12 November 2006 20:50 [Source: ICIS news]
RIO DE JANEIRO (ICIS news)--Energy security in Latin America will depend on whether governments rely on state-led energy models that hamper investment or focus on the private sector, a consultant said on Sunday.
“The Latin American energy market is a patchwork of trends and pendulum swings,” said Jed Bailey, an analyst at Cambridge Energy Research Associates (CERA).
“This ranges from Chile and Colombia, which are largely market-driven, to Brazil and Peru with a hybrid market-and-state approach, to Venezuela, Argentina and Bolivia, which take a state-led approach.”
Bolivia’s nationalisation of its oil and gas assets in May 2006 will lead to less investment and eventually a slowdown in production, he told the annual meeting of the Asociacion Petroquim y Quimica Latinoamericana (APLA).
“Bolivia’s ability to produce gas has become compromised,” he said. “In the worst-case scenario, if no investments are made, the Bolivian gas deliverability gap could reach 46% of potential demand by ?xml:namespace>
Bolivia exports significant amounts of natural gas to Brazil and Argentina. “But given our outlook for a decline in oil prices in the coming years, there is a question of how long this can last,” said Bailey.
In CERA’s base-case scenario, oil prices will decline to around $40-50/bbl on average by the end of the decade. As oil prices decline, countries with state-led policies will feel more pressure for policy change, said Bailey.
The expected shortage of natural gas supplies towards the end of the decade, especially in the southern cone of Latin America, is causing governments to adopt new policies designed to insulate their own markets, he said.
Regional governments are taking a variety of approaches. Bailey pointed out the contrast between the market approach of Chile and the state approach of Argentina.
In Chile, energy security is a priority and the country is seeking diversity of gas supply, particularly through imports of liquefied natural gas (LNG). “There is also cost-reflective pricing, and this will help close the gap,” Bailey said.
“Argentina is very different, with slow price alignment to protect residential consumers,” he noted. “This gives the energy sector very little reason to produce until they can get higher prices. They are turning to Bolivia rather than investing in their own supplies.”
Energy exporters should balance their desire for higher revenues with the need to attract investment and pay heed to the risk of destroying demand. For energy importers, “diversification is the name of the game”, Bailey said.The APLA conference opened on Sunday and ends on Tuesday.
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