Latin American Energy: Issues and Prospects

Latin America and the Caribbean contain some of the world’s richest energy reserves, yet the region’s mixed ability to exploit those resources was the focus of  “Latin American Energy: Issues and Prospects” at the Wilson Center on May 19, 2015. A diverse group of energy experts spoke at this seventh event in the Wilson Center’s Regional and Global Energy Series, with a focus on the framework in Argentina and Brazil, challenges in Venezuela and the Caribbean, reforms in Mexico and integration in North America.

Mack McLarty, Chairman of McLarty Associates and former White House Chief of Staff for President Bill Clinton, discussed a new set of realities that exist within the North American energy sector. For McLarty, these new realities stem from a dramatic decrease in international oil prices and profound transformations in North America. Energy scarcity and open access to global markets are no longer the primary concerns within North America’s energy sector, McLarty says, but rather economic competitiveness and global climate change. Why this sudden shift in perspective? Technological revolutions and increased supplies of natural gas and oil have helped North America transcend into the international energy field as a formidable player.

Pertinent to the region’s competitiveness are its infrastructure and secure base of supply, McLarty argues. Indeed, tremendous potential exists in Latin America, especially in the reserves of Venezuela, Mexico, Colombia, Brazil, and Argentina, yet the region lacks the necessary infrastructure to extract those resources efficaciously. Without the necessary infrastructure, Latin American nations cannot fully monetize or maximize their energy potential, argues Ali Moshiri, Chevron President for Latin America and Africa. The answer according to both McLarty and Moshiri is simple: integration and collaboration between North America and Latin America will lead to the increased monetization of resources throughout the region. For McLarty, there is a natural partnership between the United States and Latin America deriving from U.S. technological expertise and Latin America’s tremendous energy potential. If the two regions can integrate more fully, as Moshiri notes, the wealth generated from their collaboration can be used to raise socioeconomic standards throughout Latin America.

BRAZIL and ARGENTINA 

Like McLarty and Moshiri, Jorge Piñon, Director of the Latin America and Caribbean Energy Program at the University of Texas at Austin, believes the issue within Latin America’s energy sector is not a lack of resources, but a myriad of situational factors, including but certainly not limited to governance, education, monetization and capital. However, for Piñon, application of technology and “continuity of the rules of the game” are even more problematic. On one hand, states can purchase technology to extract resources, but without applicability it is rendered useless. Piñon believes this will hinder Brazil’s efforts to extract their oil supply successfully. Application of technology, and understanding how it all works, Piñon argues, is essential to making your resources useful.

Nevertheless, Piñon sees significant competition for Brazil within the region itself, particularly from Mexico and Guyana, exerting pressure on Brazilian decision-makers to manage their resources wisely. While investment is essential in this capital-intensive industry, primarily political risks will make investors more cautious.  The rules of the game are established by the state, Piñon notes, but if those rules change arbitrarily, then investors are compelled to go elsewhere. Stability is the key factor in future success or failure.  For example, Argentina has great energy  potential, but without stability to induce investment, it will be unable to exploit its benefits.

VENEZUELA and the CARIBBEAN

A declining Venezuela is bad news for the Caribbean, argues Jed Bailey, Managing Partner of Energy Narrative. An exporter of large amounts of highly subsidized oil to the Caribbean through PetroCaribe, Venezuela faces continued recession compounded by a dramatic slip in international oil prices which are having a palpable negative impact on its economy. The key concern for the Caribbean, according to Bailey, is not so much Venezuela’s supply of 240,000 barrels of oil per day, as the huge challenge of financing purchases from a new supplier of unsubsidized oil if Venezuela is forced to withdraw.

Energy Narrative partnered with other organizations to explore alternative natural gas supplies to the Caribbean. Several concerns emerged from those probes, including, as Bailey notes, infrastructural problems related to the size and scale of the island nations, as well as financing infrastructure development when almost no funding exists. The study recommended that the Caribbean nations could try to negotiate as a single bloc, but as Bailey observes, this might be particularly difficult given the political divisions that exist within the region.

MEXICO

David Goldwyn, President of Goldwyn Global Strategies LLC, heralded Mexico’s efforts to create a competitive energy sector after years of monopolistic control by the state-run oil company PEMEX. Despite the praiseworthy efforts, Goldwyn notes some significant challenges facing the Mexican state. These include ensuring sustained public acceptance of the reforms following decades of resource nationalism, providing adequate financing to government agencies tasked with implementing the reforms, addressing security issues that may dissuade some foreign investors, and defining an appropriate role for PEMEX in the sector relative to private investors.

What can the U.S. do to help? Goldwyn believes that support is key, especially in areas of security, educating regulators (potentially bringing them to the U.S.), and creating space for more efficient oil swaps as requested by Mexico. Although significant challenges await Mexican leaders, Goldwyn is impressed with their adaptability during the current dip in international oil prices, and believes they are on the right path.

CHINA

China’s influence is growing significantly throughout Latin America. It is now the top trading partner for Brazil, Chile and Peru, and its total investment in the region over the next ten years will approach $250 billion. What does this mean for the United States? Although China’s presence in the region is increasing, the panelists urged a moderate approach. For Mack McLarty, it presents an opportunity for the United States to promote a different view of the future that is not in competition with China, but one that emphasizes our natural partnership and collaboration with the region itself. Moreover, David Goldwyn firmly believes that China’s presence, although potentially imposing, presents a challenge, not a threat.

This summary was prepared by Nathan Roy, intern, Latin American Program.