The US should carefully consider how it can best help Latin American and Caribbean countries address their energy problems, witnesses told a US House subcommittee on Apr. 11. One constructive US move would be to show it's serious about negotiating and honoring mutually beneficial agreements, several of them suggested during the Foreign Affairs Committee's Western Hemisphere Subcommittee hearing.
Approving construction of the proposed Keystone XL crude oil pipeline's northern segment, finalizing and implementing the transboundary agreement with Mexico, and authorizing LNG exports, the witnesses indicated would send a very positive signal to countries across the hemisphere, they indicated.
"In coming years, our energy interdependence with the region will only increase, as oil producers such as Canada, Brazil, and Colombia ramp up output, and Mexico—already a major energy producer—considers important reforms to increase its production," said Matthew M. Rooney, deputy assistant secretary in the US Department of State's Bureau of Western Hemisphere Affairs.
"The United States has extensive experience and has developed significant expertise in permitting, regulatory oversight, and incident response planning for conventional and unconventional resource exploration and extraction," Rooney said, adding, "The Obama administration is sharing these environmental, regulatory, legal, and commercial best practices with other countries in the region."
Rooney did not mention TransCanada Corp.'s revised crossborder permit application for the Keystone XL project, which the State Department is reviewing. He noted in his written testimony that transparent, effective market structures are essential in the Americas, but major challenges must be overcome.
"Countries that have pursued statist, nontransparent energy policies have seen their production decline despite high energy prices over the past couple of years," he said. "These countries have found it difficult to attract the necessary investments, both foreign and domestic, to help their energy production and economies grow.
'Avenue of engagement'
Rooney continued, "But our balanced approach of focused technical cooperation and broad policy discussions has provided an avenue of engagement with most countries in the region—even some with which we have significant differences. We continue to advocate open and transparent energy markets, free from corruption and reinforced by strong protections for investments, to help countries enhance output and promote long-term economic growth."
He said the US has made clear to Argentina's government that expropriating assets is a bad idea, while Chile and a few others are "fairly clean." Still others "are somewhere in the middle on transparency and anticorruption efforts," Rooney said, adding, "It's clear that in some countries, foreign companies have to have a strong stomach. That said, many US companies do business there."
Other witnesses emphasized that the US will need to not make other countries feel it is not interfering in their internal affairs as it offers encouragement and assistance. That may prove difficult as China and other countries from outside the region negotiate resource agreements with teams of state energy companies and national banks, they conceded.
"The US still leads the world in energy technology," said David L. Goldwyn, the Special Envoy and Coordinator for International Energy Affairs at the State Department during 2009-11 who now heads Goldwyn Strategies LLC. "It also has a business development model that is more favorable than China's, which is increasingly seen as colonial with employees who keep to themselves and don't work to help develop local economies."
Jorge R. Pinon, associate director of the Latin American and Caribbean Program at the University of Texas at Austin's Center for International Energy and Environmental Policy, said, "One thing US oil companies have done so well is that they're well separated from the federal government. We have to be careful how the US government becomes involved in US companies' overseas operations."
China could realize 600,000 b/d of production from the Western Hemisphere sooner than some people think, he added. "Its companies are partners in several ventures with Statoil and Petrobras, which already have deepwater expertise," Pinon said.
'Deeply complex'
Carlos Pascual, who succeeded Goldwyn as Special Envoy and Coordinator for International Energy Affairs at the State Department, said in his written statement that the Western Hemisphere's energy picture "is deeply complex and interconnected, with spectacular opportunities for US jobs, commercial interests, economic development, and energy supply linked to the political perspectives in Canada, Mexico, Venezuela, the Caribbean, and beyond."
He noted that as world energy markets transform as a reflection of the US's own energy revolution, it has much to share and to gain from being a formative part of the picture, especially in the Americas.
"From building North American energy security and shaping natural gas markets to paving the road for tomorrow's commercial and innovative transformation, the US must continue to lead, to share our best practices and lessons learned, to support transparency and an even playing field, and to give our companies and innovators access to tomorrow's energy markets," Pascual, who formerly was US Ambassador to Mexico, told the subcommittee.
He said that Mexico's president, Enrique Pena Nieto, backs comprehensive energy policy reform and is working across three political parties to achieve it. "The goal is to protect Mexico's natural resources while creating conditions that attract foreign investment and participation," Pascual said, adding the country appreciates growing US congressional interest in approving and implementing the 2012 Trans-Boundary Hydrocarbons Agreement.
Eric Farnsworth, vice-president of the Council of the Americas in Washington, said, "Approval of legislation to implement the agreement will be seen as a sort of 'proof of concept' to find creative ways to introduce outside investment into Mexico's energy sector. It also creates mechanisms to increase collaboration on environmental protection and disaster response, and will open new avenues for US commercial activity which has been desired for many years."
Other witnesses said it's vital that any energy policy changes in Mexico be seen as internally driven, and part of bigger economic reforms. Pinon said this could be difficult since the national oil company, Petroleos Mexicanos (Pemex), is only active within Mexico, unlike Brazil's Petrobras and Colombia's Ecopetrol have international operations.
Chavez's legacy
Witnesses acknowledged that Venezuelan President Hugo Chavez's strategy of giving several countries deep discounts on their purchases of Venezuelan crude oil was having an impact before he died earlier this year. Pascual said it perpetuated some smaller nations' dependence on diesel fuel to generate electricity, making prices in them 4-5 times higher than in the US. "We are working with them to create alternative power generation," he said. "Projects can't run for long on subsidies. They need to compete economically."
Rooney conceded that the State Department has concerns about Chavez's discounts and subsidies program: Petro-Caribe. "Several countries bought into it 2-3 years ago because there was a spike in petroleum prices," Pascual said. "I don't think many, if any, did it for ideological reasons."
Speaking days before Venezuelans voted to elect Chavez's successor, Rooney said the US plans to watch what happens there in the next 2 years from a distance. "We have had a testy relationship with Venezuela," he told the subcommittee. "We see possibilities to work with them on energy, narcotics, and counterterrorism. Unfortunately, they've been cool to that idea, but we hope it will change."
Goldwyn added, "The conversation is going to be difficult for a while, but we need to start talking to Venezuela again. There still may be some senior people at [national oil company Petroleos de Venezuela SA] who could be helpful."
Pascual said, "It bothers me that a country with so much of the Western Hemisphere's oil is broke."
Pinon said Brazil is poised to begin producing more crude than Mexico and Venezuela, which some experts never expected. Goldwyn said that Brazil clearly benefited from the infusion of technology when it opened deep offshore tracts to foreign participation. But it may be taking a step backward by requiring Petrobras to be not just the operator on new projects, but also make all the decisions, he continued. "This is slowing its production growth down already," Goldwyn said.
