Small countries like Guatemala hold little leverage in global energy markets; not surprisingly, Guatemalans are also strongly feeling the adverse effects of rising petroleum prices in their daily activities.
As the saying goes, good business trumps politics—and Guatemala proves the maxim true. Although firmly opposed to acceding into the Petrocaribe agreement with Venezuela in 2008, President Otto Pérez Molina is now looking south to Venezuelan President Hugo Chávez’ Petrocaribe organization for any possible relief. He is left with few choices as fuel prices hover closer to 40 quetzales ($5.15) per gallon.
Guatemala has tried to position itself as a Central American petroleum hub through efforts to get off the ground construction of a possible regional refinery and by attracting investments into the exploration and production of its designated drilling blocks. But despite these efforts, Guatemala has not been able to finalize any refinery deals nor has it attracted much international interest in its oil exploration activities.
More recently, in 2011, to the dismay of government officials, only two natural resource companies submitted bids for the four drilling blocks made available to investors that year. With up to 12 potential onshore and offshore oil areas currently available for exploration, Guatemala will have to raise the country’s profile in key global energy hubs. Another key challenge for bringing in energy investment is putting forth clear and more investment-friendly laws.
With production numbers in sharp decline, the current administration is working to keep its promise to reactivate the oil and gas sector over the next four to five years. But until then, Pérez Molina must find short-term, pragmatic solutions to the rising energy prices.
This is why Guatemala is set to host a Petrocaribe delegation from Venezuela on Friday to discuss its full entry to the group. Former President Álvaro Colom (2009-2012) initiated an association but never fully signed on. Currently, Guatemala gets 20,000 barrels a day of fuel, paying 40 percent of its value within 90 days and the remaining 60 percent with a 25-year financing and at a 1 percent interest rate.
Pérez Molina hopes to sweeten that deal. He knows that rising petroleum prices could potentially cause not only a decline in Guatemala’s economic capacity but also create a politically challenging environment to move forward other policy priorities. But is Petrocaribe the answer?
Joshua Ryan Rosales works at a major global law firm in Houston, Texas, having previously worked as one of its lead analysts for the Americas as well as under an Ambassador of Guatemala. His writings on inter-American affairs focus primarily on foreign policy, economic development and politics.
