Energy policies in Latin America will, at best, make it difficult for countries to maintain stable production and, at worst, are causing full-blown crises. This is unfortunate for U.S. consumers. Although, Latin American producers are dwarfed by OPEC — except for Venezuela, which is part of the international oil cartel — the region’s production is still sizeable. Having a robust supply-source in America’s backyard bolsters our energy security.
Argentina’s energy crisis has become so severe, some analysts predict it could cut economic growth this year by two percentage points. The country’s energy shortages were caused, primarily, by the government’s decision in January 2002 to freeze natural gas prices as the country’s currency collapsed. The government allowed foreign gas companies to raise rates for the first time earlier this month, but they remain below international prices. While Argentina has been an exporter of gas in the past, it recently broke its supply contracts with Chile.
Chile, in turn, is having difficulty replacing this energy source. Chile’s needs could be covered by Bolivia, but that is politically unfeasible. Over the past year, some Bolivian politicians have resuscitated lingering bitterness over a 1879 war with Chile, and have blocked a pipeline project that would connect the neighboring countries. Interestingly, the politicians reawakening this old-belligerence are not associated with military factions, as might be expected, but rather with political parties that claim to support the country’s poor. If attempts to reroute the project through Peru prove unfeasible, Bolivia will have lost the only foreseeable opportunity for generating significant revenue for social services.
Mexico is the third largest supplier of crude oil to the United States and produces about 3.2 million barrels of oil a day. It could also have significant oil reserves in deeper waters, but the state-oil monopoly, Pemex, doesn’t have the capital for that expensive drilling or to outsource it. Mexican law forbids foreign companies from acquiring ownership rights to oil or gas. President Bush’s 2001 plan to integrate the energy infrastructures of the U.S., Canada and Mexico were made with Mexico’s considerable energy potential in mind. But Mexico has become so reliant on oil profits to fatten its public coffers, it has failed to invest in Pemex. This lack of investment could cause Mexico’s oil wells to start drying up in 10 to 20 years. Some analysts estimate Mexico needs $50 billion over 10 years just to maintain supply.
Venezuela, the fourth-largest supplier of crude to the United States, produces about 2.6 million barrels a day, down from about 3.2 million barrels a day due to the effects of a general strike in late 2002. That number could drop to 2.4 million barrels a day by the end of this year, due to a lack of investment ininfrastructure. Venezuela needs to spend more than $2 billion a year just to keep production from falling, but Venezuela’s President Hugo Chavez has failed to invest in the industry and has caused foreign investment to drop, due to jitters over political stability and changes in regulation.
Finally, Brazil is Latin America’s bright spot, in terms of regulatory policy and promising exploration. It has allowed private investors to develop some oil fields, and the country’s state-controlled energy giant, Petrobas, has discovered a huge off-shore natural gas reserve. Still, building the infrastructure to liquify that gas and ship it requires almost $2 billion in capital investment and it remains unclear if Brazil will be able to generate that capital.
Latin America’s super-charged energy politics are undermining not only prospects for growth, but for stable production as well. Given the expected technological advances in deep water drilling and breakthroughs in bringing natural gas to market cheaply, the United States could, in theory, depend increasingly on the resources in its proximity. However, in Latin America, politics might render such an idea a pipe-dream for the foreseeable future.
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