1. Energy in Latin America 2010-2020: Headed For A Lost Decade?
Genaro Arriagada
Inter-American Dialogue
Latin American politics is known for mirages that help obscure the severity of a problem
and defer a solution. This is what seems to be happening with energy issues. In the past six
or seven years, the energy sector was cited time and again among the most problematic in
the region, sparking numerous statements, speeches by heads of state, and a few summits.
However, in recent times this mindset has changed. On the strength of Brazilian success in
the pre-salt fields, confirmation of Venezuela’s ultra-heavy crude oil reserves, and some
hopes, albeit still vague, about shale gas, Latin America is beginning to emerge as a
successful region whose energy role, in this decade and beyond, will be crucial to the world
and whose exportable surplus could help relieve China’s shortages, according to some, or
help offset the United States’ dwindling resources, according to others.
This optimistic, self-satisfied view is wrong. Overall, energy problems in the region —
without detracting from individual country or industry successes— have, if anything,
worsened. The future is bright in terms of potential, but mediocre in terms of concrete
results. The region’s contribution to relieving the global energy plight, at least in this
decade, seems an idealistic promise derailed by tough realities. Reasons for optimism seem
weak, barring a sea change whose nature will have to be eminently political.
(1)
The Vulnerabilities
When it comes to energy, Latin America exhibits a range of weak points. These are
discussed below in no particular order.
1. The Vulnerabilities of Central America and the Caribbean
In terms of energy, there is not one Latin America, but several. One is energy-rich South
America, flush with a range of diverse resources, including abundant oil, hydroelectricity,
gas, coal and non-traditional renewable energy reserves. Another is energy-poor Central
America and the Caribbean, which encompass twenty-three nations with a deficit —i.e.,
where domestic consumption exceeds the national output— and only one, Trinidad and
Tobago, without a deficit. Individually, in many of these nations oil accounts for upwards
of 60 percent of the energy mix. They also have no gas except for Trinidad and Tobago,
alone in having a significant exportable surplus. These countries’ modest hydroelectric
resources are among the few sources of primary energy available. In the poorest countries,
such as Nicaragua and Haiti, traditional biomass, often associated with severe poverty,
contributes over 40 percent of the energy mix.
The energy deficit constitutes a severe bottleneck for regional development and
social progress. In the past, these difficulties were mitigated by a joint Venezuela-Mexico

2. initiative (the San José Accord), which is no longer in force. At present, albeit within limits
and ways that are important to spell out, this aid is being provided by PetroCaribe, an
initiative of President Chávez. In addition, in the case of Cuba, Venezuela provides oil
subsidies similar in form and magnitude to those the Soviet Union used to provide. These
initiatives, however, are threatened by factors such as a decline in Venezuela’s exportable
surplus, an eventual change of government in Caracas, and the massive debt owed to
PetroCaribe by recipient countries. Should any of these factors or a combination of them
cause the flow of oil assistance to stop or be significantly reduced, the blow to Central
America and the Caribbean would be harsh. In the case of Cuba, disruption of Venezuelan
supplies and subsidies could trigger a crisis analogous to the “special period” of the
nineties after Soviet aid ceased.
2. Stagnation of Oil Production and Decline of Exportable Surplus
A review of South American oil industry performance in the past decade gives more reason
for concern than enthusiasm.
As a share of the world total, South America’s proven reserves went from 8.9 percent in
2000 to 17.3 percent in 2010. Yet, disaggregation of these figures provides a less
encouraging outlook. Outside of Venezuela, the region’s low reserves have grown
minimally in the period, from 1.9 to 2.0 percent of the world total. Brazil accounts for over
half of the growth, a share set to increase significantly as new pre-salt field reserves are
proven. Mexico faces a tougher situation, as reserves have dropped from 1.2 to 0.8 percent
of the world total.
Proven Reserves and Oil Production, By Region (2000 and 2010)
(Share of World Total)
Region 2000 2010
Reserv. Prod. Reserv. Prod.
Middle East 63.1 31.5 54.4 30.3
South & Cent. Amer. 8.9 9.1 17.3 8.9
Europe & Eurasia 9.8 20.0 10.1 21.8
Africa 8.5 10.4 9.5 12.2
North America 6.2 18.5 5.4 16.6
Asia-Pacific 3.6 10.5 3.3 4.9
Total 100.0 100.0 100.0 100.0
Mexico 1.2 4.6 0.8 3.7
Source: BP Statistical Review of World Energy. June 2011
A look into production yields a disturbing balance, as it appears stagnant: 6.8 million
barrels per day in 2000, 6.9 a decade later. In 2000, Latin America’s share of world oil
production was nearly equal to its share of proven world reserves. Ten years later, in 2010,
this share had dropped in half: 17 percent of reserves versus a scant 9 percent of
production. Disaggregation of the total shows that the country with the largest reserves —
Venezuela—had the worst production performance, with an 800-mbd drop in the period.
Prospects in Mexico look even worse, since reserves declined and production dropped 500
mbd from 2000 and 2010. The good news comes from Brazil, whose share of world
2

3. production rose from 1.7 to 2.7 percent. The rest of Latin America accounts for less. A
recent success story is Colombia, although prospects are uncertain due to small reserve
size. Argentina, on the other hand, is an exporter turned importer due to mismanagement.
Although Ecuadorian production is stagnant, sheer reserve size could easily allow it to
triple production without overtaxing resources.
Stagnant production and domestic demand increases have made a significant dent in Latin
America’s exportable surplus. Such is the result of comparing production and consumption
in five countries that were oil exporters during the decade. Also considered are net
importers.
Production Minus Domestic Consumption (mbd)
2000 2010 Product. 2010/2000
1. Surplus
Argentina 385 94 - 168
Colombia 476 563 + 90
Ecuador 281 269 + 86
Venezuela 2,680 1,706 - 768
Mexico 1,500 964 - 492 ,
Subtotal 5,322 3,596
2, Shortfall
Brazil 750 467 + 869
Chile 233 305 + 0
Peru 53 27 + 57
Other South & Cent. Amer. 930 1,043 + 1 ,
Subtotal 1,966 1,842
3, Balance (1-2) 3,356 1,754
Source: BP Statistical Review of World Energy. June 2011
The balance is disappointing. The exportable surplus fell 33 percent in a decade and, had it
not been for Brazil’s production surge, surpluses capable of meeting increases in other
parts of the world would be irrelevant despite having the world’s largest proven reserves
outside the Middle East. While it is true that the situation can change, so is the fact that
declining production in Venezuela, Mexico and Argentina and stagnant production in
Ecuador are not occasional events but the consequence of structural factors whose
transformation will not be easy, will only be possible after comprehensive political accords,
and will take time.
3. The Hydroelectricity Blockade
Over the past fifty years, hydroelectricity has been the most distinctive—and possibly the
most positive— trait of Latin American energy production. The enormous influence of this
source of energy sets Latin America apart from all other regions. Hydroelectricity stands
for slightly over 6 percent of the world mix and 26 percent of the Latin American mix. It
accounts for over 50 percent of all electricity produced in eleven countries, including Peru
and Costa Rica, and represents as much as 80 percent in Brazil and 75 and 67 percent in
Colombia and Venezuela respectively. In Paraguay and Uruguay, the figure is 99 percent.
3

4. ENERGY MIX 2010 (Consumption, Percent)
Oil Gas Coal Nuclear Hydro Renew. .
Middle East 51.4 47.0 1.2 0.0 0.4 0.0 100.0
South/Cent. Am. 46.9 21.7 3.9 0.8 25.7 1.8 100.0
Europe/Eurasia 31.3 34.3 16.4 9.2 6.5 2.3 100.0
Africa 42.0 25.3 25.5 0.8 6.2 0.2 100.0
North America 38.5 27.6 20.0 8.0 5.9 1.6 100.0
Asia-Pacific 27.7 11.2 52.1 2.9 5.4 0.7 100.0
World Total 33.6 23.8 29.6 5.2 6.5 1.3 100.0
Source: BP Statistical Review of World Energy. June 2011
However, in Latin America, the hydroelectric sector has been rapidly losing steam for
years. In the twenty-year period from 1966 to 1986, the industry more than quadrupled. In
the next decade, it grew 50 percent; from 1996 to 2006 it expanded only 33 percent, and
over the past five years growth has been a meager 1 percent a year.
There are several causes for the decline. First, many of the best rivers, and within them, the
best sites, are already being used, while the remainder are less important and profitable.
This is true in the United States and Western and Central Europe, but not in Latin America,
whose hydroelectric potential remains enormous, so much so that less than an estimated 25
percent is being effectively used. Another explanation is that low oil prices, much like in
the nineties, have made dams seem less attractive. But this objection has been contradicted
by oil prices four times what they were five years ago. Strictly speaking, in Latin America,
the strongest foes of hydroelectricity are the increasingly influential environmentalist
groups whose opposition against large dams is nearly absolute.
4. The Trend Toward a Dirtier Energy Mix
The energy consumed in Latin America is the cleanest in the world due to two factors. First
and foremost, hydroelectricity. Secondly, the share of fossil fuels in the energy mix is the
lowest in the world: 72 percent versus an 87 percent world average. Within that total and
corroborating the cleanliness of the regional mix, the role of coal —“the dirtiest fossil
fuel”— is minor: 4 percent versus the 30 percent world average.
ENERGY MIX 2010 (Consumption, Percent)
(1) (2) (3) (4)
Fossil Nuclear (Hydro+)Renew. (1-3)
South/Cent. Am. 72.5 0.8 27.5 100.0 (45.0)
Europe/Eurasia 82.0 9.2 8.5 100.0 (73.2)
North America 86.1 8.0 7.5 100.0 (78.6)
Asia-Pacific 91.0 2.9 6.1 100.0 (84.9)
Africa 92.8 0.8 6.4 100.0 (86.4)
Middle East 95.6 0.0 0.4 100.0 (95.2)
World Total 87.0 5.2 7.8 100.0 (79.2)
4

5. Source: BP Statistical Review of World Energy. June 2011
Keeping the mix clean requires maintaining hydroelectricity use at current levels. Failing
that, the slack will be taken up by fossil fuels, notably coal, the cheapest energy source of
all. Chile is case in point. Chile has rich hydroelectric potential, but has continued to source
the majority of its primary energy needs from fossil fuels. As a result, imports of fossil
fuels witnessed a five-fold increase from 2003 to 2011, and all of the power stations
constructed since 2004 are gas- or coal-based. The notion that non-conventional
renewable energy (NCRE) can fill the gap, although highly desirable, is hard to achieve, at
least in this order of magnitude. In fact, the share of NCRE is minute (1.8 percent of the
mix). Disaggregation reveals an even less auspicious reality, since Brazil alone accounts
for 70 percent, nearly all of it ethanol.
Demand for NCRE is an essential policy objective but developing it is not easy, not to
mention that it requires heavy subsidies without which, as the technology currently stands,
NCRE cannot prosper. Many of its proponents, as commendable as their efforts may be,
show little realism by opposing coal, nuclear energy and hydroelectricity all at once. This is
not rational policy; it is folly. Claiming that the gap left by freezing these sources can be
filled within a decade by increases in NCRE is wishful thinking, to say the least.
As far as Latin American energy is concerned, large dams, opposition to coal and nuclear
energy, and the development of NCRE will be the focus of a civic debate of the utmost
importance for the meaning —whether successful or lost— of this decade.
( 2 )
THE NEED FOR POLITICAL DEFINITIONS
This inventory of weaknesses is by no means exhaustive. Several other major factors could
be mentioned, including issues of pricing and subsidies, but this catalog helps illustrate the
main characteristics of regional energy issues and the nature of possible solutions.
A look at the availability of resources shows Latin America has a promising future.
Scarcity is not the factor that prevents rapid sector growth, nor is it oil prices or the
availability of technology, which has made enormous strides and is readily available.
Rather, the hurdles that the region must clear if it wants a more dynamic and successful
energy sector are institutional and political in nature.
Central America and the Caribbean require special attention from states and multilateral
agencies. The efforts of institutions such as the IDB and the World Bank should be directed
at these countries. Except for Bolivia, it makes no sense to focus on energy-rich South
America. Assistance for sector development should not concentrate on any one component
of the mix, but on all of them (oil, gas, coal, hydroelectricity, traditional biomass and
NCRE), and most importantly, on grid integration both within these sub-regions and with
Mexico and Colombia. The technical studies for grid integration within Central America
have been completed and require little else. Nowadays the issue lies with the political
5

6. decisions governments must make on electrical services legislation, regulatory frameworks,
pricing systems, and industry integration.
If attention shifts to hydroelectricity, decision-making will clearly move from the financial
centers that evaluate the technicalities of projects to the realm of politics, the place where
one must try to balance the requirements imposed by energy security and tighter
environmental regulations and the interests of groups that feel adversely affected by such
projects. This is a strong conflict where dam opponents not only wield intellectual
objections, but are a social movement in which environmental groups are joined by
agrarian communities and aboriginal peoples and have international connections, so that
they feel part of a single struggle spanning from Río Papagayo in Mexico to Patagonia in
Chile to Río Madeira in Brazil to the Inambari and Pakitzapango dams in Peru. But
governments are forced to build solutions, since a Latin America that agrees to freeze
hydroelectric development would plunge into a major energy crisis and —even if some
environmental groups refuse to acknowledge it— end up with a substantially less clean
energy mix.
Ending the current stagnation of oil production is, again, an issue where institutional and
political components play a key role. In the realm of Latin American energy —especially
oil and gas—national oil companies are the largest players and, underpinned by growing
resource nationalism, will continue to be for decades to come. Yet, this recognition starts
rather than precludes a debate on oil sector institutionality, as it is evident that there is no
single type of state-owned oil company. This is illustrated by the fact that while both are
state-owned, Petrobras and PDVSA interact very differently with their respective
governments, differ radically in terms of their corporate government and links to society
and the private sector, and are markedly distinct in their economic results and production.
In some countries, state-owned oil companies have both a business and regulatory role, in
others they do not. Petrobras and Ecopetrol are open to private investors who share in their
ownership and results through shares of stock traded across world stock markets. Yet, in
both cases state control of the company is guaranteed. Such openness forces these
companies to submit to the control, transparency and accountability standards governing
international private enterprise. As various writers hold (i.e., Espinaza, Tissot, Arriagada),
often the leading factor accounting for the extremely checkered performance of national oil
companies is institutional in nature.
6