LATIN AMERICAN PETROLEUM INVESTMENT TOUTED

Energy ministers and officials of oil monopolies in various stages of privatization have portrayed Latin America as an investment prospect as alluring as any other in the world.

At a Dallas conference organized by East-West Center, Honolulu, and Southern Methodist University's Institute for the Study of Earth and Man, Latin American energy leaders highlighted their region's resource potential and need for capital.

Some of them also supported movement toward energy cooperation in the Western Hemisphere and drew distinctions between environmentalism as viewed from north and south of the Equator.

Outlining investment opportunities at the conference were representatives from Peru, Costa Rica, Colombia, Brazil, Bolivia, Ecuador, Venezuela, Trinidad and Tobago, Belize, Mexico, and Argentina.

CAPITAL NEEDS

East-West Center estimates that countries in Latin America and the Caribbean will seek external capital totaling $40-30 billion in the next 5 years.

Fereidun Fesharaki, director of East-West Center's program on resources, told a press briefing petroleum demand is growing faster than supply in Latin America. By 2000, the region may be turning increasingly to the world market for supply, which makes it one of two major uncertainties in assessing global oil balances.

The other uncertainty is the former Soviet Union.

Net exports from Latin America now total 4.3 million b/d-3.1 million b/d of crude and 1.2 million b/d of products, Fesharaki said.

Of the total, 67% goes to the U.S., 20% to Europe, 4.6% to Japan, and 2.8% to Canada. Exports to Japan are falling rapidly.

In terms of consumption, Fesharaki cited "significant room" for making the system more efficient. But key variables are the degree and pace of economic reform, pricing policies, and the consequent level of demand.

With moderate economic liberalization and growth, Latin American demand might reach 5.3 million b/d by 2000, up 1 million b/d from present net consumption.

The region's 66 refineries have total capacity of 5.8 million b/d and an average cracking/distillation ratio of about 30%, compared with 60% in the U.S. and 27% worldwide.

Average output is 5.1 million b/d of products, while product imports average 371,000 b/d.

With a high degree of liberalization and rapid economic growth, consumption might reach 6.5 million b/d by the end of the century, which would exceed refining capacity and erode exports unless production rises in step.

"It takes a 1-2% faster rate of growth to strain the system," Fesharaki said. "We think that's likely to happen."

An East-West Center report issued in conjunction with the conference said productive capacity for Latin America and the Caribbean could reach 8.5-11 million b/d by 2000 if enough capital is available. Current production is about 7.4 million b/d.

The region's refining industry would need to invest $10-20 billion in reconstruction and upgrades if consumption grew at the higher of the two rates proposed by Fesharaki.

A benchmark of economic reform will be politically difficult reform of the petroleum product subsidies common in Latin America.

"The key to liberalization is the willingness of countries to charge real prices," Fesharaki said. "I don't think the issue is settled anywhere."

TRADE ISSUES

Frequent mentions of hemispheric trade during the conference focused attention on the U.S., which accounts for 25% of world oil consumption and where doubts have grown about the North American Free Trade Agreement (Nafta) with Mexico and Canada.

William White, U.S. deputy secretary of Energy, spoke of a "hemispheric team of the Americas" and acknowledged, "We are finding it more and more difficult to attract oil and gas exploration in our own country."

He said U.S. and Latin American energy officials alike are judged increasingly on their ability to foster job creation, which he asserted can result from conservation efforts as well as measures to boost supply.

Thus, he said, there is a "new chapter" in energy policy, the primary function of which is to provide "building blocks of rapid economic growth and sustainable employment."

White also echoed Clinton administration support of Nafta.

"We want to be part of a hemispheric trading system," he said.

Gabriel Sanchez-Sierra, secretary general of the Latin American Energy Organization (Olade), said countries from his region are watching Nafta closely and called it 11 a very important step toward hemispheric cooperation."

FINANCIAL, ENVIRONMENTAL ISSUES

The key production issues in Latin America are financing of energy projects and the challenges of environmentally sustainable economic growth, Sanchez-Sierra said.

If Latin American economies grow at a combined rate of 3-5%/year, he said, the region's oil producing countries will have to spend $98-180 billion to keep their total reserves/production ratio at its current level through 2000.

Venezuela, for example, will have to invest $40 billion in the next 5 years, of which $17 billion must come from contracts with foreign companies. By comparison, the budget for state owned Petroleos de Venezuela SA in 1993 was $8.85 billion-$5.02 billion for expenses and $3.83 billion for investments.

Petroleos Mexicanos, according to Olade estimates, will need to invest $20 billion in the same period to keep Mexico's exports at 1.6 million b/d and meet domestic demand.

Trinidad and Tobago plans to invest $745 million in its hydrocarbons industries during 1994-98 and expects to have to rely on international loans for 25175 of the total, the rest coming from private oil companies,

Petroleos del Peru plans oil production investments of $17.6 million in 1994, $13.2 million in 1995, and $2.4 million in 1996. Modernization and expansion of refineries will require $40.1 million in 1994, $51.9 million in 1995, and $21.6 million in 1996, according to National Energy Council of Peru data cited by Sanchez-Sierra.

Petroperu expects to finance 40% of those amounts itself and rely on international loans for 49% and other financing sources for 11% of the total. The amounts don't include spending by private companies.

Among other spending plans cited by Sanchez-Sierra were $910 million in 1993 for Petroecuador, including $275 million in investments and the rest for expenses, and a 1993 target of $501 million for exploration, spending by Colombia's Empresa Colombiana de Petroleos (Ecopetrol), compared with $328 million in 1992 and $145 million in 1991.

Questions about sustainable economic development complicate the investment outlook, Sierra-Sanchez said.

"From our point of view, environmental priorities are totally different" from what they are in the Northern Hemisphere, where the main issue has become emissions of carbon dioxide.

"In the South, the main source of environmental deterioration is poverty," he said.