Latin America cannot solve Europe’s energy crisis in the short term

Resource-rich Latin America, and in particular Argentina, Brazil, Guyana and Venezuela, will not be able to provide urgent short-term solutions to Europe’s energy crisis, experts have agreed energy during a webinar hosted by Florida International University (FIU).

“There is no short-term solution to the European crisis coming from Latin America,” Vice President of the Americas Institute for Energy and Sustainability Jeremy Martin said Oct. of the webinar on Energy Outlook in the Americas.

Latin America and the Caribbean is home to reserves of nearly 341 Gbbl of oil, including about 11 Gboe in Guyana, then 285 Tcf of natural gas, according to bp’s 2021 World Energy Statistical Review. Oil and gas production from the region was around 8 MMbbl/d and 183 Bcm or 18 Bcf/d respectively.

Despite this potential, near-term reserve additions and production increases are only expected to come from Brazil and Guyana based on discoveries in those countries, primarily by state-owned Petrobras and an Exxon-led consortium that includes Hess and CNOOC.

“A legacy, the reason why production hasn’t performed so well in the region, with the possible exception of the case of Brazil, is due to what we generally call above ground risks in the sector,” said Rice University’s Baker Institute for Public Policy Fellow in Latin. US Energy Policy Francisco J. Monaldi said during the webinar. “This means that the mix of regulatory risks, expropriation and mismanagement by national oil companies and others has made this region, which concentrates the second largest resource base outside the Middle East, a significant underperformer. in contrast.”

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In the not so distant past, Venezuela was the region’s main oil and gas producer and a key ally of the United States. Today, despite frequent headlines, the country has little to offer in terms of near-term production after years of oil rent mismanagement and the recent weight of US sanctions imposed in early 2019 aimed at bringing about regime change. .

Venezuela, the only OPEC member in the Americas, produced just under 700,000 bpd in September and is still far from its maximum potential, said David Voght, chief executive and founding partner of IPD. , during the webinar.

Voght argued that US sanctions would not be lifted but rather recalibrated when private sector involvement was necessary and best to likely “preserve” Venezuela’s oil infrastructure.

Vaca Muerta Shale Bet from Argentina

Argentina’s Vaca Muerta formation, tied with the US Permian Basin and Haynesville in total resources, holds the greatest potential for the South American country to boost gas production and potentially LNG exports in the future if key infrastructures are finally built.

Ongoing political and economic uncertainties remain Argentina’s main headwinds despite the potential for near-term production gains.

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“Argentina was a huge underperformer after privatizing the oil industry in the 1990s,” Monaldi said. The country has managed to stabilize its production in recent years, and there is potential to increase it further, the executive said.

“Part of the reason why Argentina will be able to develop at least part of Vaca Muerta despite all its problems in terms of institutions and macroeconomics is that the type of investment in shale is…this short-cycle investment where the risks are much lower than in other larger, longer-term projects,” Monaldi said.

But there is still pessimism about Argentina’s export potential.

“If Argentina had taken the export of LNG seriously five years ago, it would have been the solution to Europe’s current crisis. But they didn’t,” Martin said. “And they still won’t be able to develop the kind of infrastructure needed to export gas.”

Brazil and Guyana leading the exploration boom

South America’s Brazil and Guyana have led the region’s exploration boom in recent years. Earlier discoveries in Brazil will boost production in the near term with the arrival of new FPSO vessels. More recent discoveries in Guyana, coupled with the almost annual coming online of FPSOs, will continue to have a positive impact for the country, its citizens and the oil companies involved.

Brazil has become Latin America’s largest oil and gas producer in recent years as Venezuela backtracked amid political uncertainties and US sanctions.

Despite uncertainties surrounding Brazil’s elections, the country’s production “is targeted to reach levels of almost 6 million barrels over the next decade”, Monaldi said, citing data from Rystad Energy, which would imply double current production.

Guyana, the other exploration hotspot, is arguably a more exciting story given the country’s small population and the fact that it only recently started producing oil at the end of 2019.

Exxon’s partner Hess plans to commission at least six FPSOs with a production capacity of more than 1 MMbbl/d gross on Guyana’s Stabroek block in 2027, with the potential of up to 10 FPSO to develop raw-discovered recoverable resources, the company announced earlier this summer. . Average production in Guyana should exceed 300,000 bbl/d this year.

“Guyana could become… the largest oil producer per capita in the world, surpassing Kuwait and the Emirates, but either way it looks like it will also be one of the top three or four producers in the region,” Monaldi said.

Recalibration of US sanctions needed

Venezuela, with its massive oil found in its Orinoco or Faja heavy oil belt and huge offshore gas potential, cannot be overlooked by corporations or the US government as it scrambles to find barrels and molecules to replace Russia’s lost supply after its invasion. in Ukraine and subsequent sanctions.

Venezuela’s short- and long-term potential is arguably a prey to US sanctions, which are holding back investors and the only Western oil producer still in the country, the US-based Chevron.

“But fundamentally what we can see is that there is little short-term benefit for Venezuela, and that will require very significant investments from Chevron if there is a license,” Monaldi said. , adding that they could probably only add a little over 100,000.bbl/d.

“Some people are saying that the United States is considering lifting the sanctions. No that’s not true. There will be no lifting of sanctions. What there will hopefully be is a recalibration of sanctions,” Voght explained.

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Voght said the private sector — including companies like Chevron involved in joint ventures that account for about 50% of Venezuela’s oil production — was better placed to preserve Venezuela’s oil infrastructure, which has deteriorated over the past few years. decades due to lack of maintenance and cannibalization. the rooms.

Besides the recalibration of sanctions, Voght said it was necessary for Venezuela to distance itself geopolitically from China and Iran. About 95% of Venezuela’s oil exports go to China at heavily discounted tariffs, while Iran continues to supply Venezuela with necessary resources such as condensate to help produce its heavy and extra-heavy oils. .

“I think it’s useful to create an option for Venezuela to divert crude from China to the Atlantic basin here, promoting improved regional security, regional energy security, especially for the European market “, Voght said.

Venezuelan gas for Atlantic LNG from Trinidad

In terms of gas production from Venezuela and the potential to export molecules to Trinidad for later re-export as LNG, Venezuela has two options.

There is potential that could initially come from offshore, but then about 2.5 billion cubic feet/d that is currently being burned onshore in Monagas, Venezuela, Voght said.

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The vast majority of Venezuelan gas is “associated with oil production and therefore may not necessarily be exportable, but our assessment is that within three years Venezuela could produce enough to supply Trinidad’s Atlantic LNG train at approximately 3.3 million tonnes per year through the Dragon offshore fields and through gas gathering in the northeastern part of the country,” Voght said.

Editor’s note: This story was previously published at 5:30 p.m. CT on October 24.

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