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Shale Gas Development in Latin America

September 22, 2014

by Christian Gómez, Jr.

New technology and capital has boosted shale gas and tight oil production in the United States and Canada—a phenomenon dubbed the “shale revolution.” This revolution has important geopolitical implications and has shifted North America’s energy outlook from one of scarcity to one of abundance.

The rest of the Western Hemisphere is also sitting on expansive shale reserves, but these areas have not yet been fully exploited. A recently released AS/COA Energy Action Group Report, “Shale Gas Development in Latin America,” explores these issues in depth.

Within the Western Hemisphere, the primary point of comparison for Latin American countries looking to develop shale gas resources is the United States, where, in 2014, over 20,000 horizontal wells are expected to be drilled, according to RBC Capital Markets.  This compares to 250 unconventional wells in Argentina and just 10 in Colombia that are expected to be drilled during the same time period.   Investors spent $90 billion in the United States on developing shale gas in 2012 alone; in contrast, foreign direct investment in Latin America last year, in every sector, totaled $180 billion.    

In addition to the U.S. and Canada, Argentina, Brazil and Mexico are among the 10 countries in the world with the greatest technically recoverable shale gas resources; together, they make up approximately 40 percent of the world’s total supply.  Colombia also has significant potential.

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Tags: Shale Gas, Latin America, energy

Caribbean Energy Security is Good Business

December 11, 2013

by Christian Gómez, Jr. and Christine V. Gomes

With the exception of gas-rich Trinidad and Tobago, the 14 other countries of the Caribbean Community (CARICOM) are energy importers. In fact, 93 percent of the region’s energy needs are met by oil imports, which average 13 percent of GDP. Venezuela is the main supplier of oil to the Caribbean through the PetroCaribe agreement, formed in 2005, which provides oil on attractive financing terms. However, declining oil production, deficient investment, and faltering leadership in Venezuela’s state-run oil company PDVSA cast doubt on the future of the arrangement. The termination of PetroCaribe would further wreak havoc on their tenuous fiscal situations. In many countries, Venezuela’s largesse has been a double-edged sword—affordable energy but increased reliance on imported oil.  

Energy dependence and vulnerability are serious issues in the Caribbean, where residents suffer from high and fluctuating electricity costs, frequent blackouts and poor service. Electricity prices are some of the highest in the world, averaging US$0.33 per kilowatt hour compared to $0.09 per kilowatt hour in the United States. Oil reliance is stifling the Caribbean’s economy and the region must work towards diversifying its matrix if it wants to be competitive.

Natural gas might just be the solution. The Inter-American Development Bank recently held a Caribbean Energy Conference where panelists called for a transition to natural gas as a cheaper alternative. While natural gas would not be able to compete with subsidized fossil fuels from Venezuela, the termination of the PetroCaribe program would open the door for expanding the natural gas market. Jamaica, for example, pays 60 percent of crude upfront at market prices ($103 per barrel), and finances the rest with 1 percent interest over forty years—essentially receiving a 40 percent discount on their oil imports. The price of natural gas in the region ($10 per million BTUs) is not competitive with this discounted price. But an energy market where buyers had to pay market prices would drastically change the game for natural gas.

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Tags: Caribbean, energy, natural gas

Blackout Hits Venezuela

December 3, 2013

by AQ Online

In the latest in power outage to hit Venezuela this year, a blackout on Monday night left a large portion of Caracas in the dark, with other parts of the country affected as well. Outages were also reported in the states of Vargas, Aragua, Miranda, Lara, Zulia, Carabobo, and Falcón.

For many in Caracas, the power outage lasted only 10 minutes, while other parts of the country endured the blackout for over an hour and a half, according to Energy Minister Jesse Chacón. The outage occurred just after 8 p.m. local time, as Venezuelan President Nicolás Maduro was speaking on television.  

In September, a power failure caused 70 percent of the country to lose power. That incident, as well as the one last night, originated from the same power substation west of Caracas. In both incidents, President Maduro suggested that sabotage was involved, but was unable to provide evidence.

Corpoelec, Venezuela’s state-run power company, was working late into Monday night to restore power across the country, and by 9:30 p.m. had successfully gotten about 85 percent of the greater Caracas area back on the grid.  Venezuelan authorities said they would begin an investigation to determine the cause of the blackout.

Tags: Venezuela, energy, Blackout

Tapping Into Latin America’s Oil

November 4, 2013

by Hari Seshasayee

On October 21, Indian oil and gas firm ONGC Videsh Ltd (OVL) was among 11 foreign companies in Rio de Janiero to bid for Brazil’s latest oil find, the Libra oil field.

The winning consortium was made up of a Sino-European mix of four companies, with Brazil’s Petrobras holding the majority stake. Although OVL didn’t make the final cut, its presence in the bidding process points to India’s growing energy equation with Latin America, as does the recent success of Indian oil majors in acquiring large contracts in Latin America.

Eight Indian companies—OVL, Reliance Industries, Essar Oil, BPCL, Oil India, Videocon Industries, Assam Company, and Indian Oil Corporation—are part of 12 joint ventures in Venezuela, Brazil, Colombia, Ecuador, Cuba, and Peru. Their approach is pragmatic: invest substantial capital with state-run oil companies and use local expertise.

In Venezuela and Brazil, the national oil companies—PDVSA and Petrobras, respectively—get their governments’ support in procuring funding and project clearances, which further facilitates the joint ventures. As a result of the enhanced trade in oil from these countries to refineries at home, India’s total oil imports from Latin America increased from 4.5 percent in 2003 to 11 percent in 2012-13.

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Tags: India, energy, Brazil, Peru, Venezuela

Deadly Gas Explosion in Mexico

October 17, 2013

by AQ Online

Six people were reported dead after a massive gas explosion at a natural gas storage plant near Puebla, Mexico yesterday. Over 100 local residents were immediately evacuated from the surrounding areas and a major highway connecting Mexico City and Veracruz was closed for over four hours. Officials have not yet confirmed what caused the two containers holding approximately 250,000 liters (66,000 gallons) of natural gas to combust at the plant, owned by Gas Tomza.

Experts from the Secretaría de Energía (National Department of Energy) arrived at the site of the explosion yesterday to assist in investigations. Puebla State Governor Rafael Moreno Valle also visited the site. State authorities later stated, “Once the investigation has concluded, we will be able to hold the company and [individuals]” responsible for the explosion accountable.

Major gas explosions are not uncommon in Mexico, where limited oversight of safety protocol remains a challenge. Over 20 people were killed in May when a truck carrying gas tanks exploded on a highway outside Mexico City. In September 2012, an additional 26 people died in at a plant in Reynosa, owned by the state energy company, Petróleos Mexicanos (Mexican Petroleum—PEMEX).

Tags: natural gas, energy

Brazil’s Pre-Salt Auction and the Development of the Libra Field

September 30, 2013

by Christian Gómez, Jr.

On September 18, only 11 companies signed up to participate in the auction of Brazil’s pre-salt Libra oil field, one of the largest offshore oil discoveries since 2007. This outcome fell sharply below the Brazilian government’s expectations. In fact, Magda Chambriard, head of the Agência Nacional do Petróleo (National Petroleum Agency—ANP), said the following day that she expected about 40 companies to sign up for the auction.  

Because of its size and recoverable potential, the Libra field is known as one of the “elephants of pre-salt.” The field is estimated to contain between 8 to 12 billion barrels of oil, making it one of the largest in the world. Therefore, the Brazilian authorities placed a hefty price tag on registering for the auction—$2.05 million reais, or just over $900,000.

The companies that registered to participate included several Asian firms, such as Petroliam Nasional and Petronas from Malaysia; Oil and Natural Gas Corporation Limited (ONGC) from India; and China’s National Offshore Oil Corporation (CNOOC) and China National Petroleum Corporation. There were also joint ventures—such as the Chinese company Sinopec’s alliance with Spain’s Repsol—in addition to individual international oil companies that will bid, such as Total S.A., Royal Dutch Shell and Mitsui. The only Latin American company to register was Ecopetrol of Colombia.

Analysts have pointed to the absence of large international companies such as ExxonMobil, Chevron, and BP as representing the “failure” of the registration process. As stated in a recent AS/COA report, “Brazil’s Energy Agenda: The Way Forward,” government intervention in the bidding process may have deterred some companies from participating. One such deterrent, for example, is that Petrobras must be the sole operator in the pre-salt fields, and they must take at least a 30 percent stake in the project.

The relative lack of interest may spur Petrobras to change the terms of its participation, but it is unlikely to do so. Petrobras CEO Maria das Graças Foster recently stated that the company has the technical capacity to explore and produce all the oil from Libra, but needs financial backing to invest. Thus, Petrobras will need the winning bidder to put up a large share of the oil to sell from its own account in order to maximize its financial gain.

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Tags: energy, Brazil, Libra oil field

Canada’s New American Challenge

September 24, 2013

by John Parisella

With the U.S. administration now engaged in trade talks regarding the Trans-Pacific Partnership, and President Obama’s intention, expressed in his last State of Union address, to embark on a free trade arrangement with the European Union, it is clear that trade policy in the U.S. is in for a major shift.  The Canada–U.S. commercial relationship, as we know it, will surely be in for a change.  When you trade $1.5 billion of goods daily, neither country can remain indifferent if new commercial arrangements modify the status quo. 

If we add to this the emerging energy revolution—related to shale gas and shale oil—that is bound to influence the U.S. economy, we can conclude that the U.S.’ major trading partners will soon face new challenges. It is becoming more apparent that the U.S. is heading toward energy self-sufficiency. By 2017, according to the International Energy Agency (IEA), the U.S. is expected to be the largest oil producer in the world.  By 2020, it could be a net exporter of natural gas, and in 2030, the U.S. could be a net exporter of petroleum.  This will have a direct impact on prices of those commodities, the cost of doing business and the potential growth of the U.S. manufacturing sector. 

No one doubts the ingenuity and the innovative character of the U.S. economy.  With a competitive advantage sparked by this new energy picture, one can conclude that the American economy may be in for important, positive and significant growth.  Despite the uncertainty often associated with its domestic politics regarding deficit and debt issues, the U.S. economy is certain to be gradually transformed.  The current Canada–U.S. commercial relationship, which is the largest in the world, will also be directly affected. Canada cannot afford to ignore what  this new American challenge represents for its own future.

For Canada, this will require an even greater effort to diversify and pursue more aggressively new or alternative markets. It will also have to engage in more research and development, aim for greater productivity, attract more immigrants, and invest in greater manpower training. With our energy, our multiple natural resources , and our competitive high-tech sectors, Canada has already engaged with moderate success in diversifying its markets.

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Tags: Canada, energy, Canada-U.S. relations

Peña Nieto’s Challenges: From Teacher Strikes to Energy Reform

August 29, 2013

by Arjan Shahani

The first nine months of Peña’s administration have kept the press busy and all of the country’s eyes and ears focused on what will happen next. He’s been characterized as bold, action-oriented and dynamic but clearly, not a team player.

He was celebrated by many (yours truly included) in February when he presented an ambitious and much needed education reform but disappointed just as many after having this effort easily thwarted by militant and disgruntled unionized teachers from the Coordinadora Nacional de Trabajadores de la Educación (CNTE), which has taken Mexico City hostage in the last week to avoid needed secondary laws to enact the reform passing through Congress.

The inability to prevent and the lack of resolve to disperse a non-justified blockage of Congress as well as a blockade of the city’s main arteries—including those giving access to the airport and the Zócalo—has proven once again that political leaders are making decisions not based on the greater good, the rule of law or the citizenry’s interests, but on a political agenda serviced by interest groups holding more power than they should and unable to cooperate with each other.

Mismanagement of this situation could soon spark violence and create a larger-than-ideological divide. The affected citizenry in Mexico City will only stand so much. In a recent poll by BCG-Excelsior, 52 percent of Mexicans stated that they are so fed up with the CNTE’s irrational resistance to the education reform and their militant actions that they would justify use of public force to disperse the picketers.

And while the teachers take to the streets, both Peña Nieto and the city’s government cower from taking necessary action because of the political cost it would imply. Mexico City is not the only thing that’s paralyzed because of this—a broken education system puts the nation’s future talent pool at risk.   

The other current hot topic in the president’s agenda is energy reform. As recently described by Christian Gomez on AS/COA, “the proposal includes constitutional changes that would open up Pemex, the 75-year-old state oil monopoly, to profit-sharing contracts and foreign investment.”

This new notion of natural resources no longer belonging exclusively to the nation poses a huge shift in paradigm. Reactions from the nation’s Left include accusations related to autonomy, national patrimony and the role of government vs. private investors in extraction and having access to revenues from one of the nation’s most important sources of income. The opposition understands that PEMEX’s inefficiencies and the plague of corruption need to be addressed, but they propose that a problem should not be fixed by creating another one.

One of the most respected voices from the Left, Cuauhtémoc Cárdenas, has recently stated that both PEMEX and CFE (federal electricity company) can become highly productive without having to edit the Constitution and without allow foreign and/or private hands in the nation’s riches. If national patrimony is challenged due to reforms to articles 27 and 28 of the Mexican Constitution, Cárdenas has warned he would call for nationwide protests and he would even take to the streets along with López Obrador’s Morena (National Regeneration) movement.

Given its current party composition, Peña can easily get approval for the energy reform in Congress but he would be naïve to think that this is the only hurdle he needs to jump and he is doing a terrible job at trying to get public buy-in to this proposal through vague infographics on TV.

If there is a possibility for effective energy reform, an open and inclusive debate needs to take place. This topic is not one that his team should be discussing behind closed doors and the hard questions will require real answers, not 20-second TV spots.

Peña’s government has been characterized by a “my way or the highway” attitude, which is an easier temptation to fall into than trying to build consensus in a country as complex and fragmented as Mexico. This dictatorial style is only possible because of the fact that PRI has a stellar position both in Congress and in the State governments to push its agenda forward, something neither former Presidents Fox nor Calderón had. However, Peña would do well in understanding that his constituency is not limited to the political parties or even the power elites.

Organized teachers have already proven what they can do in Mexico City given enough motivation. Sparked by national patrimony rhetoric, larger, non-organized social mobilizations could easily flare up in different key cities in Mexico and cause larger havoc. As former U.S. Ambassador to Mexico Tony Garza recently wrote, “these red flags, so to speak, are especially relevant given the influence and disruptive potential of many of today's social movements. The eruption of mass street protests in Brazil is just one recent example of a government being forced to change direction on a policy initiative and find a way to rapidly and constructively respond to the desires, often inchoate, of a newly emboldened and empowered population. It's a cautionary tale that begins with frustration and finds expression in mass action.”

Even when theoretically, Peña could powerball his reforms forward, both him and the PRI need to wake up and understand that they cannot be the only voice to determine the nation’s destiny. Vargas Llosa sarcastically called the previous PRI era “the perfect dictatorship” but today’s Mexico will not stand for a return of that so-called “perfect” model. Peña needs to learn to play well with others.

Tags: Mexico, energy, Education, Enrique Peña Nieto

Monday Memo: “La Bestia” Train Accident – FARC Negotiations – Venezuelan-Palestinian Oil Deal – New WTO Director – Mexico Energy Consultations

August 26, 2013

by AQ Online

Likely top stories this week:  Six people die in “La Bestia” train accident in Mexico; Colombia-FARC peace talks resume in Havana; Venezuela and Palestine sign energy deal; Roberto Azevêdo will become the new WTO director; and public consultations on energy reform begin in Mexico.

Six Dead and 22 Injured in “La Bestia” Train Accident: On Sunday, at least six people were killed and 22 were injured in the derailment of the cargo train known as “La Bestia” (The Beast) in southern Mexico, a train that is notorious for transporting Central American migrants through Mexico and to the U.S. border. According to official sources, at least 16 of the passengers injured in the accident were nationals of Honduras between 20 and 30 years old. Public Security Minister for Tabasco State Audomaro Martinez Zapata said that thieves had stolen the nails and metal plaques from the tracks, which led to the accident. Migrants’ rights activists demanded immediate measures to put an end to the risks that undocumented migrants face when traveling across the country, and  criticized the Mexican government for not taking this issue seriously. On Sunday, Mexican President Enrique Peña Nieto lamented the accident via Twitter and expressed his solidarity with the victims’ families.

Colombia-FARC Talks Resume after Crisis: On Saturday, lead Colombian government negotiator Humberto de la Calle announced that the talks between the Colombian government and the Fuerzas Armadas Revolucionarias de Colombia (Revolutionary Armed Forces of Colombia—FARC) would resume in Havana on Monday. This statement put an end to one of the biggest crises to afflict the peace process since it began in November 2012, which was prompted when Colombian President Juan Manuel Santos’ proposal last week that any peace agreement must be put to a national referendum. On Friday, the FARC announced that it was putting the peace talks on hold to study the referendum proposal. In response, Santos stated that the FARC is not entitled to “dictate pauses and impose conditions” on the negotiations, and ordered his team of negotiators to return to Bogotá to evaluate the implications of a hiatus in the peace process. So far, the talks are advancing at a slow pace and negotiators have only been able to reach a partial deal on one of five points in the agenda. Still, both sides have remained at the negotiation table, raising hopes for an end to the five-decade-long armed conflict.

Venezuela and the Palestinian Authority Sign Energy Deal: On Saturday, Venezuela and the Palestinian Authority signed an energy agreement that will allow Venezuela to sell oil at a “fair price” with “flexible repayment terms” to Palestinians, as well as provide expert advice and training for the fuel management and handling. The deal was signed during a meeting between Venezuelan Foreign Minister Elias Jaua and his Palestinian counterpart, Riyad al-Maliki, while al-Maliki is on a tour of Latin America. During his trip to the region, al-Maliki also met Ecuadorian Minister for Foreign Affairs and Human Mobility Ricardo Patiño and Guyana’s president, Donald Ramotar. Venezuela, Ecuador and Guyana are among several countries from Latin America and the Caribbean that recognize Palestine as an independent state.

Roberto Azevêdo to Become New WTO Director: Next Sunday, Brazilian diplomat Roberto Azevêdo will become the new director general of the World Trade Organization. Azevêdo has served as Brazil’s ambassador to the WTO since 2008 and was selected in May to become the first Latin American to lead the WTO. In August, Azevêdo announced the appointment of four deputies, who will assume their posts in October: Yi Xiaozhun of China, Karl-Ernst Brauner of Germany, Yonov Frederick Agah of Nigeria and David Shark of the United States. One of Azevêdo’s main objectives in his new position is to revive the stalled Doha Round trade talks. In a recent statement, Azevêdo said that regional and bilateral trade accords obstructed efforts to revive global trade talks and “steal the attention a little from the multilateral system.”

Public Consultations on Energy Reform began in Mexico: On Sunday, Mexico’s Party of the Democratic Revolution (Partido de la Revolución Democrática—PRD) began the first phase of a citizen consultation on the country’s fiscal and energy reforms. The set of energy reforms presented by Mexican President Enrique Peña Nieto on August 13 would open Mexico's energy sector to foreign investors. The fiscal reform seeks to increase Mexico’s tax take by about 4 percentage points of GDP as a means to channel more resources towards education, health and infrastructure projects at the federal, state and municipal levels. Jesús Zambrano, the president of the PRD, called citizens from all parties to participate in the consultation. Members of the PRD have different positions from President Peña Nieto on both the fiscal and energy reforms and hope the result of the consultations will be taken into account by the central government. The first phase of the consultation took place in almost 3,000 centers installed in parks, plazas and metro stations in Mexico City and in the states of Coahuila, Campeche, Guanajuato, Querétaro, Colima, Nuevo León, Sonora, Nayarit, and Tabasco. A second phase of consultations will begin next Sunday.

Tags: La Bestia, Mexico, FARC peace negotiations, Colombia, Venezuela, Palestine, energy, Mexico energy reform, Mexico fiscal reform, Roberto Azevêdo, World Trade Organization

Financing Renewable Energy in Latin America

August 2, 2013

by Christian Gómez, Jr.

While renewable energy investment globally fell by 11 percent in 2012, renewable energy financing increased by 127 percent in Latin American countries, excluding Brazil. According to Bloomberg New Energy Finance, this included gains of 595 percent in Mexico, 313 percent in Chile, 285 percent in Uruguay, and 176 percent in Peru. In total, renewable energy investments in Latin America reached $9.7 billion in 2012.

When adding the important renewable energy portfolio of Brazil ($5.2 billion in 2012), the renewable energy sector in Latin America is growing and will continue to attract significant capital in the coming years. A combination of favorable government policies, receptiveness to foreign investment, and attractive regulatory regimes has drawn investors to renewable energy projects in the region. These issues were debated in Washington on July 30 during a roundtable discussion on financing renewable energy in Latin America at the Council of the Americas, held under the auspices of the Council’s Energy Action Group.

The conditions for renewable energy in Latin America are favorable. From the photovoltaic potential of the Atacama Desert in Chile to the many rivers that feed into hydroelectric dams in Brazil to the fields of African palm oil in Colombia, developers have been drawn to the region due to a unique geography that offers great potential for renewable feedstocks.

Countries are also beginning to adopt renewable energy standards. Chile is leading the way with its 20/20 renewable plan—20 percent of the country’s electrical grid powered by renewable energy by 2020. While the target may be a long shot, the initiative demonstrates that countries in the region are serious about developing their renewable energy potential.

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Tags: energy, Latin America, renewable energy

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