Latin America's surging oil and gas industry is expected to continue growing strongly in the next 15 years, with U.S. being one of the main beneficiaries.
This was one of the main messages to emerge at the Centre for Global Energy Studies (CGES) annual conference in London, Apr. 21-22, which focused on prospects and challenges in South America.
Sheikh Ahmed Zaki Yamani, chairman of CGES, told delegates Latin American oil demand has grown at an average 2.7%/year since 1985, more than the global average of 1.6%/year.
The region's oil production has grown even faster than demand, said Yamani, rising 1.5 million b/d from 1985-96, at 3.3%/year. Production is expected to continue growing over the next 10 years.
"Indeed," said Yamani, "by 2006 the CGES expects Latin America's net exports of oil to reach 5.5 million b/d, up from 3.7 million b/d at present.
"With proven oil reserves amounting to 13% of the world total and oil production at only 8.5%, Latin American oil appears to be under-exploited, which is why we expect the countries of the region to make better use of their oil resources from now onwards."
U.S. benefiting
Yamani said one country already benefiting from the buoyant Latin American oil scene is the U.S., which has for some time sought to diversify its oil imports away from the Middle East.
In 1990, the U.S. secured 24% of its crude oil and products from Venezuela, Mexico, and Colombia. Last year, these countries provided 33% of U.S. crude and products imports and 48% of imports to the U.S. and Canada.
"In contrast," said Yamani, "Saudi Arabia's share over the same period declined by 2-15%. Companies in the U.S. are showing a marked preference for short-haul Latin American oil over long-haul Middle Eastern crude.
"Although U.S. policy with respect to the Arabian Gulf raises many issues and presents many problems, it is sweet music to the ears of Latin American oil producers."
Yamani cited two main reasons for recent success of Latin America's oil industry: opening of some state oil industries to private enterprise; and growing involvement of foreign oil companies in regional operations.
BP's view
Peter Davies, chief economist of British Petroleum Co. plc, expects Latin American economies will grow even faster over the next decade, with gross domestic product rising by almost 5%/year from 1995-2005, compared with 6.5%/year for Asia's developing countries.
Davies forecasts that Latin America's oil production will reach 15 million b/d in 2005, up from just less than 10 million b/d in 1996. Venezuela is expected to raise production capacity the fastest.
For BP, Latin America is the fastest growing region in its portfolio, said Davies, with capital investment expected to rise to 11% of the company's total in 2000, compared with 6% in 1996.
Davies also expects Latin America's net oil exports to grow, to 7 million b/d in 2005 from 5 million b/d in 1996. Most of this extra output is expected to go to the U.S.
"Short-haul crudes are attractive to U.S. refiners, who no longer want to keep excessive stocks; also Latin American companies are investing in U.S. refineries to secure markets for their oil," Davies said.
Regional gas production is also expected to grow, to almost 200 billion cu m in 2005 from about 110 billion cu m in 1996. Gas demand is expected to rise in line with global trends, as domestic use increases and gas-fired power generation grows further.
Key R&M factors
Ron Billings, president of the Mobil Corp. Latin American and Caribbean unit, told CGES conference delegates key factors influencing the region's refining and marketing sector are economic growth, market deregulation, and increasing environmental pressure.
Latin America's products demand is expected to grow to 7.6 million b/d in 2005 from 5.8 million b/d in 1995, said Billings. Primarily, growth will be in transport fuel, with fuel oil demand expected to lose market share to gas for electricity generation.
Billings said 60% of the region's products demand is from Brazil and Mexico. Different countries are expected to show widely differing products demand growth, from 1-4%/year.
Lubricants demand is also expected to grow, to 27.7 million bbl in 2005 from 19.4 million bbl in 1995. Transport comprises 75% of lubricants demand at present, but industry's current 25% share is expected to increase slightly as regional industry expands. Brazil and Mexico account for 50% of regional lubricants demand.
Billings said products supply within Latin America will have to rise 150,000 b/d/year to keep pace with demand, roughly the equivalent to one medium-sized refinery to be added each year.
Billings said most of this demand is expected to be met within the region, but if no new refining capacity is added, Latin America could be a net importer by 2000: "This mainly depends on the rate of privatization."
To meet the increasing challenges of market and environmental requirements, Billings said there are likely to be regional trends to consolidate smaller, inefficient refineries, as well as an increase in the scale of new plants, and a move towards maximizing efficiency of operations.
Retail outlook
On the retail market side, deregulation is expected to attract new players wanting to build new service stations, even in the short term where there appear to be enough stations to meet demand.
In the longer term, hypermarketers may enter retailing, as they have done elsewhere, said Billings, increasing competition dramatically.
Billings said, "In the long term, we would expect a trend towards high volume, high efficiency retail sites, with a reduction in the number of sites as the market matures."
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