PW Español




PW Live



Very usefull links



PW
Bookstore





Institutional
links


OPEC







PW
Business Partners

 


IRAQ OIL THE FORUM

 


Blogspots

The Global Barrel

Tiempo Cultural

Gustavo Coronel

Iran Watch.org

Le Blog des
Energies Nouvelles

News Links

AP

AFP

Aljazeera

Dow Jones

Reuters


Bloomberg

Views and News
from Norway

 

 


Lagniappe

 

IOA: Mexico’s round one XXIV La Jolla conference report

 


In the lead up to this year’s La Jolla Conference, the energy world was rocked by the return of volatility in international oil markets. Yet the specter of low oil prices that seemingly threatened to overshadow almost all other energy trends in 2015 has not come to pass. The US shale bubble has not burst, Mexico’s Round One oil and gas auction remains on track, and energy investment opportunities are apparent across the Western Hemisphere.

Instead panelists and experts at the XXIV La Jolla Energy Conference underscored Latin America’s competitiveness in spite of the current downturn. While in the short term, oil prices will undoubtedly impact the energy industry across the globe, the Western Hemisphere’s mid- to long-term outlook remains positive.

Still, energy security has become more important than ever in the region, be it through increased offshore and unconventional resource development, efficiencies in power generation, improved integration, or overcoming the above ground risks that stem from environmental and community concerns and institutional weakness. Latin America must continue to address these issues in order to take advantage of the mosaic of energy opportunities that define the region’s untapped resource potential.

Unconventional Development in a Low Price Environment

Low prices are having an impact on unconventional development across the Western Hemisphere. But with revolution emerging bruised rather than busted, the ability of shale producers to continue North America is reason to be optimistic about opportunities in other parts of the region.

The US shale revolution has disrupted the geopolitics of energy, and nowhere has this become clearer than in the current price environment. Panelists argued that the United States is becoming a swing producer, jostling weakened Saudi Arabia in a volatile market. Still with oil prices hovering around $60 a barrel, many US shale producers are already feeling the pinch. Rig counts, while not the only indicator, are in decline, and layoffs in the oil services industry are being measured in the tens of thousands. Technological innovation to increase efficiency and recovery rates will help US producers remain in the market but the question remains for how long. Experts generally agree that prices will rise but when that will occur and at what price is unclear. The return of oil price volatility is another major investment concern.

US shale oil and gas producers are also closely watching the domestic energy policy space. Presidential elections in 2016 will have an impact on the nation’s energy industry. Climate policies at federal and state level are already undercutting coal producers. Energy players are also monitoring the debate over lifting the ban on crude oil exports and the slow progress towards increasing exports of liquefied natural gas (LNG).

Latin American nations from Mexico to Colombia to Argentina are forging ahead with plans to exploit their own shale oil and gas reserves, taking the lessons from the US energy revolution and adapting them to local conditions and realities. Argentina’s Vaca Muerta, which holds the world’s second largest shale gas resources and fourth largest shale oil has attracted over $3 billion in foreign investment for pilot developments and more is
expected. Argentina’s national oil company YPF recognizes the long path ahead. The Eagle Ford shale in the US is half the
size of Vaca Muerta but currently produces twice the amount of oil as Argentina.

Another factor that may influence both conventional and unconventional development in the region is whether recent deals including Shell’s acquisition of BG Group and Alfa and Harbour Energy’s acquisition of Pacific Rubiales mark the beginning of a larger trend. For Alfa in particular the desire to build its operational capacity in Mexico was a driving factor. It also suggests the company is bullish on oil prices. In South America, experts speculate that Brazil’s national oil company Petrobras will begin selling assets as corruption scandals increase fiscal pressures, in addition to looking to financing from China.

Mexico

As Mexico’s energy reforms progress, most eyes will be on the outcome of the Round One oil and gas auction currently underway. As of May 2015, three calls had already been released, for shallow water exploration, shallow water extraction, and onshore extraction. The excitement surrounding Round One is unsurprising.

Mexico’s significant resource potential is diverse, covering conventional and unconventional oil and gas, both onshore and in shallow and deepwater. And for the first time in over seven decades, the country’s resources will be open to private investors. For many international oil companies, the prize remains the deep sea offshore waters on Mexico’s side of the Gulf of Mexico.

While there has been some concern that low oil prices will dissuade potential bidders, the initial success of the reforms will become apparent later this year as the Round One results are announced. Beyond the quantity and quality of firms bidding, the reforms will be judged by a whole host of factors, including total investment dollars, improvements in infrastructure, knowledge transfer, institutional strengthening, and
response to community and environmental concerns.

Perhaps the greatest risk for Mexico in a low price environment is increased competition both regionally and globally. One panelist noted that investors deciding between the United States and Mexico, for example, would weigh (un)certainty, infrastructure standards, and regulatory environment more heavily than in the past.

In the meantime, Mexico’s CNH highlighted that the only way for Mexico to significantly recover oil production in the near to medium term is from Pemex’s existing assets, many of which were retained under last year’s Round Zero process. That will require Mexico to drill far more than the estimated 20 exploratory wells per year currently, and a more robust partnering strategy.

Beyond oil and gas, Mexico’s power sector is also undergoing a transformation. A successful outcome could have significant impact in the short term, particularly in terms of the nation’s competitivity.

According to preliminary figures, the switch to natural gas has already reduced industrial power costs and the International Monetary Fund estimates they could come down by 13 percent. This could transform Mexico’s industrial sector as manufacturing is able to better compete with the southern United States. The automotive industry is one clear beneficiary. The proposed wholesale electric market is not without its critics, in particular
from solar and wind generators who fear that renewable projects will be unable to compete in the new market, despite the creation of renewable energy certificates, or CEL’s for their name in Spanish. The electric market guidelines are currently out for public consultation and will be finalized by the end of 2015.

 

Latin America's of shoreprospects

Despite significant potential, development of Latin America’s offshore resource base has experienced mixed results.

In Colombia, where offshore exploration is relatively new, the government is offering tax incentives to bring on the technical expertise the country so desperately needs.The National Hydrocarbons Agency (ANH) has recognized the lack of adequate data as a major reason Colombia has struggled to attract more investment in the past. Still, with 10 companies operating in the Caribbean waters, including players such as Repsol, there have been some encouraging signs. The Orca-1 natural gas discovery by Petrobras in 2014 was the most significant find in the region last year but the estimated potential of 264 million barrel of oil
equivalent is still insufficient to replace Colombia’s dwindling
hydrocarbons reserves. The ANH is banking on further
discoveries both off the Caribbean and Pacific Coast to close the
gap.

Colombia is not the only country seeking to exploit its offshore
assets. Brazil’s pre-salt reserves remain hugely important, though political complexity has only deepened with the latest Petrobras scandal on top of the revised regulatory framework enacted at the end of the Lula administration. Repsol is developing Venezuela’s first offshore natural gas field, producing an expected 300 million cubic feet of gas per day in 2015, rising to 800 mcf per day in 2016 - 2017. Still, Venezuela’s economic and political crises have made operations across the country difficult at best. Particularly in the offshore where according to one panelist, success rates are often as low as 10 percent, so-called non-technical risks are important factors to consider in major investment decisions. Opportunities in the region remain but panelists stressed the primacy of patience and persistence.

Keeping the Lights On

Latin America’s power sector has suffered high prices, instability, and poor planning for decades. In Central America and the Caribbean in particular, small markets relying on expensive liquid fuels (mostly diesel and fuel oil) for generation have had significant negative economic, social, and environmental impacts. The need for reliable and affordable electricity is undeniable. Security of supply, updated transmission infrastructure, and diversification are important factors. But for many in Latin America, simply taking advantage of existing interconnection opportunities would go a long way to increasing efficiency and lowering the cost of power for all consumers.

In Central America and the Caribbean, the focus has been on switching to natural gas in the power mix as well as increasing efficiency and scale through interconnection and integration efforts. The countries from Guatemala to Panama are already connected through the regional system - SIEPAC - funded in large part by the Inter-American Development Bank (IDB) and CAF - Development Bank of Latin America. In the Dominican
Republic, the construction of a liquefied natural gas (LNG) terminal is slowly transforming the nation’s electric mix. Private industry, national governments, and the US Department of State all support the expansion of gasfired power in the Caribbean basin.

In South America, the power sector’s problems could not be more distinct. In Peru, the expansion of natural gas production has transformed the electric mix, with natural gas now providing around 50 percent of the nation’s power and electricity prices are low. Chile, by comparison, has some of the highest electricity prices in the hemisphere, in part a result of losing natural gas exports from Argentina. Environmental and social opposition to new projects has only exacerbated the problems in Chile. The Bachelet government in Chile proposed changes as part of a new energy agenda for the nation that should take greater effect by next year.

As extreme weather and climate change affect the supply side of power generation, in particular hydropower capacity, interconnection only makes more sense. Increased efficiency and demand side management will also Colombia’s Oil and Gas Potential XXIV also have an impact, particularly the role of consumers. One panelist argued that given how little the industry has changed since Thomas Edison there is a desperate need to modernize the power sector. Indeed, with innovation in energy storage gaining pace, utilities across Latin America are starting to take notice.

Interconnection and Integration

In many ways, and at differing levels across the region, political and regulatory barriers to interconnection and integration continue to undermine the potential gains. Politics are not the only inhibiting factor, however, and in some cases powerful local players may resist the increased competition. The large-scale investment required in some cases is also significant and it is an area in which development banks such as the IDB and CAF can play an important role. However, in other cases, the transmission and transport infrastructure is already in place and requires minimal financial input to update or reactivate.

Regulatory harmonization has been another key obstacle in Central America, for example. In the Pacific Alliance countries, steps towards economic integration could be paving the way for integration in other areas. The sole existence of the Pacific Alliance is an important milestone in terms of regional integration. Progress may be slow but the economic benefits far outweigh the perceived political costs.

The role of the private sector in facilitating interconnection cannot be ignored. In South America in particular, several large companies, including utilities and natural gas providers, are already operating across borders. This role is already becoming apparent in the Pacific Alliance countries. Speakers cited, for example, Colombia’s state-controlled ISA.

Above Ground Risks

Latin America’s resource potential is significant and yet the region continues to struggle with non-technical risks that have too often stymied energy development. So-called “above ground risks” an array of political, institutional, environmental, and social factors that governments have been slow to address.

In some cases, the oil and gas industry has a history of poor communication and lack of transparency. Many governments in the region are equally culpable. Fortunately, change is happening and these issues are not as dire as in the past. In South America in particular, environmental and social backlash against the extractive industry has seen both the private sector and regulators seek build better relationships with communities and increase access to information, trust and communication, particularly early in the process. Much remains to be done but countries such as Mexico have the opportunity to learn from Peru, Colombia, Chile and elsewhere.

While many of the formal processes place the burden of responsibility on the national government, the shortterm nature of the electoral cycle has long presented a challenge. Moreover, the historical disconnectbetween national and local government across most of the region only further complicates the matter. Oftentimes, at the local level, companies are left with much of the responsibility. The private sector has an obligation to the community and to protect the environment but governments and communities must not view companies as a replacement for the State. Without question, strong, independent institutions are a necessity.

Consulta previa or prior consultation is an international human right and one that must be respected when indigenous communities are involved. However, community responsibility goes beyond this factor. Panelists underscored the importance of not just negotiating with local communities but building professional capacity and skills at the local level. One panelist likened the relationship to a long marriage, in which the
“commitment” must be continually reviewed and trust between partners reaffirmed on a regular basis.

The Institute of the Americas’ Energy Program works to foster a deeper understanding of the most critical energy issues facing the Western Hemisphere. For more information and upcoming events, follow us on Twitter @IOA_Energy or visit: www.iamericas.org/energy

The Institute is grateful to Leila Ahlstrom and Paul Spitsen, graduate students in the Global Policy & Strategy Program at UCSD for their invaluable assistance in preparing this report.

 

IOA - The Institute of the Americas is an independent, inter-American organization that promotes public private cooperation across the Americas.( http://www.iamericas.org/ ). Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by IOA , 06/19/2015. Petroleumworld reprint this article in the interest of our readers.

Follow us in : twitter / Facebook


All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.
Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator. Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated


Petroleumworld News 06/22/2015

Follow us in : twitter / Facebook


Send this story to a friend

Copyright© 1999-2009 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors.Internet web links to http://www.petroleumworld.com are appreciated

Petroleumworld welcomes your feedback and comments,
share your thoughts on this article, your feed. back is important to us!

We invite all our readers to share with us
their views and comments about this article.

Write to editor@petroleumworld.com

 

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8 +/ 800x600 pixels




 


29-30 September,
Cartagena, Colombia


TOP

Editor & Publisher:Paul Ohep F./Contact Email: editor@petroleumworld.com

Contact:
editor@petroleumworld.com/ phone:


CopyRight © 1999-2010, Paul Ohep Fitzgerald.- All Rights Reserved. Legal Information


PW in Top 100 Energy Sites


Technorati Profile


CopyRight © 1999-2010, Elio Ohep F. - All Rights Reserved.
This material may not be published, broadcast, posted online, rewritten or redistributed by any type of means, except with permission of the author/s

The information in this web site is proprietary and is protected under United States and International Copyright and Trademark laws. No part of this web site may be reproduced or transmitted in any form by any means whatsoever, except with permission of the author/s..

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law. If you wish to use copyrighted material from this site for purposes of your own that go beyond
'fair use', you must obtain permission from the copyright owner.
Any use of this site or its material, in any form, without the express prior written consent of the author, is prohibited by law and is subject to legal action. Legal Information

Top 100+

Technorati Profile
Fair use notice of copyrighted material:

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from Petroleumworld or the copyright owner of the material.