Advertisement

Latin America is going through an energy transformation, and it could be a huge benefit to the U.S.

Latin America is going through an energy transformation, and it could be a huge benefit to the U.S.
An oil platform off Rio de Janeiro is part of Latin America's changing energy landscape. (Yasuyoshi Chiba / AFP/Getty Images)

From the northernmost point in Mexico to the tip of Tierra del Fuego in Chile, Latin American countries are experiencing an energy transformation.

Some countries are moving faster than others. Some are struggling with long-running political battles that threaten development.

Advertisement

The issues may seem remote to energy consumers in the United States, a country that, in the space of less than a decade, has experienced what's been called an "energy renaissance" in oil and natural gas production while also seeing renewable energy sources — especially in California — make up an increasing amount of the power mix.

So what does energy in Latin America have to do with the United States?

Plenty, especially when it comes to exports, said Erin Blanton, director of natural gas for Medley Global Advisors, a research and analysis company with offices on four continents.

"It is a huge benefit for U.S. jobs and U.S. industry to have those export markets," Blanton said during a recent international energy conference in La Jolla sponsored by the Institute of the Americas at UC San Diego.

"This is a huge center of demand for us, for our energy products," she said.

An IEnova employee works on a pipeline in Mexico. San Diego's Sempra Energy is expanding its reach in Mexico with its IEnova subsidiary.
An IEnova employee works on a pipeline in Mexico. San Diego's Sempra Energy is expanding its reach in Mexico with its IEnova subsidiary. (Sempra Energy)

Mexico opens its energy sector

Four years ago, Mexico initiated a sweeping reform of its energy sector, aimed at ending the monopoly status of its state-run oil and gas company, known as Pemex, and its electric company, known as CFE.

With an eye toward meeting the country's growing energy demands, Mexico has opened the sector to private investments.

"This is a big deal," Blanton said. "Gas use is growing phenomenally with the interconnections of pipelines. And one of the biggest beneficiaries is U.S. gas."

Mexico imports huge amounts of piped natural gas, most of it from Texas. Nearly 20 gas pipelines enter Mexico from the United States.

In recent months, San Diego-based Sempra Energy, through its IEnova subsidiary, closed on a $1.1-billion purchase of a 50% stake in an infrastructure company that includes natural gas pipelines.

The Sempra subsidiary already has a liquefied natural gas import facility on the Baja Peninsula outside Ensenada and is looking to expand the site to include an export facility, in the hope of capturing part of the booming global LNG market.

This year, oil giant BP opened its first retail site in Mexico and plans to open about 1,500 more locations in the next five years.

Mexico's energy reform also includes expanding the country's renewable energy sector. Last December, Sempa's IEnova acquired the largest operating wind farm in Mexico for about $900 million.

Jaime Martinez, business development director for ERM Mexico, a private consulting company, said Mexico's energy reforms have succeeded in attracting companies willing to make large investments.

Advertisement

But he added a note of caution, especially considering Mexico has a presidential election coming up next year.

"For me, a critical aspect for the energy reform to be successful is [meeting] some expectations for the people," Martinez said.

"Because it was put [to them] that energy is going to be cheaper, more jobs were going to be created, and the benefits of all this are going to end up [going to] the people and their communities," he said. "The risks are related to that — big expectations, but not results."

Demonstrators clash with police during an April protest in Caracas, Venezuela. Oil is estimated to account for a staggering 96% of Venezuela’s hard currency revenue, and 2½ years of low crude prices have decimated its economy.
Demonstrators clash with police during an April protest in Caracas, Venezuela. Oil is estimated to account for a staggering 96% of Venezuela’s hard currency revenue, and 2½ years of low crude prices have decimated its economy. (Miguel Gutierrez / European Pressphoto Agency)

South America’s mixed energy prospects

Raul Gallegos, a senior analyst based in Colombia for the consulting group Control Risks, said opportunities and risks vary from one country to another.

"In Venezuela, there are number of opportunities that are popping up in the oil sector, even though if you were watching the news you wouldn't think there are," Gallegos said. "In Colombia, on the other hand, which is moving toward peace, it's a mess as far as the opportunities."

In Brazil, home to South America's largest economy, its president is battling corruption allegations that may oust him from power and threaten to disrupt the country's economic agenda.

But that doesn't mean foreign energy investment is running away.

"The future of Brazil looks healthy from an oil and gas standpoint for the long term," said Jay Thorseth, vice president of Americas Exploration at BP.

Barely a day goes by in which the news from Venezuela doesn't appear to get worse as the country's economy under socialist President Nicolas Maduro battles hyper-inflation and shortages of food and medicine.

Oil is estimated to account for a staggering 96% of Venezuela's hard currency revenue, and 2½ years of low crude prices have decimated its economy. Gallegos said the Maduro government is desperate to increase production, which creates opportunities for multinationals such as Chevron, Shell and Repsol.

"The oil sector is a business where they operate in Iraq with people blowing themselves up all over the place," Gallegos said. "Venezuela is a cakewalk for some of these guys."

Peru's population is about the same as Venezuela's, and the country has elected a number of presidents promoting business-friendly policies.

Sempra has its own South American utilities division and is considering a bid on a giant pipeline project in Peru.

Still, Gallegos said doing business in Peru can be tricky. Concerns over things such as water issues have roiled some communities, prompting resistance to industry. Gallegos said some people actually throw rocks to scare away company executives.

"Latin America is a place you can invest, it's a place where you can come in, but you have to do your homework," Gallegos said.

BP's Thorseth described the energy landscape in Latin America as "huge."

"We obviously look at every country's political risk and then have to make an assessment whether it's manageable or not," Thorseth said. "To take Brazil, for example, we think that's manageable, and you're going to have ups and downs in the political climate, and it's something that a company like BP can deal with."

Off the shores of Guyana, a small nation on South America's northern coast with a population of well under 1 million, deepwater drilling recently confirmed rich oil and natural gas deposits, bringing development from energy giants Exxon Mobil and Hess.

Starting, essentially, from nothing, one of the poorest countries in the hemisphere is about to launch a major fossil-fuel-based economy. It's estimated that Guyana can start exporting oil by 2020.

Government officials in Guyana say they are committed to making the transition a smooth one, looking to avoid what is known as the "resource curse," in which countries that acquire a windfall end up concentrating too much on the new industry, ignoring others while mismanagement and corruption grow.

"I really hope they adopt sound policies to save some of that wealth and spend it properly," Gallegos said.

A cargo ship begins to cross the new Agua Clara locks, part of the Panama Canal expansion project, near the port city of Colon in Panama on June 26, 2016.
A cargo ship begins to cross the new Agua Clara locks, part of the Panama Canal expansion project, near the port city of Colon in Panama on June 26, 2016. (Moises Castillo / Associated Press)

Panama is growing fast

In Central America, Panama has emerged as a economic superstar, and its energy consumption is surging.

Advertisement

The country's first natural gas power plant is expected to come online in 2018.

And thanks to a $5.4-billion expansion of the Panama Canal that was completed last summer, LNG tankers can now pass through the canal, shaving off days from their trips and slashing transportation costs for companies.

Looking at the amount of LNG cargo passing through each day, Panama recently announced it's building its own LNG terminal, the first in Central America. Panama expects the privately funded venture will make the country an LNG distribution hub for the region.

"That brings a new fuel into the picture," said Victor Urrutia, Panama's energy secretary.

Panama is also expanding into renewable energy, especially solar and wind power. "Years ago, it was too expensive, and now it's very affordable," Urrutia said.

Latin America is a promising market for renewable energy.
Latin America is a promising market for renewable energy. (Seong Joon Cho / Bloomberg)

Renewables hold promise

The market for clean-energy sources in Latin America is growing "massively," said John Padilla, managing director of IPD Latin America, an energy consulting firm based in Miami.

Padilla said renewables make sense for countries such as Argentina, which is highly dependent on sources from outside its borders, such as natural gas from Bolivia.

Carlos Barerra, the chief executive of Florida-based Atlas Renewable Energy, said countries such as Mexico, Chile and Brazil offer promising markets for solar while Argentina and Colombia figure to be great resources for wind.

"You also have a constituency that does not want coal," Barerra said.

Plus, many of the markets in Latin America are based on the U.S. dollar, which makes long-term financing attractive to investors.

"I would say it's a great area for renewable investments," Barerra said.

ALSO

Advertisement
Advertisement