said that in terms of bringing a vote back for a third time we would need to see a shift from parliamentarians in terms of the support – I think that still is the case.”

May is due at an EU summit in Brussels on Thursday at which she will ask for a delay to the March 29 Brexit departure set in law as the British government tries to come up with a way to leave the European Union after 46 years of membership.

EU leaders could hold off making a final decision at that summit on any Brexit delay depending on what exactly May asks them for, senior diplomats in the bloc said.

“Now it looks like we have to wait till the week after the Council to find out what happens,” said one diplomat.

SPEAKER’S SPANNER

Bercow said his ruling, based on a convention dating back to 1604, should not be considered his last word and the government could bring forward a new proposition that was not the same as those already voted upon.

Barclay, who last week said Britain should be unafraid of a no-deal exit, indicated the government was looking at different options and that circumstances, such an extension or a shift in support, would indicate a change in context.

“The speaker himself has pointed to possible solutions, he himself has said in earlier rulings we should not be bound by precedent,” Barclay said. “You can have the same motion but where the circumstances have changed.”

“The speaker himself has said that where the will of the House is for a certain course of action, then it is important that the will of the House is respected.”

He ruled out May asking Queen Elizabeth to cut short the entire parliamentary session, known as prorogation, saying involving the 92-year-old monarch in Brexit was a bad idea.

“The one thing everyone would agree on is that involving Her Majesty in any of the issues around Brexit is not the way forward, so I don’t see that a realistic option,” he said.

(Reuters) – Chief Executive Elon Musk has never sought pre-approval for a single tweet about Tesla Inc since striking a court-approved deal about how to communicate important information about the electric vehicle maker, the top U.S. securities regulator told a judge on Monday.

The Securities and Exchange Commission is doubling down on the government’s demand to find the Tesla CEO in contempt of a previous fraud settlement that required him to have the company pre-approve any tweets that could materially impact the automaker.

The ongoing public battle between Tesla’s chief executive and the SEC piles pressure on Musk, the public face of Tesla, who is struggling to make the company profitable after cutting the price of its Model 3 sedan to $35,000.

The SEC said a Feb. 19 tweet that Musk sent to his more than 24 million Twitter followers claiming the electric vehicle-maker would build around 500,000 cars in 2019 was “a blatant violation” of the agreement.

The SEC asked Tesla in late February whether any of Musk’s tweets had been pre-approved since that policy was adopted, according to the filing bit.ly/2HsMiUr in federal court in Manhattan.

Tesla responded, after more than two weeks, to say simply: “No.”

“It is therefore stunning to learn that, at the time of filing of the instant motion, Musk had not sought pre-approval for a single one of the numerous tweets about Tesla he published in the months since the court-ordered pre-approval policy went into effect,” the SEC said in the filing.

The regulator last month alleged that Musk had violated a September settlement of fraud charges by tweeting material information about Tesla without pre-approval from the company.

In response, Musk had argued that his “single, immaterial” tweet was in compliance with the settlement, and that the SEC’s push to find him in contempt infringed on his free speech.

Lawyers for Musk said the tweet complied with the company’s communication policy for senior executives and was a “proud and optimistic restatement of publicly disclosed information.”

The SEC said in Monday’s filing that the pre-approval policy agreed in the settlement was designed to include a wide variety of his comments, not just those that were deemed material by the regulator’s standards.

The fraud settlement between Musk, Tesla and the SEC resolved a lawsuit brought by the regulator over claims Musk made on Twitter in August that he had “funding secured” to take Tesla private at $420 per share. The SEC called those tweets “false and misleading” and a go-private deal never materialized.

As part of that settlement, Musk stepped down as the company’s chairman and he and Tesla agreed to pay $20 million each in fines.

Tesla has backed off a plan to close all its U.S. stores and said it will instead raise prices of its higher-end vehicles by about 3 percent on average. Last week, Tesla unveiled its Model Y crossover SUV, targeted to begin production in 2020.

Musk called the regulator the “Shortseller Enrichment Commission” on Twitter after the settlement, and tweeted that “something is broken with SEC oversight” just one day after the agency started pursuing the contempt order.

Legal experts have said the SEC could pursue multiple avenues, including a higher fine, imposing further restrictions on Musk’s activities or removing him from Tesla’s board or helm.

Tesla published a new communications policy in December for senior executives as part of the settlement. It called for Tesla’s general counsel and a newly designated in-house securities law attorney to pre-approve any written statements about Tesla that could be material.

A disclosure controls committee, made up of board members Brad Buss, Antonio Gracias and James Murdoch, was tasked with overseeing compliance with the new policy.

WASHINGTON (Reuters) – As the United States makes its biggest diplomatic push in Latin America in years to try to oust Venezuelan President Nicolas Maduro, the U.S. military is zeroing in on a byproduct of the crisis: a strengthening of Colombian rebels on both sides of Venezuela’s border.

U.S. Admiral Craig Faller, the head of the U.S. military’s Southern Command that oversees U.S. forces in Latin America, told Reuters the United States had sharpened its focus on the rebels and increased its sharing of intelligence with Colombian officials.

U.S. officials see a growing threat from both Colombia’s National Liberation Army (ELN) and factions of the Revolutionary Armed Forces of Colombia (FARC) that refuse to adhere to a 2016 peace agreement to end five decades of civil war.

The United States believes the rebels are taking advantage of Venezuela’s crisis to expand their reach in that country and the scope of long-standing illegal activities, including drug trafficking.

“Our principal role working with our Colombian partners is to assist in intelligence sharing. What we know, we share,” Faller said. Asked whether the intelligence sharing on the rebels had ramped up as Venezuela’s crisis deepened, Faller responded: “Absolutely.”

The risks from the insurgents on both sides of the Colombia-Venezuela border add another layer of complexity to the crisis in Venezuela, where U.S. President Donald Trump says all options are on the table to remove Maduro from office.

U.S. officials have uniformly emphasized diplomatic and economic tools to accelerate Maduro’s departure, like sanctions, but Faller acknowledged the U.S. military stood ready to provide options if needed.

At the same time, he noted that no U.S. allies in the region were seeking a military solution to the crisis in Venezuela.

“My job is to be ready, be on the balls of my feet, at all times. But we’ve been talking to our partners and no one, no one, thinks that a military option is a good idea,” Faller said.

Opposition leader Juan Guaido says the May 2018 vote in which Maduro won a second term was a sham and he invoked a constitutional provision on Jan. 23 to assume the interim presidency. Most Western nations including the United States have backed Guaido as head of state.

Maduro, a socialist who has denounced Guaido as a U.S. puppet seeking to foment a coup, retains the support of the armed forces and control of state functions.

Jeremy McDermott, a Colombia-based expert on the insurgencies and co-founder of the Insight Crime think tank, said he believed the Colombian insurgents were operating in Venezuela with at least the blessing of Maduro.

The rebels’ aim is to exploit Venezuela’s lawlessness for safe haven and for economic gain, he said. But he noted there could be an added benefit for Maduro.

“If the Americans invade, or if Colombia promotes a military intervention, then they (Maduro’s supporters) would be able to call upon an insurgent force with more than 50 years of combat experience,” McDermott said.

Asked whether the United States had any evidence of communications between Maduro and the guerrilla groups, Faller said: “I’d rather not discuss the details of the exact connections but we’re watching it very closely.”

Venezuela’s Information Ministry and ELN contacts did not immediately respond to requests for comment.

Colombia’s ambassador to Washington, former Vice President Francisco Santos, said ELN and FARC factions had long been present in Venezuela but had grown stronger and more integrated into the country as a result of Venezuela’s crisis.

“They have become the paramilitary groups of the Maduro administration,” Santos told Reuters.

ELN EXPANSION

A Cuba-inspired Marxist insurgency formed in 1964, the ELN claimed responsibility for a January car bomb attack against a police academy in Bogota that killed 22 cadets. It was an escalation by insurgents who have kidnapped Colombian security forces, attacked police stations and bombed oil pipelines.

U.S. officials, speaking on condition of anonymity, say the ELN is increasingly using Venezuelan territory to carry out narco-trafficking and illegal mining of minerals like gold and coltan.

The Venezuelan security forces were believed to be getting kickbacks from the guerrillas, they said.

One U.S. official, speaking on condition of anonymity, said the U.S. collection of intelligence on the guerrilla groups had increased in recent weeks, including looking at the militants’ activities on the Venezuelan side of the border with Colombia.

Several U.S. officials said they believed senior leaders of both the ELN and the so-called FARC dissidents who do not adhere to the peace agreement were now located inside of Venezuela.

“Their leadership is there,” a second U.S. official said, who also declined to be named, without providing evidence.

An International Crisis Group report cited estimates that the ELN had been active in a minimum of 13 of Venezuela’s 24 states, “absorbing new recruits and shifting from a guerrilla force that embraced armed resistance against Colombia’s ruling elites to one with many core operations in Venezuela.”

Opposition lawmakers in Venezuela also regularly denounce growing ELN activities in Venezuela, but Reuters has been unable to independently verify the extent of its presence or its operations.

Faller declined to discuss any specifics about the collection of U.S. intelligence or identify which insurgent leaders were in Venezuela.

But he acknowledged the trend and added that the flow of illegal narcotics “from Colombia into Venezuela, and then from Venezuela out in the region, has risen as the misery of the Venezuelan people has risen.”

“It’s essentially a lawless region now inside Venezuela along the border and the FARC dissidents and the ELN have taken advantage of that,” Faller said, adding: “They operate with impunity inside Venezuela.”

Santos said the big concern for Colombia was that the strengthening rebel forces would upend efforts to crack down on narcotics trafficking.

“That’s a big worry because in this situation of chaos, obviously they are going to grow. They are growing,” he said.

BIG SPRING, Texas (Reuters) – Mike Christensen strides among rows of gleaming steel tanks, pointing to pipelines that arrive from miles around to this corner of former farmland near Midland, Texas, the heart of the largest oil patch in the United States.

His company is one of dozens opening sites like this one that handles, not the lucrative oil, but the shale industry’s dirty secret: wastewater.

While U.S. oil production has reached record levels on account of the shale revolution of the last decade, much of the supporting infrastructure has failed to keep up, including how to transport the large quantities of water used in the hydraulic fracturing process and the water that is produced from wells alongside oil and gas.

Once managed individually by energy producers, the job of supplying, collecting and disposing of water is a rising cost, and has spawned a $34 billion a year business in the U.S. that has lured investors including TPG Capital, Blackstone Energy Partners LP and Ares Management Corp to back these firms.

Oil production in the Permian basin that spans West Texas and southeastern New Mexico is expected to rise to rise 35 percent to 5.4 million barrels of per day (bpd) by 2023, requiring even more water supply and disposal, said analysts. In two New Mexico counties, firms produced 505 million barrels of oil from 2016-2018, and five times that in water, a Reuters analysis of state production data showed.

“You can’t bring production online until you have a solution for the water,” said James Lee of Riveron Consulting.

There are 5,500 Permian wells to be drilled, requiring 2.75 billion barrels, or 115 billion gallons to complete, a Morgan Stanley report estimated.

While much of the water in the Permian is transported for high fees by trucks, which also exacerbate traffic congestion around production sites, midstream companies build and use pipelines which energy producers pay to utilize.

Christensen’s company, On Point Oilfield Holdings, owns a water disposal network that this year will take up to 375,000 bpd of wastewater. Some of that water will be recycled, but millions of gallons will eventually be sunk deep underground in West Texas. “Water was always an afterthought for producers,” said Christensen, who stretches him arm and draws a 360-degree arc to show the locations of lines carrying oilfield bilge to the site. “Now it’s a business plan in itself.”

Raising cash at a time when the industry is under pressure to restrain spending and improve returns has also fueled the trend, prompting some producers to cash in on their water projects.

In December, Hess Corp got $225 million for some of its water handling assets from a joint venture with Global Infrastructure Partners, while Halcon Resources received $200 million in cash and up to another $125 million over five years from WaterBridge Resources LLC for its water infrastructure assets.

“When capital discipline is higher on the priority list, it’s very attractive to monetize” water management assets, said Benjamin Shattuck, an analyst at consultancy Wood Mackenzie.

$14 BILLION WATER BILL AND RISING
The average frack job now consumes 13 million gallons (49 million liters), up 40 percent in two years, according to a Reuters analysis of Permian producers’ data reported to FracFocus.org.

That translates to water bills in the Permian Basin soaring 17 percent this year to $14 billion, according to consultancy IHS Markit, more than three times what North American producers spent last year on sand to frack their wells.

That lure is attracting investors who once viewed oil and gas as the prize.

TPG last week agreed to pay $930 million for a majority stake in Goodnight Midstream’s water pipeline network, which consists of more than 420 miles (670 km) in three U.S. shale basins.

Other private equity firms, including ARM Energy Holdings and Ares Management, have committed $4 billion to buy or start water management firms over the last four years, according researcher Global Water Intelligence.

Water management at this scale is in its infancy compared with the business of moving oil and gas by pipeline, but more private equity firms are looking for investments, said Jim Summers, chief executive of Houston-based water company H20 Midstream.

A FRACTION OF THE COST
Acquiring and disposing of water costs between 50 cents and $4 per barrel, depending on whether it moves by pipelines or more expensive trucks, and can be a steep cost for producers when oil dips as low as $40 a barrel in the Permian, as it did late last year.

The cost has inspired some companies to shift gears.

ARM Energy formed a company, Salt Creek Midstream, to gather oil and gas and was quickly pulled into offering water management, said CEO Zach Lee. By hiring Salt Creek, shale producer Lilis Energy expects its water disposal costs to fall to 48.5 cents per barrel from $2.

Not all producers, however, want to let go of their water management.

Diamondback Energy Inc is considering selling shares in a subsidiary that manages its water, oil and gas transport, but would retain control of the subsidiary.

“If I have to wait on somebody to get a pipeline built or a saltwater disposal system put in place, that is going to be a bad day. I need to be in control of that, not the other way around,” said Diamondback’s CEO Travis Stice.

Parsley Energy Inc spent $150 million to develop a water system that can handle up to 1 million bpd, which helped cut its wastewater costs by two-thirds, to 50 cents per barrel, CEO Matt Gallagher said.

“If you want to be a good shale operator you have to be excellent at water sourcing and management,” said Gallagher. Otherwise, “the whole operation could come to a screeching halt,” he said.