South America’s energy potential should not be neglected despite serious problems in Venezuela and corruption investigations in Brazil, witnesses told the US House Foreign Affairs Committee’s Western Hemisphere Subcommittee on May 17.
“Countries seem to be waking up to the reality that statist energy policies simply do not bring the kind of economic growth they need. A change appears to be under way, and countries now are making reforms to advance free market-friendly energy policies and attract foreign investment,” said Subcommittee Chairman Jeff Duncan (R-SC).
“The challenge is not the lack of oil and gas resources, but the host countries’ onerous contractual and fiscal terms and conditions, regulatory environment, and the lack of stability and continuity that international oil companies need in order to invest and sustainably monetize and commercialize these resources,” observed Jorge R. Pinon, interim director of the University of Texas at Austin’s Center for Energy & Environmental Policy.
In his written statement, Pinon called on Congress to support the building of energy infrastructure and logistical assets across Latin America that would let investors monetize and commercialize the Western Hemisphere’s crude oil, natural gas, refined products, and electricity potential.
Increasingly favorable terms
Abundant natural resources, growing markets, and increasingly favorable policy frameworks in many countries make South America an increasingly important energy investment destination, according to Lisa Viscidi, energy, climate change, and extractive industries program director at the Inter-American Dialogue in Washington.
“New opportunities have opened up for private investment as more market-oriented leaders have come to power in Brazil and Argentina since late 2015,” Viscidi said. “Since the collapse of global oil prices in mid-2014, many South American governments have offered increasingly favorable terms to draw investments after international oil companies cut exploration budgets.”
Jason E. Bordoff, founding director of the Center for Global Energy Policy at Columbia University in New York, said, “Broadly speaking, the recent oil price collapse and economic strain throughout the region has helped to catalyze reform efforts to liberalize South America’s energy sector. Countries in the region now are taking steps to make themselves more competitive and attractive to foreign investment.”
Bordoff noted that it would serve the US national interest to help these countries succeed and develop their energy sectors to increase regional political stability and economic growth, promote global energy market stability, and open up new opportunities for foreign investments.
When Duncan asked if it would be possible to achieve hemisphere-wide energy security, Pinon said there are five distinct regions within which that might be possible, but doubted whether “we could bring everyone together around the campfire and start singing ‘Kumbaya.’”
Viscidi added, “Open-market policies will be essential so natural gas and electricity can be sent where they are needed.”
Bordoff said, “The situation will be improved if the hemisphere produces as much energy as it consumers. But it’s also essential to keep global markets open, in case Venezuela’s exports fall further or a major hurricane strikes the Gulf Coast again and damages refining capacity there.”
Contact Nick Snow at [email protected].
