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Latin American oil exports

Hydrocarbon Engineering,


Stability of long-term US oil supply threatened by developments in Latin America

The US is the world’s largest energy consumer, using up to an estimated 21 million barrels of oil a day. It only produces around 6 million barrels a day domestically, meaning one of the world’s most powerful nations is reliant on importing between 60 and 70% of its annual energy needs. About a quarter of its current imports come from Latin America, with its two closest neighbours, Canada and Mexico, providing over 30% between them. Venezuela and Colombia are the third and eight largest exporters respectively to the US market with a host of other Latin American nations, including Brazil, contributing to the market.

Capacity of Latin American oil markets

Over the course of the 20th century, Latin American states have increasingly moved towards reclaiming control over energy enterprises from US investors, some with brutal state-wide nationalisations – such as Mexico and Venezuela – whilst others favour more subtle policies, such as state-sponsored competition and sidelining legislation. The potential impact of squeezing US developers out of the region is hugely significant given that the estimated total oil reserves in Latin America are enormous. Mexico was predicted to have the second largest oil reserves in the Western Hemisphere in 2002, with 30.8 billion barrels. Whilst those projections have now been scaled back, the country remains the largest oil producer in the Western world. Some commentators, however, believe that Mexico has passed its ‘hubberts peak’ – the point of maximum oil production. Output figures indicate that oil production in Mexico has declined in recent years, as is also the case in Venezuela and Ecuador, and as long as these governments continue to use oil profits for social projects instead of reinvesting in industry, output is unlikely to spike again anytime soon. The only country registering an increase in production is Brazil, but as of yet, their supplies are far from sufficient to supplement a regionally declining sector.

Importance of foreign policy

In addition to constraints of reduced output, some Latin American countries are showing increasing resistance to exporting their available resources to the US. Years of economic dependence on the US market are coming to an end; emerging export markets in South East Asia – in particular China, which accounts for 45% of global crude oil demand – as well as neighbouring states are becoming increasingly open to trade. Aside from Mexico, which is a member of the North American Free Trade Agreement (NAFTA), Latin American oil producing nations are becoming increasingly involved in regional trade agreements which prioritise trade with other members over international transactions. The Mercosur group, Central American and Caribbean Free Trade Agreement (CAFTA), and the 18 member Petrocaribe group all offer favourable trading terms to other members. As a result, the US is the only customer in the Americas to pay the full market price for oil imports.

The realisation by Latin American states that they are capable of greater independence in international oil transactions has grown alongside what may be characterised as growing political resentment towards the US. This can be seen as having been fuelled not only by the US’ historically exploitative interventions in the region, but also by Washington’s ongoing indifference to its Latin American counterparts. In 2009 President Obama pledged greater engagement with Latin America on matters relating to energy, security and trade, but very little has happened in reality since then. During Hilary Clinton’s 45 minute speech on ‘Opportunities in Latin America’ during her visit to Ecuador in June 2010, the Secretary of State did not mention energy once. The US policy towards Latin America - especially in terms of energy - has been short-sighted and unfocused to say the least and, as can be seen in the case of Venezuela, is beginning to seriously affect future oil security.

Mexico’s security concerns

The US’ oil supply from Mexico, its largest contributor in Latin America, may also come under threat in the coming years if the price of crude oil continues to drop, thereby limiting future exploration projects. Even if foreign investors are allowed into the country, new resources will not be ready to pump until Petroleos Mexicanos (PEMEX) registers further losses. In addition to dwindling existing supplies, the theft of crude oil by drug-cartels also present a long-term risk to energy security. According to PEMEX, the number of pipeline tags has quadrupled in the 5 years to 2009 to 462. Last year, drug cartels sold an estimated US$ 46 million worth of crude oil on the black market. Cartel operatives are also targeting labourers at PEMEX plants with kidnaps and violent attacks in order to intimate the workforce and reduce the company’s ability to confront them. Fixed assets and oil in transit are also vulnerable to cartel-led violence, which will cause further financial damage to the loss-making company and impede modernisation programmes. Such incidences are only likely to increase over the mid-term as income from crude oil theft will become more important to cartels with the government’s war on drugs minimising opportunity for drugs trafficking.

Future for US energy trade with Latin America

The US’ hands are effectively tied in terms of direct involvement in a number of crucial Latin American oil sectors, principally because of the anti-American sentiments of many governments in the region. As such, investing in exploration may not just be costly, it could be altogether unfeasible. Similarly, US advice that more profit should be invested into future oil production would only add fuel to the fire of those who claim that the US continues to exploit Latin American resources for their own gain. Washington’s best hope is to slowly and determinedly cultivate better relations with its southern neighbours, and recognise the developing political powers in the region as near equals in the geopolitical sphere. However, the likelihood of this happening will largely depend on whether the White House is prepared to consider its energy security in terms of the wider regional context, and recognise that its problem is one requiring a coordinated solution and not simply an issue of supply.

Author:
Taryn Evans, Central and Latin America analyst for AKE.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/19112010/latin_american_oil_exports/


 

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