Latin American oil assets are at risk
The World Bank identified Iraq, Libya, Venezuela, Equatorial Guinea, Nigeria, Iran, Guyana, Algeria, Azerbaijan, and Kazakhstan as the most vulnerable oil-producing countries earlier this year due to their high exposure to the oil and gas sector. Latin American economies are not faring much better. This is due to their reliance on oil and the lack of a clear roadmap in the global energy transition.
Venezuela, Ecuador, and Colombia rely heavily on oil exports and revenues. Bolivia and Trinidad are both heavily reliant on natural gas. Meanwhile, thanks to ExxonMobil and its partners’ oil discoveries, the small country of Guyana should become the world’s largest per-capita oil producer. Argentina, Brazil, and Mexico are less reliant on fossil fuels. Hence, oil and gas remain among the largest industries in each country in fiscal revenues, exports, and investments.
There have been recent oil price increases and the pressing need to save economies. Therefore many countries in the region are looking to develop their fossil fuels. Fossil fuels have received significantly more funding than renewable energy as part of recovery packages. Some national oil companies are increasing energy efficiency and reducing gas flaring. However, the region’s energy sector is not on track to meet the Paris Agreement’s goal of reaching net-zero emissions by 2050. In scenarios consistent with the 1.5-degree target, Latin American oil production must fall to less than 4 million barrels per day by 2035–60% below pre-pandemic levels. It means that they will not use up to 81 percent of their proven, probable, and possible oil reserves before 2035.
Latin America imported 2.69 million barrels per day (BPD) of crude and refined products from the United States last year. This was a 12% decrease from the record 3.05 million BPD in 201. However, it is an 88 percent increase from a decade earlier.
Earlier this year, a deep freeze in Texas cut off the natural gas supply to Northern Mexico. It left homes without power and forced hundreds of factories to slow down or shut down. It prompted the Mexican government to restart power generation with coal and fuel oil. Mexico has postponed planned reforms to reduce emissions from motor fuels. This includes a rule requiring truck manufacturers to switch to ultra-low sulfur diesel engines (ULSD). Meanwhile, Venezuela has done nothing to reduce pollution from motor fuels since its state-run firm PDVSA removed lead from gasoline in 2005, despite underinvestment and US sanctions.
However, there are some encouraging exceptions. We have solar energy in Peru and Chile, Brazil’s large hydroelectric capacity and aggressive bet on biofuels, and state-run Petrobras’ new drive to supply biofuels to the aviation industry. Meanwhile, Colombian President Ivan Duque has urged businesses to reduce CO2 emissions while expanding non-traditional renewable energy sources drastically.