LA JOLLA – On May 20–22, 125 participants from across the hemisphere and globe gathered in scenic Southern California for the XXII La Jolla Conference, the Institute of the Americas’ annual Western Hemisphere energy policy summit.
The La Jolla Conference opened with an overwhelmingly positive look at the U.S. energy revolution and the important economic impact that shale development has had on communities from North Dakota to Ohio to Pennsylvania. While highlighting the unique set of circumstances – financing, technology, entrepreneurship, regulatory frameworks, and an open business environment – that have bolstered the boom in the U.S., speakers also underscored what they felt were lessons from the U.S. experience. In particular, they were critical of overregulation such as the moratorium that has stifled shale development in New York. But they also pointed to the need for open, regular dialogue across issues and with all stakeholders.
The U.S. energy boom has piqued the interest of Latin American governments and investors given the region’s abundant potential of unconventional oil and gas reserves. Indeed, the opportunities and challenges associated with unconventional development coursed through most of the conference sessions.
In light of the boom in natural gas production, panelists in the opening session posited that the U.S. must rethink its approach to energy exports. Panelists concurred that the US should facilitate greater LNG exports to both free-trade and non free-trade agreement partners. During a later conference panel, U.S. Department of State representatives underscored that the government would continue to consider applications on a case by case basis.
Latin America, by comparison, faces a trade-off between resource abundance and institutional challenges. Speakers felt that unconventional development was more likely to take off in countries like Mexico and Brazil, with Peru also promising. A speaker from Chile’s national oil company, ENAP, touted the possibilities and need for that nation to tap its unconventional resource potential. “We have no other choice,” the executive noted. Meanwhile, many speakers tended to agree that resource-rich nations like Argentina would continue to struggle to attract investment as long as huge question marks continued to surround its political and regulatory outlook.
For Mexico, the outlook was quite positive, although discussions were constrained by the ongoing uncertainty surrounding possible energy reforms by the new president, Enrique Peña Nieto. Mexico is in a position to take advantage of both the natural gas exports from the United States as well as abundant resources of its own. But, panelists noted that pipeline construction in the northeast of the country in particular must be accelerated if natural gas supply is to meet growing demand.
While there are also significant prospects in the Mexican deepwater of the Gulf of Mexico, the private sector remains unable to participate unless energy reforms bring about significant, most likely constitutional, changes to the existing framework. Speakers noted that Pemex faces several challenges in exploiting new reserves, chiefly talent, technology, project management, and money. Private sector participation, they argued, would greatly aid Pemex’s and the nation’s efforts to overcome these hurdles.
Mexico’s electric sector would also benefit from greater competition, as well as greater efficiency at the Federal Electricity Commission (CFE) and a review of the electricity rates and pricing structure. Electricity demand is rising in Mexico, and the country urgently needs to boost capacity, which could also be aided by an increase in foreign investment.
Colombia, meanwhile, has had a burst of foreign investment in the energy sector but has struggled to increase oil reserves to meet production targets. Colombia’s energy sector now contributes around one third of the country’s GDP making it the largest contributor to the country’s economic development. Speakers felt, however, that most of the ‘low hanging fruit’ was gone. As part of their response to this challenge, the government has pursued an exploration and production strategy focused on offshore Caribbean reserves.
Colombia is also facing serious infrastructure bottlenecks. Infrastructure, as many speakers noted, has failed to maintain pace with the country’s energy boom. Pipeline construction and transportation infrastructure are lagging, making it difficult to link the disperse areas of the country.
Delays in granting environmental license have also emerged as a key challenge for Colombia and are increasingly a point of consternation for the private sector. The government has acknowledged this is a problem, and speakers argued that it was at least in part linked to the nascent nature of the industry, particularly unconventionals. In the meantime, the government is attempting to prioritize critical projects and bring the year-long wait down to six months.
Central America and the Dominican Republic rarely make the energy headlines but have endeavored to find solutions to a lack of domestic hydrocarbon reserves and a dependence on oil imports. Central America is inching towards electric integration with the regional grid, SIEPAC, which will connect Guatemala to Panama when finally complete and several speakers highlighted and urged Central America to take advantage of, the enormous opportunity for natural gas imports.
The Dominican Republic offers lessons for other possible importers of natural gas but while the island nation counts important LNG import infrastructure, the real crux of the energy debate lies elsewhere. Indeed, lack of consensus over the role of institutions, dealing with energy payment issues and the need for clear signals from the government as to its outlook and plans for the country’s energy sector make it one of the most complex in the region.
The outlook for LNG in the region was a common thread throughout several sessions. Speakers noted that while not a renewable energy source, LNG is ‘carbon light,’ and a far cleaner alternative to the heavier fuel oils and diesel that remain significant inputs in the electricity generation mix of several countries particularly Central America and the Caribbean. LNG in Latin America also helps manage the fluctuations and intermittency factor of renewable energy sources such as wind and solar. The added implications of possible U.S. LNG exports to the region figured prominently in the eyes of conference participants and made for nice bookends as focal points of the opening and closing sessions this year.