Impacts of Politics and Oil Price Collapse on South America’s Smaller and Emerging Producers
Political changes are shaping the outlook in many of South America’s smaller and emerging oil and gas producers, while the oil price collapse and economic decline due to the global coronavirus pandemic are generating uncertainty for the sector. At a webinar co-hosted by the Inter-American Dialogue and the National Capital Area Chapter of the United States Association for Energy Economics (NCAC-USAEE) on March 20, panelists discussed the outlook for investment in these countries and how political developments are likely to impact producers in the region.
In Guyana, the near-term investment outlook is marked by uncertainty due to electoral complications which have been further exacerbated by the spread of coronavirus. If the opposition party arises victorious, changes to the oil and gas regulatory framework could be imminent. However, despite party differences, panelists emphasized that the biggest risk is independent of which candidate prevails. Regardless of its political alignment, the next administration must build institutional capacity and manage resource wealth to ensure it reaches the Guyanese people.
In neighboring Suriname, a major offshore discovery was recently announced by Apache Corp and Total SA. While it’s still too early to estimate the field’s potential, the country is very focused on continuing offshore exploration.
Meanwhile, in other South American countries, political and economic turbulence has generated uncertainty for the oil and gas outlook. In Bolivia, longtime president Evo Morales resigned amid claims of electoral fraud and new elections are scheduled for May. Yet presidential candidates have been unclear about how they will manage the country’s natural gas production and reserves, which dwindled under the Morales administration. Furthermore, Bolivian imports are increasingly being replaced by domestic supply in its main markets Brazil and Argentina.
In Ecuador, violent protests over the removal of fuel subsidies in October 2019 caused President Moreno to scrap IMF-imposed austerity measures and declare a state of emergency. Without IMF funds, which are contingent on financial reform, the Ecuadorian government will struggle to improve the country’s fiscal position. The oil price collapse, in combination with the effects of the economic slowdown from coronavirus, will further increase country risk and financial deterioration. Panelists noted that in order to maintain the dollar as a currency and sustain the economy, attracting foreign investment in the form of bid rounds could provide a way forward.
In Peru, parliamentary elections were held in January 2020 after President Vizcarra dissolved Congress. Panelists explained that the new congress is unlikely to bring significant change in the hydrocarbons sector as they face other priorities like reviewing previously approved legislation. In addition, the Peruvian congress is highly fragmented, which would make passing new regulations and policy for the oil and gas sector difficult.
At the Inter-American Dialogue, José Miguel Insulza described the events of September 30, in which Ecuadoran police brought the country to a standstill after they rioted and trapped President Rafael Correa in a Quito hospital for several hours.