Debating Energy Diversification in El Salvador

Debating Energy Diversification in El Salvador

El Salvador, much like its neighbors across Central America, has sought for years to find a solution to its energy woes, and more importantly, deal with the impact of its dependency on imported oil products for its energy matrix. The status quo has long been unsustainable in terms of economic competitiveness and boosting investment.

On November 13, the Institute of the Americas convened a one-day policy roundtable in San Salvador to assess the outlook for El Salvador’s energy sector as well as share insights and ideas on how to foster diversification and, most importantly, increase competitiveness for the energy sector and the nation’s economy.

Understanding the challenges facing the energy sector, the Salvadoran government created the national energy commission (CNE) to develop an energy policy strategy and vision for the country.

The CNE is tasked with creating a short, medium and long-term expansion plan for the country’s energy sector. Indeed, CNE’s diagnosis of the sector performed in 2012 foresaw supply challenges and pricing issues in 2017 for the country’s electric sector. In an effort to confront the challenges highlighted in the analysis, power bidding was developed based largely upon the policy directive of diversifying the country’s energy matrix.

At the heart of the diversification strategy lies a concerted effort to boost renewable energy deployment and incorporate natural gas into the country’s energy matrix. Concrete steps have been taken over the last year on both fronts.

Bidding was launched in July 2014 to attract 100MW of renewable electricity supply for delivery in 2016 for a twenty year period. There were 32 offers and contracts have been signed totaling 94MW of photovoltaic power generation.

But it is the effort to land natural gas in El Salvador that has received the greatest attention. Indeed, during his opening remarks, CNE Executive Secretary, Luis Reyes underscored that the broader effort to create a natural gas market in Central America has the backing of both the US government and the Inter-American Development Bank.

Central America’s leaders met with President Obama in Costa Rica in April 2013 and again in Washington DC in June 2013, with an agreement signed to analyze options for the commercialization and transport of natural gas to the region.

With this backdrop in mind, the government of El Salvador, together with electric distribution companies, organized a public bidding process in 2013 for electricity supply aimed at bringing on line 355 MW of new power generation. The bidding sought a twenty year supply of electricity and prohibited oil-derived fuel sources for generation. Two bids were received; one a coal-fired project and the other a natural gas power solution.

In late 2103, the contract was awarded to Energía del Pacífico on the basis of their proposal to build an approximately 380MW installed capacity natural gas-fired power station and LNG receiving terminal at the Port of Acajutla.  Power supplies are slated for delivery beginning in January 2018.

As the project continues on the path to development, questions remain. Most relevant are with regards to the source of the project’s natural gas and the financing and credit needed for what could turn out to be the largest infrastructure project in El Salvador’s history. On both, the project developers point to important agreements with international financial institutions such as the International Finance Corporation (IFC) of the World Bank Group, and promise details soon on their agreement for natural gas supplies with a “major international LNG player.”

During discussions at the Roundtable, the postponement of a similar project in Panama was cited by many as reasons to question the potential for natural gas in El Salvador and to ask the government what the Plan B is for such a large percentage of power supplies – 32% according to CNE estimates – beginning in 2018. Government officials were quick to underscore the significant advances of the project and assured their complete support for avoiding what many called a dissimilar example from Panama.

With the topic of natural gas dominating much of the energy analysis, it bears mention that El Salvador’s participation in the continued development of the regional electric market in Central America on the back of the SIEPAC transmission infrastructure will also increasingly evolve as firm transmission right contracts and terms are developed by regional authorities.

In the short term, El Salvador will export more power into the regional system than it imports but the regional system will be a key part of El Salvador’s more long-term energy outlook.

Education Reform in China, Latin America Focus of Hangzhou Forum

Education Reform in China, Latin America Focus of Hangzhou Forum

HANGZHOU, China — The Institute of the Americas, in cooperation with the Institute of Latin American Studies at Zhejiang International Studies University and Beijing Normal University, held a conference titled “Education Reform and Innovation in Latin America and China” on Oct. 18, 2014, in Hangzhou, China.

Institute of the Americas Vice President Lynne Walker delivered opening remarks and moderated the first panel titled “The History and Current State of Latin America’s Education Development.” During her presentation, Walker noted that Mexico is now producing graduates in engineering and technology at rates equivalent to its international business competitors, including its No. 1 trade partner, the United States.

The Mexican government reports that 130,000 engineers and technicians graduate each year from its universities and specialty high schools, more than Canada, Germany or Brazil. University enrollment in Mexico has tripled in 30 years, to almost 3 million students.

“These aspirational students want to build something for themselves and their country,” Walker said. “Mexico is laying the groundwork for a more technology-based economy.”

Patricio Palacios, Counsellor at the Embassy of Ecuador in China, spoke about the centerpiece of education reform in Ecuador – the Yachay Project. This project contemplates a model city that combines educational opportunities that respond to the needs of technology-based businesses, while also providing comfortable, safe neighborhoods for the workers and their families.

Juan Gonzalez, director general of scientific communication at Mexico’s Universidad de Colima, informed the audience of 100 business executives, researchers and scholars, about the advances in Mexico’s educational reform while underscoring the deficiencies in the system that must be addressed. Cesar Bustos, a professor at the Universidad de Colima who studied for several years in China and speaks fluent Mandarin, shared his knowledge of international programs offered by Mexico’s higher education system with a focus on Mexico-China cooperation.

He Linli, a professor at Southwest University of Science and Technology in Mianyang, China, compared the higher education systems in Chile and China, highlighting the lessons that China can learn from Chile’s model.

Xu Shicheng, director of Institute of Latin American Studies of Zhejiang International Studies University, made closing remarks in Mandarin and Spanish, using his own experiences and knowledge of the advances being made in educational reform in China and Latin America as an example of the important efforts being made in the two regions.

Corporate Social Responsibility and Investment Opportunities Discussed at Beijing Forum

Corporate Social Responsibility and Investment Opportunities Discussed at Beijing Forum

BEIJING – The Institute of the Americas and Institute of Latin American Studies of the Chinese Academy of Social Sciences held the fifth annual Beijing conference on China and Latin America, titled “Investing in Latin America: Opportunities and Lessons Learned.”

The Oct. 16, 2014, conference, sponsored by The Development Bank of Latin America (CAF), Vera & Asociados and Mexico’s Grupo Bimbo, drew an audience of more than 200 participants, including Latin American ambassadors to China, former Chinese ambassadors to Latin America, business executives, government officials from China, Latin America and the U.S., and researchers and journalists from around the world.

The conference focused on investment opportunities in Latin America’s major economic sectors, including infrastructure, energy and manufacturing, as well as a discussion of corporate social responsibility and business practices in Latin America.

The Beijing conference, sponsored by The Development Bank of Latin America (CAF), Vera & Asociados and Mexico’s Grupo Bimbo, drew an audience of more than 200 participants. Photo courtesy of ILAS/CASS

Shen Zhiliang, Director General of Latin American and Caribbean Affairs in the Chinese Ministry of Foreign Affairs, addressed the diversification of energy cooperation between China and Latin America, from traditional energy sources to renewable sources such as wind and solar. Ambassador of Chile to China Jorge Heine noted that Chile is an excellent market for renewable energy investment, thanks to its sunny deserts and windy shores.

Hamilton Moss, CAF Vice President of Energy, stressed the institutional cooperation between China and Latin America to achieve energy security and reasonably low energy prices.  And former Vice President of China Development Bank (CDB) Liu

Kegu expressed optimism for bringing together Chinese capital and Latin American energy resources.

Alberto Limas, ‎Deputy Secretary at the Embassy of Mexico in China, stated that the Mexico-China relationship is in its best moment in history, and said the two countries are working on the strategic framework established by President Xi and President Peña Nieto.

Attorney Cristina Hernandez, of the Mexico City-based law firm Vera & Asociados, spoke about Mexico’s energy reform and its far-reaching social impact. Photo courtesy of ILAS/CASS

Attorney Cristina Hernandez, from the Mexico City-based law firm Vera & Asociados, spoke about Mexico’s energy reform and the far-reaching social impact of the reform.
During an afternoon panel that focused on corporate social responsibility, Ambassador of Peru to China Juan Carlos Capuñay said social responsibility should be shared by governments and by corporations in order to help develop local communities.

Former Ambassador of Costa Rica to China Marco Ruiz said organizations and agencies that promote outbound investment should prepare investors before they go abroad because their behaviors impact the country’s national image in the countries in which they are investing.

Professor Wu Guoping, dean of the Institute of Latin American and Caribbean Studies at Southwest University of Science and Technology in Mianyang, China, urged Chinese companies to differentiate between each Latin American country and respect each country’s unique business culture.
Representatives of several Chinese companies with investments in Latin America, including the China National Petroleum Corporation (CNPC) and Sinohydro, spoke about their practices concerning corporate social responsibility.

Huang Jin from Sinohydro suggested that Chinese companies in Latin America improve their relations with the local media as a means of communicating with the local community. CNPC requires all of its overseas project companies to establish a public relations department and hire professional staff.
Sun Hongbo, a research scholar at the Institute of Latin American Studies of the Chinese Academy of Social Sciences, stressed the importance of Chinese companies strengthening their public relations and communications strategy in Latin America.

Energy and Education in the Western Hemisphere

Energy and Education in the Western Hemisphere

WASHINGTON, DC – Energy and education in the Western Hemisphere were linked at Institute of the Americas programs in Washington, DC on September 30 and October 1.

During a cocktail reception at the Mexican Cultural Institute on September 30, Roberta Jacobson, Assistant Secretary for Western Hemisphere Affairs at the State Department, highlighted the intersection between energy and education as she praised the Obama Administration’s 100,000 Strong in the Americas initiative aimed at increasing educational exchanges in our hemisphere as well as the advances in energy cooperation spurred in part by the US energy revolution.

Mexican Ambassador to the United States, Eduardo Medina Mora, spoke of Mexico’s interest in the 100,000 Strong initiative and celebrated the corresponding cross-border leadership as well as opportunities for Mexico and the United States in a 21st century economy, particularly as Mexico continues to implement major economic reforms including what he called the mother of all reforms – energy.

The reception coincided with a program on the Geopolitics of Natural Gas in the Western Hemisphere, on October 1 co-hosted by the Institute of the Americas and the University of Texas at Austin. The session opened with a keynote address by Christopher Smith, Principal Deputy Assistant Secretary of Fossil Fuels at the US Department of Energy, followed by a panel that featured Trinidad & Tobago’s ambassador to the US Neil Parsan, State Department Energy Bureau Director for Policy Analysis and Public Diplomacy Richard Westerdale, as well as Cheniere Energy’s Albert Nahas and independent analyst David Goldwyn.

PDAS Smith reviewed the US energy revolution and cited two National Petroleum Council studies to highlight how quickly the outlook has changed on the back of the United States’ resurgence as a major oil and gas producer. Smith also noted the importance of natural gas for energy security and lower emissions. Smith emphasized President Obama’s unambiguous stance on the importance of natural gas in the United States, remarking that it had been raised  in the last three State of the Union addresses. Smith also argued that environmental issues remain critical. And while he called them manageable, he underscored the difference between manageable and managed. When it came to the question of lifting the oil export ban, he was less definitive and did not make any predictions.

The panel discussion focused on how to utilize the US’ energy boom to further diplomacy but, more importantly, economic development in the Western Hemisphere. Amb. Parsan assessed the energy dilemma in the Caribbean and argued that the current energy model is unsustainable. To wit, 35% of Caribbean debt is attributed to Petrocaribe. Trinidad and Tobago is committed to supporting the energy needs of its neighbors, he noted, including through development of smaller scale liquefied natural gas (LNG) technology, such as the Gasfin project in Trinidad & Tobago.

Richard Westerdale discussed the recent diplomatic efforts the Energy Bureau is undertaking, from the Connecting the Americas 2020 initiative launched at the Summit of the Americas in Cartagena in 2012 to the more recent Caribbean Energy Security Initiative, and the hallmark agreement signed in September with the island nation of Grenada to create a pilot program intended to bring a “cleaner energy future.”

Albert Nahas and David Goldwyn asserted that given the US natural gas boom and progress on exports, the US government could and should do more, particularly when one considers the economic impact of electric prices in Latin America that are still at least 25 percent higher than the United States. Goldywn further observed that his calculations based upon an IDB study pointed to a ballpark figure of $2-3 billion for the Caribbean to convert from fuel oil and diesel generation to cleaner burning gas-fired power systems. Nahas argued for progress and action to develop US-government backed export financing structures to enable LNG exports to markets that have credit ratings below investment grade, particularly those in Central America and the Caribbean.

The Other Side of the River – Energy, Environment, and Communities in Colombia

The Other Side of the River – Energy, Environment, and Communities in Colombia

BOGOTA – In the decade since opening its energy sector, Colombia has earned a reputation for stability and success. The country has won plaudits across the hemisphere from its neighbors and investors; Colombia’s energy reforms were studied closely by Mexican authorities as they rewrote their energy laws. However, as oil and gas production has dipped below targets and exploration has fallen short of expectations, the country is battling not only to meet its own energy needs but also attract the investment necessary to sustain the energy sector into the future. Moreover, Colombia has realized that deliberate community engagement and environmental stewardship is critical to achieving that goal.

These issues and efforts to redress them figured prominently across presentations and discussions at the Institute of the Americas Colombia Energy Roundtable in Bogotá on September 9.

Colombia’s challenges are not unique. Indeed, social responsibility in the energy sector has become a key element of policies – and conflicts – across Latin America. Colombia’s Ministry of Mines and Energy notes that oil production is an estimated 40,000 barrels per day (bpd) under its 1 million bpd target; around half of the production shortfall can be attributed to social conflicts and security challenges. The government is expected to make up the financial loss by raising taxes, an increasingly polemic topic and one that many argue will still fall short of the covering the nation’s budget gap.

Beyond the economic impact, Colombia has an obligation to protect both its biodiversity and indigenous heritage. Issues of community engagement and environmental protection have arisen at all stages of the project cycle and across the value chain, from exploration and production to infrastructure to power generation and transmission projects.

The Colombian government is taking these concerns seriously. As the Ministry of Mines and Energy focuses its efforts on increasing exploration and production, particularly in the offshore and unconventional areas, the accompanying regulatory framework aims to incorporate best practices in social responsibility. Colombia is looking closely at the experience of other nations, such as the United States for approaches to a host of concerns, from water usage to “consulta previa” or prior consultation.

The struggle to balance investment and economic growth with social responsibility is not a new concern. Colombia’s indigenous peoples are recognized in the 1991 constitution but in many ways government and private sector engagement with local communities has had mixed results. For indigenous communities, the government must correct the imbalance between economic development and social and environmental goals. International sustainability efforts and the international human rights framework, they argue, should inform these efforts.

Instruments to guide indigenous participation, however patchy, are already in place in Colombia, including prior consultation and planning processes. Panelists argued that these efforts must go further to ensure the participation of indigenous people in the design and implementation of development plans, in particular zoning regulations in Colombia.  These plans should also be aligned with local indigenous initiatives such as “planes de vida” or life plans – efforts carried out by several indigenous communities as a way to articulate local development goals – and prior consultation processes.

In terms of environmental concerns, one panelist argued that companies were recycling older impact studies as a way to cut corners in light of rising costs and long permitting delays. The Colombian government has frequently stated its intention to reduce permitting times to six months, an improvement but still quite distant from Canada where environmental permits are routinely turned around in a matter of weeks.

On the industry side, although several companies are now incorporating best practices and engaging with the immediate community the full implications of the broader project area are often not taken into account. One panelist cited an example in Peru. The project bordered a river and while the company had worked closely with the community most immediately affected, they had failed to engage with those on the other side. Conflict later arose, halting the project for several weeks.

That there is a significant financial cost to inadequate community engagement and environmental responsibility is clear, even though few companies have calculated these figures. According to one panelist, stoppage at an oil production site could easily run to $20 million; halting operations at the exploration stage could cost up to $70,000 per day.

With President Santos now entering the second month of his second term, there is hope for stability on which to expand exploration and production activities. The National Hydrocarbons Agency (ANH) has set forth a two-part strategy for boosting reserves and production: 1) unconventionals; and, 2) offshore. And the government’s decision to forego any further bid rounds for the next 2 years and instead focus on bringing to fruition the long list of pending projects and investments is important.

Energy Security in Peru: Camisea and Beyond

Energy Security in Peru: Camisea and Beyond

LIMA – Government officials, NGO representatives, and energy executives from Peru, Chile, Argentina, the United States and Colombia joined the Institute of the Americas and Peru’s Ministry of Energy and Mines in Lima on August 26 for a half-day roundtable.

The program was a celebration of the tenth anniversary of the Camisea natural gas project but also a frank assessment of what must be done to consolidate the lessons and upside of the historic energy project in Peru.

The last ten years have been transformative for Peru’s energy sector. The Camisea natural gas project, inaugurated in 2004, now provides all the natural gas consumed in Lima and accounts for 50 percent of the nation’s power generation.

In many ways, Camisea has exceeded expectations. Natural gas production has kept pace with strong economic growth, while best practices developed for environmental protection and community relations have become a model for the region. And the project’s impact on Peru’s economic development is undeniable.

For the Ollanta Humala administration, Camisea has become the cornerstone of efforts to ensure energy access for all Peruvians – so-called ‘massification’ – and plays an important role in the government’s strategy to achieve economic growth with social inclusion.

But as Peru celebrates Camisea’s tenth anniversary, it has become clear that the project alone will be insufficient to meet the country’s rising energy needs.

Instead the project must be recognized as just one contributor to the much larger goal to foster energy security in Peru. In practice this requires investment along the energy value chain. Not just a rejuvenation of the country’s oil and gas exploration efforts but investment in infrastructure and championing the role of renewables in the power sector.

The question for the Humala government and Peru’s energy actors is how to sustain the economic benefits generated by Camisea. More importantly, government, industry and civil society must develop an approach that incorporates the valuable lessons learned in the last decade into energy projects across the country without undermining the competitiveness of Peru’s energy sector.

The Camisea project was launched at a time when Peru was emerging from a period of economic and political instability, providing a much needed injection of foreign capital and laying the foundation for public-private partnerships in the nation’s hydrocarbons sector.

The contribution to both the national energy sector and the broader economy has been significant. Hydrocarbons production in Peru grew an estimated 260 percent in the last decade, due in large part to the exploration and production at Camisea. Since 2004, the project has brought in over $13 billion in investment and boosted the nation’s GDP by approximately $16 billion. Natural gas liquids in particular have made an important contribution to the hydrocarbons trade balance; according to the Peruvian Hydrocarbons Society, Camisea has reduced the trade deficit by $9 billion.

The opportunities for natural gas extend beyond the power sector, with the potential to transform industry and transportation in Peru. The Ministry of Energy and Mines is exploring options for natural gas to replace diesel in fleets of trucks, for example. The government also advocates for the greater use of liquefied petroleum gas or LPG and associated natural gas.

Peru is hopeful that ongoing exploration and production in the Camisea fields will lead to new discoveries and increased reserves. For the Inter-American Development Bank, the lead financier of the Camisea project, the next step is the expansion and development of natural gas markets – both domestic and international – in order to sustain momentum and ensure adequate demand.

Natural gas also has the potential to support greater renewable deployment in Peru. Despite concerns that competition between cheap natural gas and hydropower in Peru’s electric market could cause a decline in hydropower’s contribution, panelists emphasized the importance of both energy sources in a diversified energy matrix. Over time, they argued, natural gas will play a supporting role as the electric sector makes the transition to greater renewable sources.

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