Professor Alejandro Diaz-Bautista, Energy Policy in Latin America, UCSD Presentation, January 2013


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Professor Alejandro Diaz-Bautista, Energy Policy in Latin America, UCSD Presentation, January 2013

  1. 1. Energy policy in Latin America,the cases of Mexico and Brazil. Alejandro Díaz-Bautista, Ph.D. Professor of Economics and Researcher Email: School of International Relations & Pacific Studies.University of California, San Diego (UCSD),January 16, 2013.
  2. 2. Energy Economics• Economists study the ways in which societies allocate limited resources to meet unlimited wants. Because most energy production involves the use of finite, non-renewable resources, such as fossil fuels, energy economics is an important economic specialty and field of research in Latin America.
  3. 3. Energy and Economic GrowthWhile business and financial economists pay significant attention to the impact of oil and other energy prices on economic activity, the mainstream theory of economic growth pays little attention to the role of energy or other natural resources in promoting or enabling economic growth.
  4. 4. Economic Growth and Energy Consumption• Energy is a vital ingredient to economic growth. This has been recognized at least as long as economic statistics have been compiled by government, and probably for much longer than that. Perhaps the best example of the fundamental role that energy plays in large, complex national economies is found in the1973–1974 oil embargo, when oil-producing nations of the Middle East restricted supply and prices rose fourfold in a space of a few months.• The resulting chaos in the oil-consuming economies of the industrialized West was widely considered to be a direct result of the embargo. In the United States, GDP fell in 1974, after two decades of steady growth. The high cost and scarcity of oil was seen as the primary cause.
  5. 5. Oil Prices 2000-2010
  6. 6. U.S. Gasoline and Crude Oil Prices
  7. 7. Major Oil Fields in 2002
  8. 8. Top Oil Producing Countries2008 (in million barrels per day)
  9. 9. Oil imported to the United States
  10. 10. Energy Supply in Latin America
  11. 11. Brazil
  12. 12. Brazil• Brazil has experienced rapidly expanding oil, natural gas, and electricity consumption in recent years.• Brazil was the largest producer of liquid fuels in South America in 2011.• Natural gas constitutes only a small portion of Brazil’s total energy consumption.• Brazil has the third-largest electricity sector in the Western Hemisphere, behind the United States and Canada.
  13. 13. Brazil’s Energy Sector• Brazil is the ninth largest energy consumer in the world and the third largest in the Western Hemisphere, behind the United States and Canada.• Total primary energy consumption in Brazil has increased by close to a third in the last decade, due to sustained economic growth. In addition, Brazil has made great strides in increasing its total energy production, particularly oil and ethanol.• Increasing domestic oil production has been a long-term goal of the Brazilian government, and recent discoveries of large offshore, pre-salt oil deposits could transform Brazil into one of the largest oil producers in the world.
  14. 14. Energy Sector Industrial Organization• State-controlled Petrobras is the dominant player in Brazil’s oil sector, holding important positions in up-, mid-, and downstream activities. The company held a monopoly on oil-related activities in the country until 1997, when the government opened the sector to competition. The principal government agency charged with monitoring the oil sector is the National Petroleum Agency (ANP), which is responsible for issuing exploration and production licenses and ensuring compliance with relevant regulations.• Despite the opening of the sector to private actors in the late 1990s, foreign-operated oil projects are not common in Brazil and represent a small share of total oil production.• Royal Dutch Shell was the first foreign operator of crude oil production in the country, and it is now joined by Chevron and Devon. Private competition in the sector is not just from foreign companies: in September 2009, Brazilian oil company OGX commenced an exploratory drilling program in the Campos Basin.
  15. 15. Brazil• Brazil had 12.6 billion barrels of proven oil reserves in 2009, second-largest in South America after Venezuela. The offshore Campos and Santos Basins, located on the country’s southeast coast, contain the vast majority of Brazil’s proven reserves. In 2008, Brazil produced 2.4 million barrels per day (bbl/d) of oil, of which 76 percent was crude oil. Brazil’s oil production has risen steadily in recent years, with the country’s oil production in 2008 about 150,000 bbl/d (6 percent) higher than 2007.• Based on its September 2009 Short-Term Energy Outlook, EIA forecasts Brazilian oil production to reach 2.61 million bbl/d in 2009 and 2.81 million bbl/d in 2010. Brazil’s oil consumption averaged 2.52 million bbl/d in 2008. As a result of this rising oil production and flat consumption growth, Brazil will become a net oil exporter in 2009.
  16. 16. Exploration and Production• Petrobras controls almost all crude oil production in Brazil. The largest oil- production region of the country is Rio de Janeiro state, which contains over 80 percent of Brazil’s total production.• Most of Brazil’s crude oil production is offshore in very deep water and consists of mostly-heavy grades.
  17. 17. Foreign Oil Operators• Shell’s Bijupira-Salema project in the Campos Basin was the first field in Brazil not operated by Petrobras. The project came on-stream in 2003 and produces about 50,000 bbl/d.• Shell launched its BC-10 project in July 2009, which has a designed capacity of 100,000 bbl/d.• Devon brought its Polvo project (50,000 bbl/d) online in August 2007, representing the only upstream oil project in Brazil without any Petrobras participation.• Chevron commenced operations at the Frade project (100,000 bbl/d) in July 2009. Finally, StatoilHydro is developing the Peregrino field in Brazil, with expected production capacity of 100,000 bbl/d.
  18. 18. Subsalt Basin, Tupi field• While some of the worlds largest oil producers, including Mexico and Iran, are struggling to remain exporters, Brazil is moving in the opposite direction. A huge underwater oil field discovered late last year has the potential to transform South Americas largest country into a sizable exporter and win it a seat at the table of the worlds oil cartel.• The new oil, along with refining projects under way by Petrobras, the national oil company, could eventually make Brazil a larger exporter of gasoline as well, adding to supplies in the United States and other countries where it is all but impossible to build new refineries.• The subsalt basin that contains Tupi, the new deepwater field estimated to hold the equivalent of five billion to eight billion barrels of light crude oil, is creating a buzz among the worlds largest oil companies. They have struggled lately to find global-scale projects worth investing in, even with oil touching $100 a barrel. Tupi is the worlds biggest oil find since a 12-billion-barrel field discovered in 2000 in Kazakhstan.
  19. 19. Pre-Salt Resources: Tupi and Beyond• A consortium of Petrobras, BG Group, and Petrogal discovered the Tupi field in 2006, containing an estimated 5-8 billion barrels of recoverable reserves (including both oil and natural gas). The reserves occur in a subsalt zone that is an average of 18,000 feet below the ocean surface.• The Tupi find was the largest oil discovery since the supergiant Kashagan field in Kazakhstan. In addition, oil encountered in the subsalt zones appears to be lighter and sweeter than most of Brazil’s existing production. Following Tupi, numerous additional pre-salt discoveries were announced, such as Carioca, Iara, and Guara.• Preliminary estimates by industry analysts of the total extent of recoverable oil and natural gas reserves in the entire subsalt reserve have exceeded 50 billion barrels of oil equivalent. In early 2009, Petrobras inaugurated an extended test at the Tupi field, which will produce 14,000 bbl/d and help develop techniques and expertise to overcome the challenges of pre-salt production.
  20. 20. Proposed Regulatory Reforms in Brazil 2009-2010• The Brazilian government released the proposed regulatory framework for the pre-salt reserves in August 2009. The framework consists of four pieces of legislation.• First, the rules would establish new production share agreements (PSAs) to exploit the pre-salt reserves, in contrast with the concession framework used for existing resources. Petrobras would be the sole operator of each PSA and would hold a minimum 30 percent stake in the projects.• Second, the rules would create a new agency, Petrosal, to administer the state’s share of each PSA.• Third, the government would establish a new development fund to manage government revenues from the pre-salt development.• The fourth piece of legislation would allow the government to capitalize Petrobras by granting it pre-salt oil reserves that are currently not otherwise licensed. These new rules would not affect existing operators in Brazil.
  21. 21. Pipelines• Transpetro, a wholly owned subsidiary of Petrobras, operates Brazil’s crude oil transport network. The system consists of 4,000 miles of crude oil pipelines, coastal import terminals, and inland storage facilities.• The overall structure of the network enables the movement of crude oil from coastal production facilities and import terminals to inland refineries and consumption centers.
  22. 22. Downstream• According to OGJ, Brazil has 1.9 million bbl/d of crude oil refining capacity spread amongst 13 refineries. Petrobras operates 11 facilities, the largest being the 360,000-bbl/d Paulinia refinery in Sao Paulo. Petrobras also controls a dominant stake in the retail products market. The refining capacity in Brazil is relatively simple, meaning that the country must export some of its heavy crude oil production and import light crude oil: according to Petrobras, domestic crude constituted 78 percent of total domestic refinery feedstock.• Gasoline prices in Brazil are relatively high when compared to international levels: according to the German Agency for Technical Cooperation (GTZ), regular unleaded gasoline prices averaged $1.58 in 2007 and $1.26 per liter in November 2008 ($5.04 per gallon), versus $2.21 per gallon in the United States.• According to its strategic plan, Petrobras plans to increase its Brazilian refining capacity to 3.0 million bbl/d by 2020. In 2007, Petrobras began initial site preparation for a new, 230,000-bbl/d refinery in Pernambuco, dubbed Abreu e Lima. The project is a joint venture with state-owned Petroleos de Venezuela S.A. (PdVSA), with each country providing half of the heavy-oil feedstock for the plant. However, the two partners have yet to conclude a final agreement. Petrobras estimated that the project would cost $12 billion.
  23. 23. Governments in Mexico, Venezuela, Argentina, and elsewhere are spending billions of dollars on fuelsubsidies to assure cheap fuel and keep a lid on social unrest. But as national budgets come underincreasing strain, these governments may have to consider alternatives.Remember your gallons to liters conversion: 1 gallon = 3.785 liters
  24. 24. Ethanol• Brazil is one of the largest producers of ethanol in the world and is the largest exporter of the fuel. In 2008, Brazil produced 454,000 bbl/d of ethanol, up from 365,000 in 2007. All gasoline in Brazil contains ethanol, with blending levels varying from 20-25 percent. Over half of all cars in the country are of the flex-fuel variety, meaning that they can run on 100 percent ethanol or an ethanol- gasoline mixture. According to ANP, Brazil also produced about 20,000 bbl/d of biodiesel in 2008, and the agency has enacted a three-percent blending requirement for domestic diesel sales.• The importance of ethanol in Brazil’s domestic transportation fuels market will only increase in the future. According to Petrobras, ethanol accounts for more than 50 percent of current light vehicle fuel demand, and the company expects this to increase to over 80 percent by 2020. Nearly 90 percent of all new cars sold in Brazil are flex-fuel vehicles, which will slowly remove gasoline-only cars from the fleet.
  25. 25. Ethanol Exports• Because ethanol production continues to grow faster than domestic demand, Brazil has sought to increase ethanol exports. According to industry sources, Brazil’s ethanol exports reached 86,000 bbl/d in 2008, with 13,000 bbl/d going to the United States.• Brazil is the largest ethanol exporter in the world, holding over 90 percent of the global export market. Besides the United States, important export destinations include Europe and Japan: According to industry reports, Brazil exported 690 bbl/d of ethanol to Japan in 2008, but exporters were expected to increase to 1,600 bbl/d in 2009.
  26. 26. Natural Gas• Brazil had 12.9 trillion cubic feet (Tcf) of proven natural gas reserves in 2009. The Campos and Santos Basins hold the majority of reserves, but there are also sizable reserves in the interior parts of the country. Despite Brazil’s sizable natural gas reserves, natural gas production has grown slowly in recent years, mainly due to a lack of domestic transportation capacity and low domestic prices. In 2008, Brazil produced 446 billion cubic feet (Bcf) of natural gas, mostly unchanged from 2007.• Natural gas consumption is a small part of the country’s overall energy mix, constituting only 7 percent of total energy consumption in 2006. However, natural gas demand is rising: in 2008, Brazil consumed 835 Bcf of natural gas, up from 701 Bcf in 2007.• Oil prices have helped spur natural gas demand in Brazil: natural gas is mostly used as a substitute for fuel oil in industrial and power-generating applications, and domestic prices for natural gas are much lower than international fuel oil prices. The introduction of natural gas imports has increased available supplies, helping to facilitate this growth in domestic consumption.
  27. 27. Natural Gas Sector Industrial Organization• Petrobras is the largest producer of natural gas in Brazil. The company reportedly controls over 90 percent of Brazil’s natural gas reserves. Other important participants in the sector include Sulgas and Britain’s BG. ANP has sought to attract international investment to the sector, with recent exploration licensing rounds including many gas-prone areas. Petrobras is also the largest wholesale supplier of natural gas. The industrial sector is the largest consumer of natural gas in Brazil, representing about 80 percent of total domestic consumption. However, the two fastest growing sectors are thermal electricity generation and vehicular compressed natural gas (CNG).
  28. 28. Pipelines• Petrobras operates Brazil’s domestic natural gas transport system. The network has over 4,000 miles of natural gas pipelines, mostly in the southeast and northeast parts of the country. The network consists of main systems in the southeast, northeast, and the state of Espirito Santo; these systems are not currently interconnected, which has hindered development of domestic production and consumption. In June 2006, China’s Sinopec began construction on the 730-mile Gasene pipeline linking the northeast and southeast networks. According to media reports, construction of the third and final stage of the Gasene system began in 2008, with completion of the project expected by March 2010.• A lack of natural gas transportation infrastructure has delayed exploration and production in the interior regions of the country. In particular, Amazonas state contains considerable reserves that remain unexploited, especially the Urucu field, which contains Brazil’s largest onshore natural gas reserves.
  29. 29. Natural Gas Imports• Brazil imported about 400 Bcf of natural gas in 2008. The country currently receives imports from three sources: Bolivia, Argentina, and liquefied natural gas (LNG). Natural gas imports have nearly doubled over the past five years, and Petrobras forecasts that they will continue to rise in the medium term. Most of the additional import volumes will likely come in the form of LNG.
  30. 30. Liquefied Natural Gas (LNG)• Brazil has two liquefied natural gas (LNG) regasification terminals, both installed in the last two years: the Pecem terminal in the northeast, and the Guanabara Bay terminal in the southeast.• Both facilities are floating regasification and storage units (FRSU) provided by Golar LNG, with a combined sendout capacity of 740 MMcf/d. The Pecem received its first LNG cargo from Trinidad and Tobago in July 2008, while the Guanabara Bay terminal came online in May 2009. According to ANP, Brazil received 1.3 Bcf of natural gas in the form of LNG in 2008, all of which came from Trinidad and Tobago.
  31. 31. Brazil’s LNG Terminals
  32. 32. Brazil’s Power Sector• Brazil has the third-largest electricity sector in the Western Hemisphere, behind the United States and Canada.• Brazil had 96.6 gigawatts of installed generating capacity in 2007, with the single largest share being hydroelectricity. In 2007, the country generated 437 billion kilowatthours (Bkwh) of electric power, while consuming 402 Bkwh.• Hydropower provided 85 percent, with smaller amounts coming from conventional thermal, nuclear, and other renewable sources
  33. 33. Brazil has the most sustainable and cleanest energy matrix in the world, with 90 percent of its power generation basedon renewable sources, including hydroelectric power,In the wake of the 1970s energy crisis, Brazil developed sugarcane alcohol as a gasoline substitute.
  34. 34. Conventional Thermal plants• Conventional thermal generating sources provided only a small part of Brazil’s electricity supply, contributing about 8 percent in 2007. According to Brazil’s Ministry of Energy and Mines, the largest contributor to Brazil’s conventional thermal power generation in 2007 was natural gas (45 percent), followed by petroleum products (34 percent) and coal (17 percent). The share represented by natural gas has grown sizably in recent years, standing at only 7 percent in 1998.
  35. 35. Brazil’s Nuclear Power• Brazil has two nuclear power plants, the 630-megawatt (MW) Angra-1 and the 1,350-MW Angra-2. State-owned Eletronuclear, a subsidiary of Eletrobras, operates both plants. Construction of a third plant, the 1,350-MW Angra-3, started in 1986, but was never finished. In 2008, construction began again, with completion slated for 2014. According to industry sources, Eletronuclear plans to build at least four new nuclear power plants (in addition to Angra-3) by 2030, in order to meet expected growth in Brazilian electricity demand.
  36. 36. Mexico’s Energy Policy
  37. 37. Mexico’s Energy Policy• Mexico is a major non-OPEC oil producer and among the largest sources of U.S. oil imports.• Mexicos oil production has declined in recent years, as has its position as a net oil exporter to the United States.• Mexico is a net importer of natural gas, mostly via pipeline from the United States, and its natural gas demand is rising due to greater use of the fuel for power generation.• Most of Mexicos electricity generation comes from conventional thermal plants, the fuel source for which is increasingly natural gas.
  38. 38. Mexico’s Energy Policy• Mexico is one of the ten largest oil producers in the world, the third- largest in the Western Hemisphere, and an important partner in the U.S. energy trade. However, the amount of oil produced in Mexico has steadily decreased since 2004 due to natural production declines from Cantarell and other large offshore fields, though the rate of their decline has stopped in recent months.• The task of reversing production declines falls squarely on the shoulders of Petroleós Mexicanos (PEMEX), the state-owned oil company, due to constitutional limits on foreign involvement in the exploration, production, and ownership of the nations hydrocarbon resources. Nonetheless, recently enacted and potential reforms could liberalize the sector and promote greater foreign investment.
  39. 39. Mexico’s Energy Sector• The oil sector is a crucial component of Mexico’s economy: while its relative importance to the general Mexican economy has declined, the oil sector still generates over 15 percent of the country’s export earnings. More importantly, the government relies upon earnings from the oil industry (including taxes and direct payments from Pemex) for about 40 percent of total government revenues. Therefore, any decline in production at Pemex has a direct effect upon the country’s overall fiscal balance.• Mexico is a major non-OPEC oil producer, with one of the worlds largest oil companies, Pemex.
  40. 40. Mexico’s Energy Consumption• Mexico’s total energy consumption in 2006 consisted mostly of oil (55 percent), followed by natural gas (32 percent). All other fuel types contribute smaller amounts to Mexico’s overall energy mix. Natural gas is increasingly replacing oil as a feedstock in power generation. However, Mexico is a net importer of natural gas, so higher levels of natural gas consumption will likely depend upon higher imports from either the United States or via liquefied natural gas (LNG).
  41. 41. Mexico’s Oil Production• Mexico had 10.5 billion barrels of proven oil reserves as of January 1, 2009. Most reserves consist of heavy crude oil varieties, with a specific gravity of less than 25° API. The largest concentration of reserves occurs offshore in the southern part of the country, especially in the Campeche Basin. There are also sizable reserves in Mexico’s onshore basins in the northern parts of the country.• In 2008, Mexico was the seventh-largest producer of oil in the world. The country produced an average of 3.19 million barrels per day (bbl/d) of total oil liquids during 2008, down from 3.50 million bbl/d in 2007. Of Mexico’s oil production, about 88 percent was crude oil and condensate, the rest consisting of natural gas liquids (NGL) and refinery gain. Many analysts believe that Mexican oil production has peaked, and that the country’s production will continue to decline in the coming years.
  42. 42. Mexico’s Oil Sector Industrial Organization• The Mexican constitution provides that the Mexican nation owns all hydrocarbon resources in the country. In 1938, Mexico nationalized its oil sector, creating Pemex as the sole oil operator in the country. Pemex has four operating subsidiaries: Exploration and Production, Gas and Basic Petrochemicals, Petrochemicals, and Refining. Pemex is the largest company in Mexico and one of the largest oil and natural gas companies in the world: in 2008, Pemex earned pre-tax profits of $43 billion, while it paid $50 billion to the government in the form of taxes and other transfers.• In 2008, Mexico enacted new legislation that sought to reform the country’s oil sector. The goal of these reforms was to enable Pemex to curb the slide in oil production experienced over the past several years. The measures included several administrative changes, such as adding new seats to Pemex’s administrative board for outside industry experts, creating a new advisory board designed to provide independent coordination of long-term energy strategy, and establishing a new hydrocarbons agency to regulate the sector.• The reforms would also permit Pemex to create incentive-based service contracts with private companies. Pemex received greater autonomy under the reforms, including the ability to issue its own debt and establish more flexible mechanisms for procurement and investment.
  43. 43. Energy debates and Reform in Mexico during 2008 2007 – – President Calderon requests a Pemex diagnose 2007 President Calderon requests a Pemex diagnose Mar 2008March 31st:stSenerpublishes the Diagnose of the national oil March 31 : Senerpublishes the Diagnose of the national oil April 8th:th: The Executive Power delivers the Senate reform April 8 The Executive Power delivers the Senate reform industry industry Apr proposals associated to the oil industry proposals associated to the oil industry April 9th:thThe Senate initiates the discussion to celebrate a a April 9 : The Senate initiates the discussion to celebrate May national debate with the topic of an energy reform national debate with the topic of an energy reformMay 19th:thThe Executive Power sends a a proposal to the May 19 : The Executive Power sends proposal to the May 13th th through July 22ndThe Senate’s discussion forums May 13 through July 22nd: : The Senate’s discussion forums Senate with a a new fiscal regime for Pemex for complex Senate with new fiscal regime for Pemex for complex Jun take place take place oil fields oil fieldsJune 23rd rd through 27:thThe National University (UNAM) June 23 through 27th : The National University (UNAM) Jul Senate forums organized forums on the energy reform organized forums on the energy reform July 23rd:rdThe PRI presents its proposal for an energy reform July 23 : The PRI presents its proposal for an energy reformAugust 13th:thThe PVEM presents its proposal on renewable August 13 : The PVEM presents its proposal on renewable Aug August 20th:thThe PRI modifies its Party Statements on energy August 20 : The PRI modifies its Party Statements on energy sources of energy sources of energy matters mattersAugust 25 : The FAP presents its reform initiative th th August 25 : The FAP presents its reform initiative Sep September 2ndndSenators from the PAN present an initiative for September 2 : : Senators from the PAN present an initiative for a a new law on sustainable use of energy new law on sustainable use of energy OctOctober 9th th through 23:rdThe Congress discusses the different October 9 through 23rd : The Congress discusses the different Reform initiatives discussions at Congress reform proposals reform proposals October 23rd rd through 28:thTHE CONGRESS APROVES THE LAW October 23 through 28th : THE CONGRESS APROVES THE LAW Nov AND REFORM INITIAVIVES AND REFORM INITIAVIVES
  44. 44. New Energy Reform in Mexico Oil pillar Transition pillarCHALLENGESCHALLENGES To increase To increase execution capacities execution capacities and efficiency and efficiency To achieve To achieve To increase To increase To incorporate To incorporate the Energy the Energy investment investment State of the Art State of the Art Transition Transition capacities capacities technology technology Regulator strengthening Regulator strengthening and change in Fiscal and change in Fiscal Pemex Regime Regime strengtheningCHANGESCHANGES Sustainable energy Sustainable energy National content National content Management autonomy Management autonomy promotion promotion Transparency and Transparency and accountability accountability Renewables Renewables Flexible contracts Flexible contracts
  45. 45. Exploration and Production• Most of Mexico’s oil production occurs in the Gulf of Campeche, located off the south-eastern coast of the country in the Gulf of Mexico. The two main production centers in the area include Cantarell and Ku-Maloop-Zaap (KMZ), with smaller volumes also coming from the fields off the coast of Tabasco state. In 2008, the Gulf of Campeche accounted for 80 percent of Mexico’s total crude oil production.• Due to the concentration of Mexico’s oil production in the Gulf of Campeche, any tropical storms or hurricanes passing through the area can disrupt oil operations. In 2007, Hurricane Dean forced the evacuation of all offshore platforms and shut-in all production for several days. In 2005, Hurricane Emily also impacted Pemex’s operations in the Gulf.• The Cantarell oil field is one of the largest oil fields in the world, but production there has declined dramatically in the past several years. In 2008, Cantarell produced 1.0 million bbl/d of crude oil, down over 30 percent from the 2007 level of 1.47 million bbl/d and down nearly 50 percent from the peak production level of 2.12 million bbl/d in 2004. As production at the field has declined, so has its relative importance to Mexico’s oil sector: Cantarell contributed 36 percent of Mexico’s total crude oil production in 2008, versus 62 percent in 2004.
  46. 46. • Chicontepec Pemex sees the onshore Chicontepec project, located east of Mexico City, as a potentially large source of future production growth. Chicontepec contains 29 distinct fields spread over an area of 2,400 square miles. The project currently produces about 30,000 bbl/d, but Pemex hopes to increase production to 700,000 bbl/d by 2017. In early 2009, Pemex announced a tender for the drilling of 170 development wells at Chicontepec, following earlier tenders in 2008 for the drilling of 1,000 wells. According to Pemex, Chicontepec contains an estimated 17.7 billion barrels of oil equivalent of possible (3P) hydrocarbon reserves.• According to industry reports, Chicontepec is very challenging technically. Most of the crude oil at Chicontepec is very heavy in terms of API gravity. The reservoir is also highly fractured and at low pressure, meaning that recovery rates could be low and Pemex will need a large number of wells to fully exploit the area. The region does not yet have much of the necessarily infrastructure for large-scale oil development, such as pipelines, which must be built amongst a dense, urban population. The American Petroleum Institute gravity, or API gravity, is a measure of how heavy or light a petroleum liquid is compared to water. If its API gravity is greater than 10, it is lighter and floats on water; if less than 10, it is heavier and sinks. API gravity is thus a measure of the relative density of a petroleum liquid and the density of water, but it is used to compare the relative densities of petroleum liquids.
  47. 47. Pipelines• Pemex operates an extensive pipeline network in Mexico that connects major production centers with domestic refineries and export terminals. This network consists of over 453 pipelines spanning 2,900 miles, with the largest concentration occurring in the southern part of the country. Mexico does not have any international pipeline connections, with most exports leaving the country via tanker from three export terminals in the southern part of the country: Cayo Arcas, Dos Bocas, and Coatzacoalcos.
  48. 48. Oil Exports• In 2008, Mexico exported 1.4 million bbl/d of crude oil.• The United States receives the vast majority of Mexico’s crude oil exports, which mostly arrive via tanker at the Gulf Coast; in 2008, the U.S. imported 1.2 million bbl/d of crude oil from Mexico, of which 97 percent went to the Gulf Coast.• The U.S. also imported about 100,000 bbl/d of refined products from Mexico in 2008, mostly residual fuel oil, naphtha, and gasoline blending components.
  49. 49. Refined Petroleum Imports• Despite its status as one of the world’s largest crude oil exporters, Mexico is a net importer of refined petroleum products.• In 2008, Mexico imported 550,000 bbl/d of refined petroleum products, while exporting 192,000 bbl/d. Gasoline represented over 60 percent of product imports.• A resumption of brisk economic growth is one cause for the increase in refined product imports, along with fixed domestic product prices that are below international market levels.
  50. 50. Gasoline Prices• A surprisingly modest increase of the state-controlled and heavily subsidized price of gasoline in Mexico was announced in January 2013 by Mexicos Finance Ministry, despite considerable speculation that a major change might be in store.• The new gasoline price, is 10.92 pesos per liter for regular gasoline, or about less than $3.20 per US gallon. Similar increases were announced for premium grade and diesel.• Mexican gasoline prices are about 10% less than those of the United States.• The price structure between the two countries is very different. While the US has a free market in gasoline retail, the Mexican state monopoly, Pemex, charges the same price for the same grade of fuel throughout the country.• No official alternatives to Pemex service stations are available to motorists, though a black market in stolen fuel is thriving in some regions.• Mexico currently imports 520,000 b/d of gasoline and diesel, a third more than it did some five years ago and about half of the nations total consumption.• The price of gasoline is very heavily subsidized. Last year through November, gasoline subsidies cost the government 206 billion pesos, just over $16 billion dollars.• And most of the subsidies go not to the nations poor but the rich. Some 10% of the wealthiest motorists receive 30% of the subsidies.
  51. 51. Gasoline PricesMexico and the United States
  52. 52. Gasoline Prices (Tijuana versus San Diego)Source: Esquivel (2009).
  53. 53. Long-Term Developments in Mexico’s Oil Trade• The International Energy Outlook (IEO) 2009 forecasts that Mexico could become a net oil importer by 2020, with net imports reaching 300,000 bbl/d in 2030. As one of the largest oil exporters to the United States, this has important implications for future U.S. energy supplies.• U.S. crude oil imports could fall from 9.78 million in 2008 to 6.95 million bbl/d in 2030. As a result, the long-term fall in U.S. crude oil imports could be larger than the fall in Mexico’s crude oil exports.• From Mexico’s perspective, changing into a net oil importer would have important repercussions upon the economy, due to the dependence of the federal government on Pemex for a sizable share of its revenues.
  54. 54. Downstream• Mexico’s oil consumption averaged 2.1 million bbl/d in 2008. According to OGJ, Mexico has six refineries, all operated by Pemex, with a total refining capacity of 1.5 million bbl/d. The largest facility in the country is the 330,000-bbl/d Salina Cruz facility.• Outside of Mexico, Pemex controls 50 percent of the 334,000-bbl/d Deer Park refinery in Texas. In order to reduce its imports of refined products, Pemex plans to build at least one additional refinery in Mexico.• The company announced in early 2009 that the cost of its plans to build a new, 300,000-bbld refinery had increased to $10 billion.• Pemex planned to start construction on the facility (Tula refinery), which would have facilities to better process the country’s heavy crude oil production, by the end of 2009. Construction hasn’t started in early 2010.
  55. 55. Natural Gas• Mexico had 11.8 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2009. According to Pemex, the Southern Region of the country contains the largest share of proven reserves. However, the Northern Region will likely be the center of future reserves growth, as it contains almost ten times as much probable and possible natural gas reserves as the Southern Region. In 2007, Mexico produced 1.98 Tcf of natural gas, while consuming 2.4 Tcf, with imports coming both via pipeline from the United States and liquefied natural gas.• Mexico’s natural gas consumption is rising primarily due to great use in power generation.
  56. 56. Pipelines and Storage• Pemex operates over 5,700 miles of natural gas pipelines in Mexico. The company has twelve natural gas processing centers, which produced 400,000 bbl/d of natural gas liquids (NGLs) and 200,000 bbl/d of liquefied petroleum gas (LPG) in 2007. Pemex also operates most of the country’s natural gas distribution network, which supplies processed natural gas to consumption centers. The natural gas pipeline network includes ten active import connections with the United States. In 2008, Mexico imported 363.3 billion cubic feet (Bcf) of natural gas from the United States, while it also exported 42.9 Bcf.
  57. 57. Mexico’s Energy Regulatory Commission (CRE)• CRE (Comisión Reguladora de Energía) was created in 1994 as the main regulatory agency of the electricity and gas sector in Mexico and a consulting body to the Secretary of Energy.• Its objective was to prepare the rules that would regulate the relationship between the State’s utilities and the private investors in the power sector.• In 1995, the Congress passed a reform opening the downstream activities in the natural gas sector. Then, CRE was also constituted as the formal regulator of the energy sector and was given operational and technical autonomy.• CRE’s mandate is to promote the efficient development of the activities it regulates. In doing so, CRE looks for a balance between the interest of the consumers and that of the investors.
  58. 58. CRE’s regulation powers PMXNatural Gas Exploration Production Processing. Sales Transport Storage Distribution Marketing Surface transport. Bottle Distribution PMXLPG Production Processing Storage Pipeline Sales Pipeline Distribution Marketing CFE & LFC National Transmission Generation TransmissionPower Grid Distribution Generation Third Parties Transmission Others Imports / Exports Imports Open to private investment Reserved to the State Regulated by CRE
  59. 59. Liquefied Natural Gas (LNG)• There are two operating LNG terminals in Mexico and one other currently under construction. In addition, there are other plants in various stages of the planning process. According to industry reports, the largest suppliers of LNG to Mexico in 2007 were Egypt, Nigeria, and Trinidad and Tobago.• East Coast Altamira, a joint venture of Royal Dutch Shell (50 percent), Total (25 percent), and Mitsui (25 percent) received its first LNG cargo in August 2006. The plant, located in Tamaulipas state, has an initial capacity of 500 million cubic feet per day (MMcf/d), with plans to increase the project to a peak capacity of 1.3 Bcf/d. CFE has signed a 15-year contract to purchase the entire output of the terminal.• West Coast The Costa Azul terminal near Ensenada, operated by Sempra, began receiving LNG in 2008. The current send-out capacity of the plant is about 1 Bcf/d. Most of the natural gas will supply domestic customers in northwest Mexico, but some natural gas could also be exported to California or Arizona.
  60. 60. LNG Terminal in Manzanillo• Construction of a new LNG terminal at the port of Manzanillo began in 2008. The plant will have an initial capacity of 500 MMcf/d. A consortium of Mitsui, KOGAS, and Samsung is building the plant. The plant would be the second LNG terminal on the Pacific Coast.• In May 2004, DKRW signed an agreement with the state government of Sonora to build a 1.0-Bcf/d LNG receiving terminal at Puerto Libertad, on the Gulf of California. El Paso later joined the project as well, and the project will reportedly connect with the El Paso natural gas pipeline system in the United States. According to project sponsors, the plant could begin operations by 2011.
  61. 61. Mexico’s LNG Terminals
  62. 62. Mexico’s Power Sector• Mexico had 53.8 gigawatts of installed electricity generating capacity in 2007. The country generated 243 billion kilowatthours (Bkwh) of electric power in 2007. Conventional thermal generation represents the overwhelming majority of Mexico’s electricity generation, though the mix from these sources is gradually shifting from oil products to natural gas. Mexico consumed 202 Bkwh of electric power in 2007.• Power Sector Industrial Organization State-owned Comision Federal de Electricidad (CFE) is the dominant player in the generation sector, controlling about two- thirds of installed generating capacity. CFE also holds a monopoly on electricity transmission and distribution outside of Mexico City and some other municipalities; within those areas, state-owned Luz y Fuerza Centro (LFC) holds a monopoly on distribution activities. The Comision Reguladora de Energia (CRE) has principle regulatory oversight of the electricity sector.• Most of Mexico’s electricity generation comes from conventional thermal sources, mainly natural gas.
  63. 63. Private Participation• Changes to Mexican law in 1992 opened the generation sector to private participation. Any company seeking to establish private electricity generating capacity or begin importing/exporting electric power must attain a permit from CRE. As of the end of 2008, private generators held about 22,700 megawatts (MW) of generating capacity, mostly consisting of combined-cycle, gas-fired turbines (CCGFT). CFE also operates Mexico’s national transmission grid, which consists of 27,000 miles of high voltage lines, 28,000 miles of medium voltage lines, and 370,000 miles of low voltage distribution lines.
  64. 64. Power Generation• Hydroelectricity supplied about 10 percent of Mexico’s electricity generation in 2007. The largest plant in the country is the 2,400-MW Manuel Moreno Torres in Chiapas. According to Sener, Mexico had 1,045 MW of installed, non-hydro renewables, including 85 MW of wind and 960 MW of geothermal.
  65. 65. Mexico’s Nuclear Power• Mexico has a single nuclear power plant, the 1,400-MW Laguna Verde nuclear reactor in Veracruz, operated by CFE. In April 2007, CFE awarded a contract to an international consortium headed by Alstom to modernize the plant and increase generating capacity by 20 percent.
  66. 66. International Power Trade• Mexico has an active electricity trade with the United States. Mexico exported 1.3 Bkwh of electricity to the United States in 2007, while importing 0.6 Bkwh. Companies have built power plants near the U.S.-Mexico border with the aim of exporting generation to the United States.• There are plans to connect Mexico with Guatemala and Belize as part of the Sistema de Interconexion Electrica para America Central (SIEPAC). The plan is part of a larger effort, the Plan Puebla-Panama, to create an integrated electric power market in Central America.• The section of SIEPAC linking Mexico and Guatemala came online in 2009.
  67. 67. SIEPAC
  68. 68. Mexico’s New Oil Fields 2012
  69. 69. Energy Reform in Mexico 2013• Modernizing Mexico’s energy sector is a key priority of President Enrique Peña Nieto’s administration..• Throughout his election campaign, Peña Nieto said that energy reform would be a key priority of his administration.• The president said that Pemex has struggled to make the most of Mexico’s crude oil reserves, and he has pledged to open up the company to more private investment. To make it a worthwhile investment, Pena Nieto believes a constitutional change is needed.• Pena Nieto has held up Brazil’s state-owned oil firm Petrobras as a model for Mexico to follow.• Brazil has a legal framework which allowed it to create strategic associations.• Pena Nieto has mentioned that a partial listing of Pemex could be a possibility in the future..
  70. 70. Mexico’s Energy Reform• It’s vital for Mexico to reform its energy industry. Pemex has watched production decline despite Mexico’s huge deep-water reserves in the Gulf of Mexico.• The potential for a shale gas and oil boom similar to those reshaping Canada and the U.S. is real.• Mexico appears to have access to areas with the geological characteristics of large shale oil reserves and is believed to be one of the world’s five richest countries in shale gas.
  71. 71. North American Shale Gas
  72. 72. Venezuela’s Energy Sector• Venezuela is one of the world’s largest exporters of crude oil and the largest in the Western Hemisphere. In 2007, the country was the seventh-largest net oil exporter in the world. The oil sector is of central importance to the Venezuelan economy: it accounts for more than three-quarters of total Venezuelan export revenues, about half of total government revenues, and around one-third of total gross domestic product (GDP). In addition, as a founding member of the Organization of the Petroleum Exporting Countries (OPEC), Venezuela is an important player in the global oil market. The Organization of the Petroleum Exporting Countries (OPEC) is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its Member Countries. Indonesia withdrew its membership in OPEC in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter in the world again.
  73. 73. Venezuela’s Oil Sector Industrial Organization• Venezuela nationalized its oil industry in 1975-1976, creating Petroleos de Venezuela S.A. (PdVSA), the countrys state-run oil and natural gas company. Along with being Venezuelas largest employer, PdVSA accounts for about one-third of the country’s GDP, 50 percent of the government’s revenue and 80 percent of Venezuela’s exports earnings. In 2002, nearly half of PdVSA’s employees walked off the job, in protest against the rule of President Chavez. The strike severely impacted PdVSA, practically bringing the company’s operations to a halt. PdVSA fired 18,000 workers following the strike, draining the company of technical knowledge and expertise. Industry analysts speculate that the strike did permanent damage to PdVSA’s production capacity and remains the contributing factor to continued declines in production in recent years.
  74. 74. Apertura Petrolera• Foreign Operators• In the 1990s, Venezuela opened its upstream oil sector to private investment. This collection of policies, called apertura, facilitated the creation of 32 operating service agreements (OSA) with 22 separate foreign oil companies, including international oil majors and small independents. Under these contracts, companies operated oil fields, and PdVSA paid these companies a fee and purchased the produced crude at a price pegged to market rates. PdVSA also offered eight blocks under risk/profit sharing agreements (RPSA), under which PdVSA had an option to purchase up to a 35 percent equity stake in the project if the foreign operator discovered commercial quantities of oil in the exploration phase. Finally, Venezuela established four “strategic associations” that produce extra-heavy crude, in which PdVSA held a financial interest.
  75. 75. Undo Apertura Initiatives• In the last 10 years, Venezuela has moved to largely undo most of the apertura initiatives, including mandating PdVSA majority ownership of all oil projects and increasing tax and royalty rates on new and existing projects. The efforts culminated with the 2007 transition of the four extra-heavy strategic associations to new structures with PdVSA majority ownership.• Of the six companies involved in the projects, two reduced their holdings to allow space for the enlarged PdVSA share (Total and Statoil), two maintained their previous stakes (Chevron, BP), and two exited completely from the projects (ConocoPhillips and ExxonMobil).• Recent attempts by Venezuela to attract foreign investment to the oil sector have focused on foreign national oil companies (NOCs), including those from China, India, Iran, and Russia.
  76. 76. Oil Fields in Venezuela• The oil fields of Venezuela have been concentrated in two parts. Naturally, industry complexes that are dependent to oil and gas industries have been distributed in these regions.• The most important and principal oil fields of this country are in the following regions; Lake Maracaibo, the beds of Orinoco, Falcon, Apure-Barinas and Cariaco rivers.• The principal natural gas reservoirs of Venezuela are located at Paria Gulf and central part of Anzoategui.
  77. 77. Strategic Associations and Joint Ventures• Strategic Associations• Venezuela contains billions of barrels in extra-heavy crude oil and bitumen deposits, most of which are situated in the Orinoco Belt in central Venezuela. Estimates of the recoverable reserves from the Orinoco Belt range from 100 to 270 billion barrels. Venezuela has established four strategic associations to exploit these resources.• Joint Ventures• Along with private partners, PdVSA owns majority stakes in numerous joint ventures (JVs). These companies manage projects formally operated under the old operating service agreements (OSAs). According to industry estimates, the fields operated by the JVs produced around 400,000 bbl/d of oil in 2007. Many of these fields are small and marginal, with steep decline rates that require constant re-investment in order to maintain production levels.
  78. 78. PdVSA International• CITGO USA• CITGO is a wholly-owned subsidiary of PdVSA that has some 14,000 branded retail outlets (both directly owned and affiliates) in the United States. CITGO operates three product refineries (Lake Charles, LA; Corpus Christi, TX; Lemont, IL), with a combined crude oil distillation capacity of 755,400 bbl/d. CITGO sources most of its crude oil under long-term contracts with PdVSA, though the Lemont facility receives most of its feedstock from Canada.• Caribbean/South America• PdVSA holds a 50 percent equity interest in the Hovensa refinery, located in St. Croix, U.S. Virgin Islands. Amerada Hess holds the other 50 percent interest in the refinery, which has a capacity of 495,000 bbl/d. The U.S. Virgin Islands imported around 300,000 bbl/d of crude oil from Venezuela in 2007. In the Netherlands Antilles, PdVSA leases the 320,000-bbl/d Isla refinery on the island of Curacao. Most of the products produced by these refineries are exported to the U.S. or other regional markets.• Europe• PdVSA participates in two joint refining ventures in Europe, with the company holding equity interest in 291,000 bbl/d of refining capacity in the region. PdVSA holds a 50 percent stake in AB Nynas, a Swedish company that operates five refineries: Nynashamm (Sweden), Gothenburg (Sweden), Antwerp (Belgium), Eastham (England), and Dundee (Scotland); PdVSA’s share of this capacity is 50,500 bbl/d. PdVSA also holds a 50 percent stake in Ruhr Oel, in partnership with BP. Ruhr Oel holds ownership stakes in five German refineries, Gelsenkirchen, Neustad, Karlsruhe, and Schwedt, with PdVSA’s share of this capacity totaling 241,000 bbl/d.
  79. 79. Venezuela’s Gas Sector Industrial Organization• In 1999, Venezuela adopted the Gas Hydrocarbons Law, which opened all aspects of the natural gas sector to private investment. The goals of the law included the development of natural gas resources, especially non-associated fields; expansion of the domestic natural gas transport network, creation of a general distribution system; promotion of natural gas export projects; and increased consumption of natural gas by the power and petrochemical industries.• The Gas Hydrocarbons Law also allowed private operators to own 100 percent of non-associated projects, a sharp contrast to the ownership rules in the oil sector. Furthermore, royalty and income tax rates on non-associated natural gas projects are much lower than corresponding rates for oil projects. The law does give PdVSA the right to purchase a 35 percent stake in any project that moves into commercial status.
  80. 80. Liquefied Natural Gas (LNG)• In September 2008, Venezuela signed agreements to create three joint venture companies to pursue LNG projects along the northern coast of the country. Each project will consist of a separate liquefaction train at the Gran Mariscal de Ayacucho (Cigma) natural gas complex in Guiria.• The first project would source gas from the Plataforma Deltana project, with exports estimated at 4.7 million tons per year (t/y).• The second train would use natural gas from the Mariscal Sucre project, also exporting an estimated 4.7 million t/y.• The third train would use natural gas from the Blanquilla-Tortuga fields. According to PdVSA, the total investment in the three projects could approach $20 billion, with first exports by 2013.
  81. 81. United States vs. World Gas Prices
  82. 82. The effects of high oil pricesHigher oil prices encourages investments in alternative energy sources.Energy Demand growth in big emerging nations like China and India and OPEC leveraging are likely to keep oil prices high enough to keep alternative energy resources profitable.The low price of natural gas. Cheap gas encourages utilities to build more gas-fired power plants, which are cleaner than coal-powered ones.
  83. 83. Renewable energy sources - including biomass, solar, wind, geothermal and hydropower - not only use indigenous resources but alsohave the potential to provide energy services with zero or almost zero emissions of both air pollutants and greenhouse gases.
  84. 84. The outlook for renewable energy generation is promising,with increased deployment expectedBy 2030, renewable energy is expected to account for 22% of electricitygeneration in emerging markets, with the biggest contributions from hydro andwind Projected Generation Costs of Renewable Energy Technologies US$ / MWh 2007 Source: International Energy Agency, World Energy Outlook 2008Growth in renewable energy investments is expected to be driven by declininginvestment costs, government support and response to climate change concerns
  85. 85. Conclusions• Demand for oil and gas resources will grow in Latin America. However, most Latin American countries are without sufficient capital to finance the development of indigenous oil and gas reserves.• From a purely economic perspective, subsidies are a regressive approach to the social and economic inequalities plaguing countries in the region. Countless studies have analyzed the winners and losers when a government subsidizes fuel prices. They have consistently found that the big winners are the affluent vehicle owners and energy-intensive consumers, instead of the intended target group, the poor.• Latin America has the opportunity to fight poverty by using local natural resources, the possibility of overcoming dependence on fossil fuels by increasing the use of renewable sources of energy.
  86. 86. Energy policy in Latin America,the cases of Mexico and Brazil. Alejandro Díaz-Bautista, Ph.D. Professor of Economics and Researcher Email: School of International Relations & Pacific Studies.University of California, San Diego (UCSD),January 16, 2013.
  87. 87. References• EIA (2011), “Brazil, Country Analysis Briefs”, Energy Information Administration, Department of Energy.•• EIA (2011), “Mexico, Country Analysis Briefs”, Energy Information Administration, Department of Energy.•• Díaz-Bautista, Alejandro (2005), Experiencias Internacionales en la Desregulación Eléctrica y el Sector Eléctrico en México. El Colegio de la Frontera Norte, México y Editorial Plaza y Valdes.