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Latin America 2012: Energy Outlook

No issue in Latin America this year may be more fraught with volatility than energy.



The Mayan calendar prophesied the end of the world this December.  But for Latin America’s energy scene, the year is shaping up to be anything but a march toward the end of time.  There are several themes to consider as 2012 unfolds.

For starters, the year counts several elections with important geopolitical and energy implications.  Without Leonel Fernandez on the ballot, residents of the Dominican Republic will choose from a new slate of candidates in May. Mexico goes to the polls on July 1st to choose Felipe Calderon’s successor.  In October, Venezuela conducts another referendum on Hugo Chavez’s 21st Century Socialism.  November’s election in the United States will decide the fate of Barack Obama’s presidency.  

The topic of unconventional sources of hydrocarbons remains vital. What these long-unexploited resources are now doing to upend the conventional wisdom when it comes to energy policy debates across the hemisphere shows no sign of abating. Indeed, the focus on shale gas and its potential will continue to impact natural gas and liquefied natural gas developments across the hemisphere.

In light of the development of the so-called Pre-Salt fields, Brazil’s path toward oil preeminence and its implications for the hemisphere -- if not global oil market -- deserves attention this year. But beyond the Pre-Salt, eyes will be on Brazil as there is much interest and desire for the country to offer bidding opportunities for investment in its other oil horizons.


Colombia, meanwhile, continues to reap the benefits of massive investment in its energy sector. However, important issues surrounding infrastructure constraints and labor unrest -- the country’s largest oil field was shut down in late 2011 -- loom over how the nation will be able to best consummate its oil resurgence. Indeed, Colombia’s ability to reach its goal of one million barrels per day of oil production will be closely watched.

The year begins in Mexico with continued scrutiny over oil production, though there is hope the drop in production has stabilized. Last year saw Mexico’s state oil firm, Pemex, execute three historic incentive contracts. How Pemex proceeds with additional contracts, particularly for the deep waters of the Gulf of Mexico, will be under the microscope this year. Perhaps most important for the future of Mexico’s energy sector will be the July election. To date, the leading opposition (PRI) and governing (PAN) candidates to succeed Felipe Calderon have made bold statements about how their administrations would reform Pemex, and by extension, deal with production issues.

This year may also prove to be a momentous one for the long-awaited SIEPAC Central America electric integration project and development of a regional power market. Central American energy officials have pointed to 2012 for finalization of the market rules and transmission infrastructure. SIEPAC’s completion may bode well for the potential economies of scale and efficiencies to be derived from electric integration across the Isthmus.

The role of China remains on the minds of many. News late last year of more large-scale loans to Venezuela underscore the region’s importance for China. However, the collapse of the multibillion dollar deal in Argentina for BP’s Pan American Energy stake points up the sensitivity that Chinese investments may continue to face in the future. The relationship between China and Latin America’s energy sector, and how it unfolds in 2012, will be worthy of attention.

And with all that has been said about traditional energy advances and opportunities, where does that leave renewable energy for the region?  That question figures to have myriad answers and will surely continue to provoke debate in 2012. Indeed, many countries from Peru to Brazil to Panama have conducted wind energy bid rounds for power supply and proponents are eager to expand market penetration for wind and solar-based projects. Increased natural gas development and whether it complements or competes with deployment of renewables, especially wind, will be a key corollary.

To write an outlook in January on any subject is dangerous. But no issue may be more fraught with volatility than energy. Indeed, if most of the energy world did not see the shale gas breakthrough coming, or the potential of Brazil’s Pre-Salt, perhaps we shouldn’t be too hard on the Mayan prediction for our demise at the end 2012.

Jeremy Martin is director of the energy program at the Institute of the America. He wrote this column for the Latin Business Chronicle. 

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