Early this year, the World Bank named Iraq, Libya, Venezuela, Equatorial Guinea, Nigeria, Iran, Guyana, Algeria, Azerbaijan, and Kazakhstan as the most vulnerable oil-producing nations due to their high exposure to the oil and gas sector and relative lack of diversification. Latin American economies are, however, not much better off due to their high reliance on oil and lack of a clear roadmap in the global energy transition.
By Oil Price – Alex Kimani
Dec 6, 2021
Venezuela, Ecuador, and Colombia are particularly dependent on oil exports and revenues. Bolivia and Trinidad depend heavily on natural gas. Meanwhile, the small nation of Guyana is poised to become the largest per-capita oil producer in the world, thanks to the swathe of oil discoveries made by ExxonMobil and its partners. Argentina, Brazil, and México are not as fossil fuel dependent, but oil and gas still rank among the largest industries in each country in terms of fiscal revenues, exports, and investments.
With the recent rise in oil prices and the pressing need to rescue economies, many countries in the region are looking to develop their fossil fuels. To date, considerably more funding has been allocated to fossil fuels than renewable energy as part of recovery packages. While some national oil companies are improving their energy efficiency and reducing gas flaring, the region’s energy sector is not aligned with the Paris Agreement’s goals of reaching net-zero emissions by 2050.
A report by the Inter-American Development Bank (IDB) shows that in scenarios consistent with the 1.5 – degree goal, Latin American oil production needs to fall to less than 4 million barrels per day by 2035 – 60% below pre-pandemic levels. This would mean that up to 81% of their proven, probable, and possible oil reserves will not be used before 2035. The fiscal impact would be enormous: the region’s oil exporters could lose up to around US$ 3 trillion in royalties by 2035 if strong global climate action materializes.
Latin American nations combined emit as much carbon dioxide (CO2) as Russia, the world’s fourth-largest CO2 emitter.
Falling Behind
Speaking at this year’s all-virtual CERAWeek conference, experts have said that Latin América is lagging in the energy transition due to outdated policies and resource nationalism in nations like Venezuela and México, combined with an urgent need for cheap imported fuel.
Last year, Latin América imported 2.69 million barrels per day (bpd) of crude and refined products from the United States, its largest source of oil imports, representing a 12% decline from the record 3.05 million bpd in 2019, but still up 88% from a decade earlier.
Earlier this year, the Texas deep freeze knocked out natural gas supply to Northern México, leaving households without electricity and forcing hundreds of factories to slow down or close. That motivated the Mexican government to return to coal and fuel oil for power generation. In February, Mexican President Andres Manuel López Obrador ordered state power company Comision Federal de Electricidad (CFE) to reopen thermoelectric plants set for dismantling, while questioning the country’s dependence on U.S. natural gas as the primary fuel for electricity.
“CFE has important investment plans today, but they do not include renewables, power transmission or distribution,” Tania Ortiz, CEO of México’s energy company IEnova, said at the CERAWeek conference. CFE ( Comisión Federal de Electricidad) is México’s state power company.
México has delayed planned reforms to limit emissions from motor fuels, including a regulation requiring truck makers to switch engines to ultra-low sulfur diesel (ULSD). Meanwhile, Venezuela, hit by underinvestment and U.S. sanctions, has done nothing to reduce pollution from motor fuels since its state-run firm PDVSA removed lead from gasoline in 2005.
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