Emerging Markets Focus


Latin America’s Emergence as an Oil & Gas Stronghold Written by Evelyse Carvalho Ribas, Managing Partner, CARVALHO RIBAS - Advocacia e Consultoria


Latin America has enjoyed robust economic growth in recent years, in part driven by rising global prices for commodities such as oil & gas. The discovery of new gas & oil reserves in Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Peru and Venezuela is causing changes in the relative importance of countries and in the relationships among them. Given the active role played by Brazil on relations among Latin American countries, we will deal with it from the perspective of Brazilian policy. Most of the studies on prospective energy markets, including theWorld Energy Outlook (WEO), tell us that oil & gas will remain dominant in world energy supply well throughout the first half of this century.


Their predictions assume that, without new energy and environmental policies, demand for oil will continue to grow at 1.6% per year. Natural gas demand will grow even faster, at 2.3% per year. Other experts say that new frontiers in oil & gas will spark innovations in E&P technology: Latin American countries are seeking to diversify energy matrices with a majority having biofuel policies. But, some reports appoint market restraints as the decline in oil reserves, the decrease in growth of industry sector and the new regulations against carbon emissions.


The oil & gas industry is being transformed by the technological developments needed to explore and develop reserve sites and refine liquid fuel. However, Latin America is a rich under-explored hydrocarbon region whose economic future is dependent on the development of secure energy supplies.


But the intensifying need to obtain supplies from more challenging conventional and non-conventional resources will impose very considerable demands on the sector's human, financial and intellectual capabilities.


Foreign investors are faced with E&P opportunities in some Latin America countries, enhanced oil recovery field rehabilitation projects, pipeline distribution and transmission projects, the construction of refineries and transport infrastructure for oil, gas, and derivatives, vessels, liquefaction and regasification terminals, as well as widespread local, regional and international electrification projects.


The current energy landscape and consequences of current policies


The energy situation is very different in the various regions of Latin America. In Central America and the Caribbean, there are greater opportunities for ‘oil diplomacy’. The reason for this is that in those regions several big energy producers cohabit with more than 20 countries that are net importers of crude oil and gas, also, there are its population, its market, its voting power in the Inter-American System, and its geopolitically significant proximity to the United States. Only Guatemala and Cuba produce small amounts of oil, but not enough to satisfy domestic demand.


In the Andean region, Venezuela and Ecuador export significant amounts of oil and gas.


 Venezuela ranks among the top ten oil producers in the world and boasts a robust 80 billion barrels in proven reserves. Exploiting this abundance should be the main focus of the country’s energy policy. This means improving both the quantity and quality of its refineries and, at the same time, establishing joint ventures to extract, refine and market these crudes through agreements with companies or countries that own or that can build or finance plants with technology capable of processing low-API crudes.


 Ecuador has 0.4% of the world’s crude reserves. Oil has an enormous significance in its economy. Peru has major natural gas fields in its southeastern Amazon basin.


 Colombia, has huge reserves of high quality coal and abundant hydro resources which, together with gas, will enable it to be an important player in energy integration programmes, especially in Central America and Mexico. However, the Colombian oil industry is showing worrying signs of decline in oil production in recent years. Some analysts believe that the country will no longer be a net oil exporter by around 2011.


In South America...


 Bolivia holds the second-largest accumulation of natural gas reserves in South America, behind Venezuela. Due to the composition of its reserve base, Bolivia is primarily a natural gas-producing nation. Argentina has 0.3% of the world’s crude oil reserves.


 Argentina is still a net gas exporter, but the rapid growth of its internal demand, the failure to discover significant new reserves and the lack of investment in exploration and production, will sooner or later make it an importer of natural gas.


 Paraguay does not produce oil. However, if we consider hydroelectric production, Paraguay is energy independent, since it consumes much less energy than the available hydroelectric capacity of Itaipú (Brazil-Paraguay agreement) and Yacyretá (Argentina-Paraguay agreement).


 Uruguay does not produce oil. In terms of energy, Uruguay is the most vulnerable country in South America.


 Chile suffers from an energy deficit, as it produces no more than 5% of the oil it consumes and covers no more than 20% of its natural gas needs. Reacting to its oil & gas deficit, Chile is developing an interesting energy diversification


Drillers and Dealers :::


::: February 2011 Edition


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