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Energy's Future In Latin America: New Study Forecasts Region's Prospects And Challenges
October 6, 2008
WASHINGTON, D.C. (October 6, 2008) — Peak oil in Latin America is less than 10 years away; energy integration, nuclear power plants, and large-scale renewable power generation are necessities to ensure sufficient energy supplies in the future; the region’s governments should play a stronger role in their respective energy sectors; and Latin America and the Caribbean are ripe for business. These are the significant findings of Bracewell & Giuliani and Business News Americas’ Energy Outlook 2008, which surveyed energy company executives from various countries throughout Latin America.
Making this survey unique was that it distinguished findings between the countries surveyed. Respondents from Brazil, Colombia, Chile, Peru, Argentina, Mexico, Central America, Uruguay, Paraguay, Venezuela, Bolivia, and Ecuador were posed a variety of questions concerning the prospects of the energy market in Latin America.
“With this survey, the energy community, for the first time, is able to explore a wealth of information by country and better determine individual needs and business growth objectives,” said Bracewell Partner Amauri G. Costa who helped spear-head the survey.
Among the survey’s key findings:
Country by Country
78% of respondents indicated that the regulatory and legislative outlook has improved in the past five years, with Colombia and Peru making the most advances.
Responses to questions on risk and return were far from encouraging for the business environment. In Argentina, Bolivia, Ecuador, and Venezuela, over 81% of responses said that in order to commit to long-term investment, investors would want to see above-average returns.
However, approximately half of the responses for Brazil, Chile, Colombia, Mexico, and Peru were that investors do not expect to see above-average returns.
Bolivia fared the worst. Not a single respondent rated the quality of local partners in Bolivia favorably, with 84% of respondents with operations there describing local partners as unsatisfactory. The figure was 76% for Ecuador and 65% for Venezuela.
Paraguay and Uruguay, two countries with heavily state dominated energy sectors, were the only two countries for which less than 70% of respondents agreed would benefit from greater levels of competition. With 88% agreement, Mexico attracted the highest degree of positive replies.
62% of all respondents expect oil to have peaked in Latin America within 10 years. (Despite the following reasons: a string of promising oil finds off the shores of Brazil and the likelihood of more to come as Petrobras and partners perfect their techniques for working in this new oil frontier; new exploratory work within existing oil areas; and massive reserves of heavy crude.)
29% of respondents believe nuclear power will definitely be necessary to meet the region’s power demands in the next 20 years.
Only 6% of participants think that hydroelectric and thermoelectric generation sources alone will be sufficient to meet power demand over the next 20 years. The fact that 40% think that renewable power should constitute over 10% of total power generation stands at odds with the more modest government targets set in the few countries to have even declared renewable generation goals.
In terms of how to generate significant levels of renewable power generation, almost half of participants called for positive market intervention, 27% for greater public sector appreciation of the issues involved, and 19% of responses indicated that a key factor would be increasing the number of equipment and know-how suppliers from within the region.
Participants flatly rejected entirely market or entirely state-based solutions, with only 8% combined support for those models.
Opinions on carbon credits and emissions reduction showed sharp divisions. While half the respondents consider carbon credits to be an effective way of encouraging green energy production, one third had either no faith whatsoever in the mechanism or saw its effects as insignificant. Reducing emissions was a glass half empty and half full: 35% of responses considered it a business cost and 40% a commercial opportunity.
Regulators and the Public Sector
Respondents favored the carrot and not the stick to increase what are often quite thin power generation margins, with barely 9% calling for stiffer penalties on power generators that fail to deliver and 43% favoring regulatory action to raise competition by increasing the number of generators.
45 % of respondents think consumers are ill-informed and perhaps misconceive their energy supplies as a right rather than a service. Twice as many responses indicated there is a lot of room for regulators to become more professional, deregulate, and provide greater information to the final client.
The message to governments was strong: investors want policy stability and evidence of clear and consistent visions. Over three quarters of respondents think governments in Latin America and the Caribbean lack coherent, constant, and appropriate policies regarding their energy sector development, and 61% agreed that investment protection agreements and mechanisms could be improved.
77% of respondents said Latin America's energy supply problems result from sector planning and performance.
Over one third of respondents considered energy integration as impractical, too susceptible to the risk of contracts being broken, or as unfair in the distribution of its benefits, and a further 17% saw room for energy integration - defined as cross border infrastructure being operated on a regular and coordinated basis - only as a back up. The remaining 47% of responses saw integration as absolutely necessary for future sector operations and the most efficient use of resources.
There was little consensus on LNG: 23% thought such plants are too expensive, 21% thought them to be the most cost-effective way of securing energy supplies, and 34% thought that because of the energy security they bring, regasification plants are worth the expense.
37% of respondents said that the dominance of state-owned companies is detrimental to the region's energy sector.
Over 50% of responses endorsed the quality and quantity of available labor in the region's energy sector.
75% of respondents agreed that in 2008, Latin America and the Caribbean is a great place to be doing energy sector business.
Energy Outlook 2008 can be accessed at www.andeanenergycongress.com.