This article was first published at IPS NewsSep 22 2020
By Rene Roger Tissot
Itaipu, the largest hydroelectric power station in the Americas, shared by Brazil and Paraguay on their Paraná river border. Credit: Mario Osava / IPS
VERNON, Canada, Sep 22 2020 (IPS) – Can the “energy transition” in Latin America help address the risks caused by greenhouse gases (GHG) on the climate, and the economic depression caused by the pandemic?
Energy transition refers to the shift from fossil-based systems of energy production and consumption — including oil, natural gas, and coal — to renewable energy (RE) sources like wind and solar, etc. Proponents of investments in RE highlight investments’ impacts on jobs and industrialization opportunities. (more…)
Leonardo Beltrán Non-resident Fellow Institute of the Americas
In its April 30 edition, The Economist published an article with the headline, “The 90% economy – Life after lockdowns,” which basically reflected on the impact the COVID-19 pandemic would have on the world economy. Last month, the Mexican Central Bank (Banxico) in its latest report (Apr-Jun 2020) presented three scenarios assessing the toll of the health crisis on the Mexican economy, which averaged 11 percent contraction in GDP for 2020. One of the main components contributing to this decline in the economy is mobility. Using Google COVID-19 Community Mobility Report data, Banxico calculated that for every 1% reduction in mobility in Mexico, there was a reduction of 0.49 percent in manufacturing activity and 0.60 percent in retail sales. Moreover, in Google’s Aug. 25 Mobility Report, data showed a contraction of 42 percent in the use of public transport and 35 percent in transfers to workplaces in the country. However hard these actions were, according to national and international experience, social confinement and mobility restriction have proven to be among the most effective policies to contain the expansion of the COVID-19 pandemic.
Although in the short to medium term mobility will slowly resume, the 90 percent economy has forced businesses to downscale and prioritize their virtual interactions over physical presence, thus speeding up the process of digitalization and automation, which in turn most likely will result in an overall global reduction in mobility.
Indeed, this forced push towards a more efficient mobility model certainly includes both impact and opportunity. For instance, transport and logistics, one of the most affected sectors even before the pandemic, was starting to see a toll. Air transport was observing a wave of consolidations, not only because of tighter regulations to comply with new environmental standards (airlines have to develop projects to compensate their emissions), but also because more environmentally conscious customers along with the emergence of the flygskam (flight-shaming) movement have affected demand, resulting in low to zero profitability for some airlines, especially the low-cost carriers. However, this trend is not only seen in airlines but in transport in general, thus to survive and thrive in a 90 percent economy, with lower structural demand and more stringent environmental regulations, this industry will have to embrace an energy efficient and sustainable way of doing business; in fact, data from Bloomberg New Energy Finance shows an increasing trend toward digital hailing applications. Between the last quarter of 2017 and the first quarter of this year, the number of users more than doubled. Today, there are more than 1.2 billion users worldwide and the number of drivers almost tripled to reach 67.6 million; in other words, the future of mobility includes digital and sustainable mobility.
On the other hand, manufacturing has also been experiencing ups and downs and although the trend in Mexico has been downward since mid-2018, the implementation of restrictions on production related to non-priority activities because of the COVID-19 pandemic has resulted in one of the most acute falls in the recent history of this sector. Both in April and May of this year, activity contracted 35.5% compared to 2019. Yet, once these measures start to be lifted, manufacturing activity will gradually pick up. However, some of the associated companies and jobs would have been lost to the pandemic. In any case, the consolidated sector also will have to incorporate a smarter business model to adapt to the new normal.
The question, then, is where might you identify the investment opportunities? It definitely should be an area where by investing, the business would become more competitive, either by reducing costs and/or increasing productivity. In fact, the most promising alternative is to invest in energy efficiency, or as the International Energy Agency (IEA) has referred to it: the hidden fuel. The United Nations Industrial Development Organization has documented that organizations implementing energy management systems (EnMS) achieve reductions in energy consumption of up to 30 percent. Using data from the Latin American Energy Organization, in the Latin America and Caribbean region, industry represents 31 percent of total final energy consumption and 16 percent of greenhouse gas (GHG) emissions. In Mexico, industry’s total final energy consumption is a little bit higher, 34 percent, and contributes with 17.5 percent of GHG emissions. Assuming that in Mexico the results observed internationally are replicated, if we fully adopt EnMS across the industrial sector, we could achieve savings of US$3.9 billion per year, while cutting industrial GHG emissions in half.
If we are to see a better recovery, i.e. reducing our environmental footprint, recuperating jobs lost and creating permanent quality jobs, while improving competitiveness in production, the smartest alternative for industry is to invest in the hidden fuel. This will free resources otherwise spent on the cost of production, allowing businesses to expand operations or open new business lines that can stimulate economic and regional development, while at the same time, following a deep decarbonization pathway.
In advance of this year’s Madrid Energy Conference, we are hosting a series of curtain-raiser webinars to allow for a deeper dive into some of the key themes that make up the conference agenda. Liquefied natural gas (LNG) trade and the regional natural gas market outlook are crucial topics of shared interest in Europe, Latin America the United States.
The role for natural gas in the global energy matrix counts advocates for its potential as the cleanest fuel for electricity generation and industrial operations. Indeed, the last several years has seen a wide-ranging debate regarding the extent to which LNG and natural gas fits into the global energy transition and the increasing deployment of renewable energy. Are natural gas and renewables friends or foes? How critical is natural gas-fired electricity for baseload power? Is natural gas truly a bridge fuel? Have we already crossed the bridge?
Since the onset of the COVID-19 crisis, more near-term market and price issues have swirled around LNG and natural gas. As with global oil markets, natural gas and LNG markets and prices have been pummeled. The United States has seen a massive curtailment of shipments from the Gulf Coast while demand in Europe and Asia have wildly fluctuated. LNG and natural gas prices also remain under substantial pressure, but have not faced the same degree of pain as the oil markets.
In Latin America, countries are struggling to balance their domestic supply-demand profiles against the backdrop of a major economic downturn, and to implement clear-eyed energy policy solutions to ensure the fastest recovery possible. Meanwhile, major natural gas reserve holders such as Argentina, Bolivia, Brazil, and Peru are under pressure to implement policy and regulatory measures to expedite the monetization of their reserves, given the increasing risk that they could be left in the ground under a deep energy transition scenario.
In Argentina, questions surround the pace of developments and advances in natural gas production from Neuquén’s unconventional play, Vaca Muerta. As the country navigates its macroeconomic crisis on top of COVID-19, the Fernandez administration demonstrated pragmatism in its recently developed natural gas incentive policy framework “Plan Gas 4”.
Meanwhile, Bolivia, for years a major exporter of natural gas to both Argentina and Brazil, has been consumed by a political transition and ever-changing political calendar that will elect the next administration. The steep decline in gross natural gas supplies seen in 2019 surprised many, increasing the urgency for new policies and outlook for E&P activities in the country.
Brazil, a key consumer and market for natural gas from Bolivia, continues to debate a major overhaul of its natural gas model with the aim of further liberalizing the sector and lowering Petrobras’ grip on the sector, particularly over midstream and commercialization. Increasing the monetization of natural gas reserves associated with the country’s Pre Salt fields through lower reinjection rates is a growing energy policy debate stemming from the country’s natural gas outlook.
Join us for this Madrid Energy Conference curtain-raiser webinar and virtual panel with Christopher Goncalves, Chair and Managing Director of the BRG Energy & Climate practice and Roberto Ferreira da Cunha, Director of BRG Energy & Climate for South America. Goncalves will share his insights and outlook for global LNG markets and perspectives on markets in the Hemisphere and Ferreira da Cunha will provide an update on natural gas developments in South America.
The webinar will be held Tuesday, Sep 15 2020 / 8:00 AM-9:00 AM Pacific Daylight Time (PDT). The panel will include a live Q&A session with the audience.