2018 has been a year marked by great political uncertainty for Latin American energy markets. Oil prices are up, creating strong incentives for investment, rising US natural gas exports are creating a new source of flexible, cheaper energy for Latin American consumers, and the cost of wind and solar energy is declining dramatically. However, Latin America continues to face uncertainty in energy policy as new governments take office in many countries and geopolitical tensions between the US and China are on the rise. With many questions on the table, government officials, corporate representatives, and analysts gathered on October 25 at the Inter-American Dialogue to assess the future of energy policy in the Western Hemisphere.
Fluvio Ruiz, an energy advisor to president-elect Andrés Manuel López Obrador, outlined the most important aspects of the incoming administration’s energy agenda, including decreasing Mexico’s energy dependence by investing in refining and research and development, allocating greater resources to Pemex, and accelerating the energy transition to renewables. Following Ruiz’s public remarks, panelists highlighted the ambition of AMLO’s plans given the diverse makeup of his coalition and the tremendous fiscal burden that investment in energy infrastructure requires. Prior to the conference, Ruiz also spoke at a private breakfast with members of the Dialogue’s Energy Committee and other special guests.
Brazil and Colombia are also major oil producers that held elections in 2018. Panelists explained that Jair Bolsonaro, Brazil’s far-right president-elect, has completely reversed many of his former energy positions in the past few weeks, making the outlook uncertain. But regardless of his plans, the 30 diverse parties within Brazil’s congress will make implementation difficult. Meanwhile, in Colombia, new president Iván Duque will be empowered by a recent court ruling placing natural resource extraction in the hands of the federal government as he aims to boost oil production and spur industrialization and development. Development of unconventionals is likely to accelerate in the near future, as is the development of renewable energy.
Panelists also discussed the opportunities and challenges facing natural gas and power markets in the region. They stressed the role natural gas can play as a firm power source to complement variable renewable energy sources in an increasingly diversified energy grid. Improvements in liquefied natural gas (LNG) technology, including floating storage and regasification units (FSRUs), are making shipment of gas to the Caribbean and Central America easier. At the same time, Puerto Rico and Caribbean island nations are incorporating renewable energy microgrids, which make rural power systems more resilient during natural disasters, into their grids.
The rise of Chinese investment in Latin American energy sectors was a focus of the final panel of the conference. As the United States has pulled back from the region China has increased its role, with new investment from private and state-owned firms, as well as oil-backed lending from its state banks. Latin America is of growing importance for China to ensure access to natural resources and other commodities, as well as access to export markets, and to promote the internationalization of Chinese companies.
Analysts will be closely watching Latin America as these developments evolve.