Jeremy M. Martin &
Alexis Arthur :
Latam 2014: Top energy stories
December brings the end of another thrilling year for energy policy in the Western Hemisphere and offers an excellent occasion to reflect on the top energy stories since we last sang Auld Lang Syne.
Clearly, the shocking free-fall in oil prices, as well as the continued march of the US energy revolution and the evolving debate in the US over crude oil exports figure in any list. But the implementation of Mexico's energy reform, Argentina's shale story, and Brazil's political rollercoaster also merit further review.
Distilling all that occurred over the last 12 months into a top five list is ambitious. But we believe that the following five stories are interesting to peruse over egg nog and holiday cheer.
GLOBAL OIL PRICES
Our top energy story for 2014 is also the most surprising a precipitous fall in global oil prices certainly did not figure in too many prognostications for the year.
The price of crude has dropped more than 45 percent since summer with Brent around $60 a barrel and the US benchmark West Texas Intermediate below $60. Some economists fear prices could drop below $50.
Opinions differ as to the outlook for the price of oil as we bid adieu to 2014. Yet it is unlikely there will be a significant rise in the short term without a drop in output from the world's largest producers or a rise in global demand.
When the Organization of Petroleum Exporting Countries or OPEC decided not to reduce oil output in response to the price plunge, many saw it as an illustration of the cartel's waning influence. Others argued that the decision amounted to a stealth attack' by members such as Saudi Arabia on nations such as Russia and Venezuela.
The impact on the Western Hemisphere varies across the region.
In Venezuela where oil accounts for almost all of the nation's foreign reserves the effects will be particularly severe. That said, the breakeven price for oil production in Venezuela remains above current and expected prices and should keep projects economically viable.
Still, the cumulative effect of lower profits, declining production and a serious fiscal squeeze already underway only exacerbate the problem. Venezuela's partners in particular the members of Petrocaribe may need to reduce their reliance on the struggling nation's oil sooner than planned.
As Mexico opens its first oil and gas bid round, there are fears low oil prices could dampen enthusiasm and investment. However, given that production costs for the initial shallow water tender announced on December 11 are estimated at around $20 per barrel, it seems that projects will be economically viable for some time yet.
In the short term, lower prices are providing some relief for consumers, particularly in the United States. But over the medium term, many argue the possibility of a more negative impact on the US economy. Indeed, the US is not only the world's largest oil consumer but also one of the largest producers, and the lower price limit for viability of domestic oil production remains unclear. The impact on supply, jobs, and the economies of producing states could be significant.
The longer term impacts on economies across the Western Hemisphere will depend on several factors, most of which are difficult to predict, including how far prices may yet fall, how long they take to stabilize, and at what price point. There is no doubt this final figure will be lower than what we have seen in the last several years.
US CRUDE EXPORTS
US oil reserves surpassed 36 billion barrels for the first time since 1975 and look set to continue rising, albeit at a slower pace.
There is a perception that energy issues in the United States are driven by markets rather than politics but 2014 has proven that energy policy in the US, as elsewhere, is inherently political.
The debate over lifting the United States' 40-year ban on the export of crude oil is no exception.
Over the course of 2014, several members of Congress have pitched the idea that as the global energy landscape has changed, a ban on exports no longer makes sense.
The argument has received support from Ernest Moniz, US Secretary of Energy, who has promised to examine the issue of crude exports further.
Recent exports of condensates show companies are already finding ways to move the bonanza to markets outside the US.
As with any major policy change there could be winners and losers, with economists divided over the impact on gasoline prices domestically. That may not matter quite so much in 2015 as the global drop in oil prices has already brought some relief to consumers. The question now is not so much if, but when, the change occurs.
MEXICO'S ENERGY REFORM
In the year since President Enrique Peña Nieto submitted the tectonic-shifting energy reform agenda to Congress, all eyes have been on Mexico.
The results of Round Zero, announced in August, saw national oil company Pemex awarded much of what it requested, including 83 percent of the country's probable and possible reserves and 21 percent of prospective reserves. Pemex can exploit these resources alone or in joint-ventures with international or domestic partners.
Secondary legislation debated and approved in both houses this year sets the foundation for the implementation of the reforms as well as defining the roles of new regulatory bodies in oil and gas sectors, and outlining the scope of new initiatives such as the clean energy certificates program in the power market.
While the reforms have been generally received positively abroad, the president still faces critics at home. In addition to groups opposing the measures on nationalist grounds, renewables advocates have also been skeptical of the proposals. They argue that the benefits of the reforms will largely accrue to the oil and gas sector.
Going forward, exogenous factors pose the greatest risk to the reforms. Plummeting oil prices, ongoing security challenges, and questions of transparency are swirling around the Round One contracts. Still the big question remains, in a region that has been through so many reform processes, can Mexico's energy reforms endure?
One thing is certain: with the announcement on December 11 of the terms of the first tender for 14 production sharing agreements for shallow water exploration and other Round One bids set to span most of 2015, Mexico will likely remain a top story well into next year.
ARGENTINA'S NEW ENERGY INVESTMENT MODEL
Argentina's latest debt crisis and World Cup anticlimax may have overshadowed the nation's energy policies in 2014. However, the abundance of shale reserves continues to make the country a hot spot for possible energy investment.
Argentina sits atop 802 trillion cubic feet of shale gas the second largest reserves in the world plus the fourth largest reserves of shale oil. According to national oil company YPF, unconventional production is already exceeding 40,000 barrels per day.
Despite the massive below-ground resources, above-ground issues and domestic politics have kept most investors on the sidelines. Until Malaysia's Petronas announced their deal with YPF, Chevron had been the only oil major to take the plunge.
But Argentina is counting even more so on a major overhaul of its hydrocarbons law this past September to turn its prospects around. Among several changes, the new law caps royalties for oil-producing provinces at 12 percent, centralizes the bidding process and perhaps most importantly, allows for up to 20 percent of production to be exported free of tariffs or to be sold domestically at international prices.
A presidential election in 2015 adds an important wrinkle to the equation in Argentina.
A TUMULTUOUS YEAR IN BRAZIL
Regrettably, Brazil only makes the list due a tumultuous presidential election and corruption scandal that has embroiled national oil company Petrobras.
As Brazil geared up for one of the more exciting political battles of the year, much of the attention focused on the nation's economy and energy sector, both of which have lost their spark.
Despite being home to one of the biggest energy discoveries of the decade estimates of the nation's pre-salt reserves run from 50 100 billion barrels of recoverable oil Brazil has struggled to attract foreign interest in exploration and production.
After a dramatic election campaign, incumbent President Dilma Rousseff narrowly defeated pro-business candidate Aécio Neves, leaving her with the task of reinvigorating Brazil's energy industry.
By bringing on a new finance minister from the private sector, there are hopes Rousseff will review some of the issues including local content rules that have stifled investment in the country's oil patch, particularly the pre-salt.
But in the short term, Rousseff has a far more pressing concern as Petrobras is embroiled in Brazil's latest corruption scandal. With 35 people indicted and counting, Rousseff has vowed to investigate fully, noting that the scandal could change Brazil'.
As the calendar turns to 2015, a key question in Brazil remains how much the current scandal will change Petrobras.
As noted at the outset, determining a mere five stories for all of 2014 is fraught with peril. Therefore, we have added a few honorable energy mentions, including some energy stories you might have missed.
In Chile, President Michelle Bachelet returned to the La Moneda palace she served her first term from 2006 2010 to find many of the same energy challenges as before. Within her first 100 days, Ms. Bachelet launched an energy agenda that is focused on finding a balance between reducing costs, meeting demand and tackling environmental challenges.
Colombia, once the darling of the energy world, has seen its golden energy era seriously challenged as the country faces renewed security threats, a lack of major discoveries, and social and environmental concerns.
Peru celebrated the 10th anniversary of its Camisea natural gas project this past August. For many, the project is a model for the region not only in the lessons learned the creation of a natural gas market but also how the government and private sector partners have managed the social and environmental elements. At issue now is whether all involved can take the difficult steps to insure the next decade will be even better than the first.
Jeremy M. Martin is the director of the Energy Program at the Institute of the Americas at the University of California, San Diego. The institute is a nonprofit inter-American organization focused on economic development in the Western Hemisphere. email@example.com and Twitter @jermartinioa. Alexis Arthur is energy policy associate at the Institute of the Americas. She regularly writes and tweets on energy and natural resources policy in the U.S. and Latin America. firstname.lastname@example.org or via Twitter @IOA_Energy. They wrote this column for Latinvex . Petroleumworld does not necessarily share these views.
Editor's Note: This editorial was originally published by Latinvex, on Dec 15, 2014. Petroleumworld reprint this article in the interest of our readers.
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