The oil and gas sector in Latin America is a dynamic and diverse landscape, constantly evolving due to many factors. Each country’s unique trends and challenges, including Colombia, reflect this diversity.
Market Openness and Interventionist Policies
While some countries are making rapid progress, others still face significant obstacles. For example, Brazil, Argentina, Ecuador, and Peru have sought to open their oil and gas markets, each with unique challenges. At the same time, countries like Venezuela and Mexico follow more interventionist state policies in Latin America’s oil and gas sector, facing their own hurdles.
Energy Transition and Regional Variations
Understanding the energy transition and its regional variations is crucial. In 2022, Colombia ranked 29th out of 115 countries in the World Economic Forum’s Energy Transition Index 2021. Hydrocarbon companies like Ecopetrol have also driven innovation through their Econova network, generating USD 12 million (approximately COP 48.654 billion). According to the Ministry of Mines and Energy, the country aims to achieve 50% renewable energy in its energy mix by 2030.
Data from the Energy Transition Report in Latin America, a study conducted by Aggreko with professionals from the electricity and infrastructure sectors in 13 Latin American countries, helped us map some of these energy scenarios in the region. Therefore, what may represent significant progress in the energy transition for some may not be the case for others. The need for a tailored approach is evident, as in a country with a massive presence of heavier fossil fuels in the energy matrix, transitioning to a lower-emission fuel like natural gas might make sense, as is the case with Peru. In others, the vision might differ with many renewables in the energy matrix. In other words, we have very different situations to address in this area.
Colombia’s Approach and Challenges
The opening of the oil and gas market in Latin America presents a diversity of approaches and policies among the countries in the region. At the same time, the Colombian government takes an aggressive stance on the energy transition, prioritizing investments in wind, solar, and hydroelectric energy and refusing to grant new oil exploration licenses. Ecopetrol and Shell delineate discovered offshore fields to increase oil and gas reserves. This stance is criticized for reducing energy and economic security, with a 35% drop in drilling activities in the last two years, resulting in fewer jobs and revenues.
On the other hand, Colombia faces significant challenges, such as decreasing natural resources and an insufficient gas supply. According to the Colombian Association of Natural Gas (Naturgas), the gas supply will not meet demand next year, with projected sales of 43.5 Gbtud in 2025 and 160.5 Gbtud in 2026. To avoid shortages, Naturgas proposes complementing local supply with imported gas. From Aggreko’s perspective, exploring other alternatives to mitigate the impact of this situation on the oil and gas sector in Latin America is also crucial.
Balancing Energy Transition with Security
In this context, the energy transition, while necessary, must be carried out in a structured manner. Abrupt changes to renewable energy sources could compromise the country’s energy security, especially considering that renewable sources like wind and solar still face challenges related to reliability and storage. Latin America’s oil and gas sector, essential for energy security, demands a gradual transition, integrating renewable sources complementarily without abruptly eliminating traditional sources.
Thus, while Colombia aims to lead the energy transition, it must balance its policies to ensure long-term energy and economic security. The approach should be gradual, allowing new renewable energy storage and generation technologies to mature and integrate effectively into the energy matrix.
Regional Market Dynamics and Investments
This has driven investment and created jobs, especially in the natural gas sector. Recently, several state-owned companies in Latin America have been selling mature and non-strategic assets to stimulate economic activity, such as the sale of 55 fields in Argentina, which has generated significant interest. This approach is being adopted slowly in other countries. Carbon capture is gaining prominence with investments in CCUS technologies. In the energy transition, natural gas remains key, and Latin America, with its vast reserves, is well-positioned in this process.
When discussing energy transition, it is essential to consider the growing environmental awareness and the quest to reduce carbon emissions. Companies in the oil and gas sector in Latin America are investing in renewable energy and carbon capture technologies to mitigate their environmental impact and adapt to global market demands.
Country-Specific Developments
Brazil: Petrobras has been selling mature and less strategic fields to smaller private companies, stimulating investment and job creation.
Venezuela: Like Mexico, Venezuela has adopted statist and monopoly policies, which hinder the attraction of private investment. The country’s oil production has dropped significantly, and the lack of investment prevents a quick recovery. The complicated political and economic situation further worsens the sector’s outlook.
Mexico: Mexico’s oil production has declined, falling from over 3 million barrels per day in the past to around 1.8 million today. Despite government efforts to boost output through state investments, Pemex, the Mexican state-owned company, is the most indebted oil company in the world.
- Argentina: Adopting a more open approach towards the market and asset privatization, YPF sells mature and less strategic fields to private companies, stimulating investment and the service chain.
- Chile: Chile, one of the countries in the region most concerned about the energy transition, is seeking neutrality by 2050. Several green hydrogen and wind energy projects exemplify the country’s willingness to move in this direction.
- Ecuador: Despite significant oil and gas reserves, Ecuador is primarily an exporter of crude oil and imports most of its refined hydrocarbon needs. The country is focusing on refining and seeking diversification and sustainability.
- Guyana: Following a significant oil discovery in 2019 by ExxonMobil and Hess Corporation, Guyana is attracting major oil and gas service companies. The country is expected to produce 1.5 million barrels per day by 2027.
- Suriname: Supported by TotalEnergies, Suriname follows a similar path to Guyana, with significant investments planned for Block 58. Suriname’s development is expected to mirror Guyana’s success.
Conclusion
In conclusion, Latin America’s oil and gas sector navigates a complex landscape of economic, environmental, and technological challenges and opportunities. As countries in the region adopt varying strategies in response to their unique contexts, from Colombia’s cautious yet progressive energy transition to Brazil’s market liberalization and Venezuela’s state-centric policies, the future of the oil and gas sector in Latin America remains dynamic. Emerging players like Guyana and Suriname highlight the potential for transformative growth, while traditional leaders like Mexico and Argentina grapple with their own issues. The balance between advancing renewable energy and maintaining energy security will be crucial for the region’s sustainable development. As Latin America adapts to global trends and local demands, the oil and gas sector will be pivotal in shaping the region’s economic and environmental future.