Latin America is a region with vast energy resources. Guest writer Genaro Arriagada, a senior fellow of the Inter American Dialogue in Washington D.C., former Minister of the Presidency and former Ambassador to the United States, analyses Latin America's energy sector, considers the opportunities and challenges within the hemisphere and outlines what policies could be implemented to contribute to sustainable development.
LATIN America is an area rich in oil, hydroelectric power and gas, with enormous reserves and production which exceeds consumption, making it a net energy exporter. By contrast, the share of coal and nuclear energy in the mix is very small.
Highly favourable conditions are giving way to uncertainty due to stagnating, and even declining, oil production in South America and Mexico
Excluding the Middle East, Latin America is the region where oil makes the largest contribution to the fuel pool, even more than in 'oil-addicted' United States.
South and Central America, the Caribbean, and Mexico together own 15.8 per cent of the world’s proven reserves and account for 12.8 per cent of world production, which compares favourably to their 8.8 per cent share of consumption.
But highly favourable conditions are giving way to uncertainty due to stagnating, and even declining, production in South America and Mexico. Production has fallen consistently among the region’s top exporters, including more severe declines from Venezuela and Mexico.
The oil situation in Venezuela is deteriorating rapidly. Production has fallen drastically from 3.3 million barrels per day (bpd) to less than 2.4 million bpd.
Mexico’s oil sector is also victim of an underfunding state. This has led to a dramatic drop in investment which is a major reason why production has fallen from 3.5 million bpd a decade ago to less than 3 million bpd last year.
Recent oil reforms approved by the Mexican Congress are increasingly being seen as too limited, in that the effort to attract foreign investors to the energy sector does not diminish the monopoly status of the state company nor reduce the bureaucratic obstacles to foreign ownership or profit sharing.
In contrast, Brazil has emerged as a success story when it comes to oil exploration and production.
In 1997 it accounted for two-thirds of South America’s crude imports, but by 2009 it was self-sufficient in energy and ready to join the exclusive club of oil-exporting countries.
Its results are so favourable that by the end of the decade it is likely to have overtaken Venezuela and Mexico as the leading producer.
In Brazil, an active state policy co-exists with the company Petrobras which combines the features of state-owned and private enterprises within a regulatory framework, allowing it to avoid the dilemmas of overly-liberal policies or unyielding government control.
Outside Brazil, Latin America’s oil future is under threat unless there is an effort to increase sector efficiency, particularly in Mexico, Argentina, Venezuela, and Ecuador.
The contribution of gas to the regional energy mix matches the world average; that is, 22.2 per cent against a 23.7 per cent global average.
When it comes to reserves and production, however, the gas situation is less satisfactory than that of oil.
Latin America owns 4.1 per cent of proven reserves, and production matches consumption: 6.3 per cent of the world total.
Venezuela and Bolivia possess immense reserves, but sector development is lagging.
Venezuela and Bolivia possess immense gas reserves, but sector development is lagging
Brazil, Peru, and Trinidad and Tobago have successfully managed their gas sectors.
The South American liquefied natural gas (LNG) market began in 2008 following the announcement that at least seven regasification plants would be built.
This strengthened the overall regional energy situation but weakened integration efforts.
A more optimistic way to view the relationship between LNG and integration is to say that classic gas integration — via pipelines — is on the way out, but the door has opened for integration on the basis of LNG, with neighbouring countries closely co-operating.
This will continue to be the fastest-growing fuel, and its share in the Latin American mix — a low one-seventh of the world average — is likely to increase, driven by low costs and difficulties in developing hydroelectric and nuclear energy.
The role of coal is small and limited to Brazil, Chile, and Colombia, which account for 85 per cent of regional consumption of this fuel source. Although starting from a very low point, Central and South America represent the world area where coal consumption is growing the fastest.
This increase will tend to muddy a comparatively clean energy mix.
Latin America, and South America in particular, is the richest hydroelectric region in the world producing 22 per cent of the global total
Latin America, and South America in particular, is the richest hydroelectric region, producing 22 per cent of the global total and four times the world average.
However, development is hampered by environmental groups opposed to new dams. This has led to conflicts in Chile, Brazil, Guatemala, Mexico, Honduras, Costa Rica, El Salvador, and Peru, among others.
Among issues of great interest in this area, one stands out — even if its scope goes beyond hydroelectricity.
It is the confrontation, certain to grow increasingly bitter, between environmentalists, native communities, and large international NGOs opposed to dams on the one hand, and, on the other, large corporations, governments, and multilateral lenders which support development due to security or low costs, or because the energy generation is cleaner and friendlier environmentally.
Large 'environmental battles' over hydroelectric power are already underway.
Development is at an initial stage. While nuclear energy’s contribution to the world mix stands at 6 per cent, in Latin America it is less than 1 per cent.
Since 2006, the development of nuclear energy has deserved increasing attention and was starting to be seen as necessary due to factors such as climate change, high oil prices, and dwindling reserves and production of fossil fuels.
While Brazil and Argentina had announced new nuclear plants, the debate in Mexico was growing more strident, and Uruguay had set up a bipartisan commission to review the issue.
Chile was seen as the fourth Latin American country to integrate nuclear energy into the mix.
In Venezuela, the Chavez administration was flirting with nuclear energy using Russian and Iranian technology.
But all this was happening before the recent catastrophe in Japan, a disaster which has frozen the debate on the subject and has made it difficult to foresee its development.
The oldest form of energy is traditional biomass for heating, lighting, and cooking.
Its use is often associated with hard-core poverty, and there are some 100 million Latin Americans whose basic energy needs can be met only by traditional biomass.
Firewood, the most characteristic use of biomass, is hard to quantify, but it accounts for a very high share of the mix in the poor nations of Central America and the Caribbean.
Yet, firewood could be rationally used in countries with vast forests, the technology to process farm waste, and thoughtful forest management plans.
NON-CONVENTIONAL RENEWABLE ENERGY:
This includes run-of-river hydroelectric plants, wind, solar, geothermal, and non-traditional biomass such as sugar cane, corn-based, and cellulosic ethanol (a biofuel produced from wood, grasses, or the non-edible parts of plants).
Although currently contributing only 2 per cent of the Latin American mix, these sources are key in addressing climate change and will be a focal point of future debate.
While clean to varying degrees, some of these sources have non-trivial negative effects.
Worldwide use of non-conventional renewable energy has been rising rapidly, but its overall contribution remains scant.
In general, its development hinges on subsidy policies which poor and even middle-income economies, such as those of Latin America, cannot afford to any significant extent.
NON CONVENTIONAL HYDROCARBONS:
The hemisphere holds remarkable possibilities for development of 'non-conventional' or 'tough' hydrocarbons, including Canada’s tar sands or the ultra heavy oils of Venezuela’s Orinoco Basin, which could equal double the reserves of Saudi Arabia.
However, the technical and financial issues in developing these resources are enormous; the environmental impact is also being questioned, particularly as regards tar sands.
In this context, the ultra heavy oils of the Orinoco have better prospects than Canada’s tar sands.
ENERGY REGIONS IN THE HEMISPHERE:
The hemisphere is not one zone but three: Central America and the Caribbean; South America; and North America, including Mexico the United States and Canada.
Central America and the Caribbean encompasses 23 nations with an energy deficit.
In this region, only Guatemala and Cuba produce some oil, although not enough to meet domestic demand.
Oil accounts for upwards of 70 per cent of the energy mix in many of these nations. They possess limited refining capacities, which compounds dependence.
In addition, the Central America and Caribbean zone has no gas except for Trinidad and Tobago, home to a significant exportable surplus.
Countries in this area possess hydroelectric resources and will have no access to nuclear energy in the foreseeable future. Energy is one of the bottlenecks to growth in Central America and the Caribbean.
The use of oil as an instrument of policy is rife whenever there is a strong imbalance of power between a country with a surfeit of the resource and another which needs the resource urgently.
A state may prevail over another in such a situation, reinforced by subsidised prices or soft financing terms. Within the hemisphere, this zone is the most likely for such relationships. It is where the importance of oil as an instrument of foreign policy can be greatest.
South America, in contrast, is rich in energy resources.
Exportable oil surpluses are significant and proven reserves are very high, especially in the case of Venezuela which owns the world´s sixth largest reserves.
Venezuela, Bolivia, and Peru have vast gas reserves and Brazil has recently reported major discoveries.
The hydroelectric potential is enormous. Yet, major differences underlie this scenario.
Chile and Uruguay are weakest, with strong energy shortfalls. Paraguay compensates its shortcomings with the enormous flow of electricity from the large dams on its borders with Brazil and Argentina.
All other countries show positive balances, but their prospects are dissimilar.
Brazil exemplifies successful policy management, but Venezuela, Argentina, and Ecuador oversee declining production and deteriorating energy sectors, due mainly to the mismanagement of their energy policies.
Latin America is the leading oil exporter to the United States, and analysis of this zone must also consider Mexico, the United States and Canada.
The most likely scenario for energy partnerships in the hemisphere involves the United States, with a strong deficit, and Mexico and Canada, both with excess production.
However, a closer look reveals that the United States is not alone in having an oil industry with fast-declining production.
North America is the region of the world where the reserves-to-production ratio is lowest.
The disparities among these three zones create both challenges and opportunities for energy partnerships.
- South and Central America, the Caribbean, and Mexico own nearly 16 per cent of world’s oil resources, account for nearly 13 per cent of world production and consume about 9 per cent
- In 1997, Brazil accounted for two-thirds of South America’s crude oil imports, but by 2009 it was self-sufficient in energy
- Latin America owns 4.1 per cent of proven natural gas reserves
- World coal consumption is growing the fastest in Central and South America
- Latin America is the world’s richest hydroelectric region, producing 22 per cent of the global total and four times the world average
- Less than one per cent of Latin America’s energy comes from nuclear power
- Hydroelectric, solar power and other non-renewable sources provide just two per cent of Latin America’s energy
- Some 100 million Latin Americans still rely on traditional biomass (such as firewood) as their source of energy
- Some 40 million people still lack access to modern electricity services
Hydroelectric project halted
Dams in national park: A court in Chile on June 20 halted a multi-billion-dollar five-dam project in the sparsely populated south of the country. The project, which involves flooding nearly 60 sq km (23 sq miles) of land in Patagonia, was approved in May. But after protests from environmentalists the court has ruled it needs to review the approval process. The government says the dams will meet the country's increasing demand for electricity. But environmentalists say dams built on two fast flowing rivers that run into the Pacific - two on the river Baker, and three on the river Pascua, will damage the area's fragile ecology and its tourist potential. They also say the energy produced will be used mainly for the country's mining industry.