Op-Ed Commentary

 

 

Global Insight: Latin America: The international
reach of state oil companies in Latin America

A surge in foreign direct investment (FDI) outflows from Latin America and the Caribbean has led to increased interest in the leading “trans-Latins” or Latin American companies that are expanding beyond the borders of their home countries. In this context, Global Insight takes a closer look at the internationalisation strategies of the region's national oil companies (NOCs).

Key Findings

The overseas investments of trans-Latins from the hydrocarbons and electricity sectors tend to be regionally rather than internationally based, and for all of these companies production from their domestic rather than their foreign operations still generates the bulk of their revenue.

Two state oil companies in particular stand out for their global presence in selective areas: Petrobras (in deepwater exploration in the U.S. Gulf of Mexico—GOM—and West Africa); and PDVSA as a major refiner in the United States.

The two companies have also in recent years significantly expanded their presence at a regional level.

Other Latin American NOCs with internationalisation strategies Chile's ENAP and Colombia's Ecopetrol have far more modest portfolios of overseas assets in selective projects, while Mexico's state oil monopoly Pemex has been prevented from expanding overseas by financial constraints.

Although there might be limits to the internationalisation of the trans-Latins from the energy sector, their growing influence in the region is significant and could have broader implications for the future development of energy markets in Latin America and the Caribbean.

What Does the Future Hold?

Any future expansion by trans-Latins from the oil and electricity sectors is likely to continue to be regional rather than international, with the possible exception of Petrobras, which is reportedly considering investment in a Japanese refinery among potential new ventures overseas. Trans-Latin oil companies are unlikely to pose direct competition to IOCs in Latin America, although there may be increasing competition between NOCs from the region and from other regions. However, any competition for participation in specific projects will be counterbalanced by the opportunities for investment that open up as a result of increased co-operation between NOCs.

Possible new investments by trans-Latins in the region include a petrochemical plant under consideration by Braskem in Bolivia and Petrobras's participation in a petrochemical project in Peru. Further opportunities for greater internationalisation by NOCs in Latin America are likely to emerge. The Peruvian state oil company Petroperu is seeking to recover its role as an oil producer and has been signing or discussing association agreements with other NOCs in the region in order to strengthen its capabilities at home. This may open up opportunities for greater investment in Peru by Petrobras, Ecopetrol, or ENAP.

The current preference for alliances between NOCs rather than between NOCs and IOCs shown by Argentina, Venezuela, and Ecuador could also provide new opportunities for investment by NOCs based in the region although political rivalry between the governments of Colombia and Venezuela means that Ecopetrol would probably be cautious about committing itself to significant investments in Venezuela.

There is also the possibility that new transnationals may emerge in the region. For instance, Brazil's federal power holding group Eletrobrás has previously expressed a desire to become an international player like Petrobras although this would require reform to allow it greater financial autonomy. As for trans-Latin oil companies the main players will continue to be Petrobras, PDVSA, and to a lesser extent Ecopetrol and ENAP, while capital constraints mean that NOCs from other countries like Ecuador's Petroecuador and Mexico's Pemex are unlikely to join them in the search for assets abroad in the short to medium-term.

- Juliette Kerr

Juliette Kerr is an energy analyst for Global Insight International
( Juliette.kerr@globalinsight.com). Petroleumworld not necessarily share these views.

Editor's note: For more analysis from Global Insight, contact Catarina Walsh, Media Relations, Global Insight [International] + 44 (0) 20-7452-5183 (catarina.walsh@globalinsight.com).

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Petroleumworld News 08/10/07

Copyright© 2007 Global Insight International. All rights reserved.

 

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