Chile Energy Sector Needs a “Rainmaker”

Chile Energy Sector Needs a “Rainmaker”

SANTIAGO – Over one hundred representatives from Chile and across the hemisphere gathered in Santiago to assess ways to advance the government’s energy road map at the Institute of the Americas’ Chile Energy Roundtable on June 24.

Energy Minister Maximo Pacheco, during his keynote address, underscored the difficulty in finding an element that had a greater impact on Chile’s productivity than energy, and particularly energy costs.

With a persistent drought and high electric prices as a backdrop, Chilean President Michelle Bachelet announced her administration’s energy agenda in mid-May, in advance of the 100 day deadline. While geographically distant, the US energy revolution and potential access to a new source of – hopefully cheaper – natural gas exists in close proximity to Chile’s energy policy dialogue.

The energy agenda set off intense debate over the role of the state in Chile’s energy market, how to reduce prices and finding the right approach and model to collectively overcome the challenges facing development of critical energy projects. Lost on no one was a strong emphasis on increasing Chile’s commitment to the global natural gas market through liquefied natural gas (LNG) imports, but also domestic exploration and production in the country’s south.

Indeed, there is no lack of optimism across many facets of the Chilean government and industry for tapping into the US energy boom and LNG exports. Noting the benefit of its free trade agreement with the United States, Chilean officials including the minister spoke highly of the option for not just increased expansion of Chile’s LNG import capacity but also from US Gulf of Mexico export projects soon to come online.

Recently appointed ENAP CEO, Marcelo Tokman, also underscored the role for natural gas as part of the energy agenda and the possibility for expanded import infrastructure but also a role for ENAP to leverage natural gas for power generation. More distant, but part of the mix he suggested, are efforts to boost exploration of unconventional natural gas resources in southern Chile.

Near consensus was evident among roundtable participants on the need for Chile to continue its efforts to develop a diversified and sustainable energy system.

Perhaps most importantly, there was almost no dissent as to the need for a paradigm shift in how the energy sector – government and industry together – develops projects and engages communities, not just in Santiago but across the diverse regions of the country. A more proactive government role and clearer rules and regulations vis-à-vis zoning figure prominently in the energy agenda and were reiterated by industry participants as critical. But, differences of opinion arose as to the best approach for increasing diversity of Chile’s energy matrix while also striving to reduce prices.

The importance of water for Chile’s energy outlook coursed through much of the discussion. Panelists called hydroelectricity a key piece of any sustainable energy system, and noted that water was Chile’s “fuel.”

One panelist remarked that what Chile really needed was a “rainmaker.” The reference to a need for a break in the drought hammering the country was obvious but also implicit in the comment is the need for an increase in energy investment in the country.

Renewable energy, or more specifically what in Chile is referred to as nonconventional renewable energy resources, or NCREs, has increasingly vocal and strong support in the country. As part of the energy agenda, the Bachelet administration highlighted its commitment to the previously established goal of 20% of electric generation from NCREs by 2020.

The importance of interconnecting Chile’s anachronistically unconnected northern and central electric systems (SIC and SING) was agreed to by most, but when pressed as to the timeline there was little optimism for completion of the effort during the current Bachelet administration. Some pointed to early 2020s as a realistic timeline.

Not to be discounted, some argued, are the increased regional interconnection efforts being embraced in Chile, most notably the Alliance of the Pacific framework but also regional energy markets and the opportunity to develop regional electric interconnection stretching from Colombia through Ecuador and Peru to Chile.

Mexico, Shale, and the U.S. Energy Boom Take Center Stage at La Jolla

Mexico, Shale, and the U.S. Energy Boom Take Center Stage at La Jolla

LA JOLLA – Energy reform in Mexico, the energy boom in the United States, the role of natural gas, and Latin America’s unconventional resource potential dominated the discussions over the two days of the XXIII annual La Jolla Conference on May 21-22.

Almost two hundred participants from across the Western Hemisphere participated in this year’s conference that featured addresses by senior officials from Pemex, the Panama Canal Authority, Mexico’s national hydrocarbons agency CNH, Argentina’s YPF, Mexico’s ministry of energy and Perupetro, as well as discussion panels with thought leaders from across industry, academia and the energy consulting world.

The optimism and hope for a new energy future in Mexico were evident throughout the course of the discussions, as was the interest in the continued march of the U.S.’s oil and natural gas production boom. Less clear was if and how Latin America would be able to replicate the U.S.’s model for its energy renaissance.

The sheer magnitude of the U.S. energy revolution began the conference discussions and set the stage for much of the following discourse. Panelists’ proffered figures that underscored today’s energy panorama: total growth in production has been equivalent to growth in all OPEC countries combined. Pennsylvania’s natural gas production alone was 1.5 times the size of Qatar’s, and may soon surpass that of Russia.

Latin America’s unconventional resource potential was not disputed, but among many optimistic outlooks several panelists cautioned that the regulatory environment, development costs, access to capital, local infrastructure and overall efficiency of shale projects must be improved. Indeed, the caveats all seemed to focus on the elements above ground facing the region’s incipient shale wave.

Though it might take longer than expected – many anticipate the revolution to take about a decade to spread across Latin America – there was near consensus that the resources would be developed and serve as important domestic sources of energy as well as boost economies from Mexico to Colombia to Argentina.

An important tangential discussion to the shale and U.S. energy boom was the revitalized interest and potential for natural gas and particularly the role for liquefied natural gas (LNG) in the hemisphere. Indeed, many panelists argued that the U.S. could become the largest LNG supplier in the world, with the US Gulf of Mexico an ideal place for a new hub. Some also foresaw an eventual convergence of global LNG prices as soon as 2018.

Institute of the Americas energy policy associate Alexis Arthur moderates a discussion of natural gas and LNG issues in the hemisphere with panelists Manuel Benitez of the Panama Canal Authority, Ricardo Iglesias of GDF Suez, and Jed Bailey of Energy Narrative

The Panama Canal’s long awaited expansion will play a vital role in making LNG exports competitive, and the Canal may be instrumental in making the region a new LNG hub.

The expanded waterway will reduce LNG transit time from Trinidad & Tobago to Chile by over 6 days and cut over 8 days off the time required to move LNG from Peru’s Camisea project to Spain.

Across Latin America demand for natural gas and LNG has boomed; growth in demand has outpaced GDP growth. Latin America’s appetite for gas will continue to grow because of economic expansion, increased power generation, and fuel switching.

But it was perhaps Mexico’s monumental energy reforms that truly animated many of the discussions. Updates on the reform process, with secondary legislation set for debate soon after the conference, were shared by representatives from all facets of the government and industry.

Presentations of Pemex’s evolution and the role of the revamped national hydrocarbons agency engendered a series of debates. When asked how the revamped national oil company would partner and develop projects, the head of the firm’s E&P company outlined the transition to a productive state enterprise and argued that partnerships could be announced by the end of the year.

Representatives from a wide range of international companies were eager to hear from and meet with Pemex officials on the sideline of the conference.

Similarly, the state power company CFE set forth plans to further evolve into a natural gas player, highlighting several midstream projects being developed that would also include new collaboration and partnering opportunities for private firms from across Mexico and the world.

Chinese Executives Attend IOA’s Two-Week Program on Doing Business in Latin America

Chinese Executives Attend IOA’s Two-Week Program on Doing Business in Latin America

LA JOLLA and MEXICO CITY – The Institute of the Americas held its first annual Chinese Professional Executive Workshop titled “East Meets West – An Introduction to Latin America” from May 5-16, 2014.

This two-week workshop was co-organized by the Institute of the Americas and the Institute of Latin American Studies at Chinese Academy of Social Sciences (ILAS -CASS), and sponsored by Development Bank of Latin America (CAF), Vera & Associates, HSBC and Chadbourne & Parke. ChinaGoAbroad from Beijing was the collaborator of the Institute of the Americas on this workshop.

The 2014 program focused on Mexico’s energy reform and secondary regulations, with speakers including Luis Vera, founding partner of Mexico City-based Vera & Associates; Rachel Bierzwinsky, counsel with Chadbourne & Park in New York; and Antonio Borja, attorney with Galicia Abogados in Mexico City, and Institute Energy Program Director Jeremy Martin, as well as economic experts from HSBC Mexico and Deloitte.

During the first week of the program at the Institute’s campus in La Jolla, Chinese executives heard presentations on key Latin American countries including Mexico, Cuba, Chile and Brazil.

Associate Vice Chancellor for Public Programs and Dean of Extension at the University of California San Diego (UCSD) Mary Walshok was the keynote speaker on the opening day of the program.

Ambassador Bruno Bath, Consul General of Brazil in Los Angeles, spoke about business opportunities in Brazil. Francisco Correa, Trade Commissioner in ProChile’s Los Angeles office, spoke about innovative approaches to doing business in Chile. And Richard Feinberg, Professor at UCSD’s Graduate School of International Relations and Pacific Studies, presented his research on Cuba’s emerging entrepreneur and middle class.

Antonio Maldonado, a San Diego-based attorney who specializes in U.S. –Mexico cross-border litigation, spoke about ways of avoiding legal disputes and conflict resolution in U.S.-Mexico-China business transactions.

A highlight of the program was a day-long field visit to Tijuana, Mexico, where the participants met with representatives of Deloitte, led by Tijuana China Services Group Director Gonzalo Gomez, and the Tijuana Economic Development Council to learn about the business opportunities of operating a maquiladora in the border city.

The delegation also visited Qualcomm Institute on the campus of UCSD, enjoyed wine tasting and dinner sponsored by HSBC at Orfila Winery, and took a ferry across San Diego’s bay for dinner in Coronado.

The second week of the workshop took place in Mexico City, where the participants met with representatives from HSBC Mexico, China Council for the Promotion of International Trade (CCPIT), ProMexico, Huawei, National Exterior Commerce Bank (Bancomext) and Galicia Abogados to further understand business practices and opportunities for Chinese investors.

Salvador Wang, a representative of Huawei’s Public Affairs Department, spoke with the Chinese executives about the giant technology company’s experiences in Mexico. The delegation also heard a presentation by Xiaochu Shi, Assistant Representative in CCPIT’s Mexico office.

At HSBC’s corporate offices in Mexico City, Chief Economist Sergio Martin, spoke about projections for Mexico’s economy. And Raluca Popa, head of HSBC’s China Desk, spoke about the internationalization of the RMB.

At Deloitte’s Learning Center on the city’s elegant Reforma Boulevard, Chinese executives heard detailed information about Mexico’s fiscal reforms and tax laws and met with Xiao Cheng of Deloitte’s China Services Group.

Miguel Siliceo Valdespino, Chief Financial Officer at Bancomext, spoke with Chinese executives about new financing agreements between China and Mexico to promote exports to China. And attorneys at Galacia Abogados, led by Counsel Juan Pablo Cervantes, spoke about a recently approved National Infrastructure Plan, the first such plan in Mexico’s history.

During the week in Mexico City, the Chinese executives made a field visit to a Grupo Bimbo plant, where they toured the plant and learned about Bimbo’s successful strategy to introduce its line of bread products to the Chinese market.

They also toured the majestic pyramids of Teotihuacan to deepen their appreciation of Mexico’s cultural heritage.

Energy in the Southern Cone and Uruguay’s Energy Hub Bid

Energy in the Southern Cone and Uruguay’s Energy Hub Bid

MONTEVIDEO — Even before extreme weather conditions in the Southern Cone burdened national electric grids and energy infrastructure, countries of the region were already struggling to meet their internal energy demand. In some cases, years of poor policy decisions and lack of investment in the sector — particularly in the oil and gas upstream — had left the energy industry in a tenuous position.

Moreover, the pioneering examples of energy integration in the Southern Cone, which had so capably advanced the region’s collective energy and economic outlook, are now more often than not but fading memories.

The stress on the energy sector and by extension national economies has also led to a renewed call for energy diversification and efforts to foster energy security across the region.  And policy makers’ language now includes an important caveat: “diversificación con soberanía (diversification with sovereignty).”

From Montevideo to Brasilia to Buenos Aires, energy policymakers have been forced to reconsider what comprises their national energy strategy, with some more assertive than others in devising the most rational path forward.

Those were the key messages set forth by a distinguished group of government officials, private sector representatives and multilateral development bank representatives at the Institute of the Americas Southern Cone Energy Roundtable held on March 18 in Montevideo.


Indeed, in Uruguay the need for clear and stable rules and long-term vision for energy progress, prompted officials to reach political consensus for a strategic energy policy – Política Energética Uruguay 2030 — that sought to reduce their dependency on imported energy, whether oil products, natural gas or electricity. Projects to further deployment of wind energy and incorporate natural gas via a liquefied natural gas (LNG) terminal just off the coast of Montevideo are well underway.

Meanwhile, in Brazil and Argentina policy makers have sought to offset spiking demand by way of imported natural gas and LNG. Argentina has also increased electric imports from Uruguay. Efforts in both countries to advance the role for non-hydro renewables such as wind and solar have received a great deal of attention but are yet to yield the results energy planners expected.

Great anticipation continues to encapsulate the hydrocarbons potential in Argentina and Brazil, with world-class natural gas deposits and immense offshore oil reserves.

Marco Fidelis, ANP; Alvaro Ríos, Gas Energy; Marta Jara, Gas Sayago; Jeremy Martin, Institute of the Americas; Gonzalo Casaravilla, UTE; Carlos Gothe, GNLS (GDF Suez Group)

Development of the reserves remains challenging, time consuming and extremely expensive. Indeed, in terms of exploiting Argentina’s unconventional natural gas resources in the Vaca Muerta formation, the cost of a shale gas well is roughly five times that of a similar well in the United States. Exploiting Argentina’s shale gas reserves requires greater efficiencies and improved infrastructure to truly harness the resource to the benefit of the nation’s energy outlook.

It is conceivable that with the steps already taken, Uruguay will develop into a small scale energy hub in the Southern Cone in the medium term, panelists agreed. This is particularly important as Brazil and Argentina continue to import natural gas from Bolivia, which itself struggles with the possibility of a natural gas deficit by the end of the decade.

Many argued that nations of the Southern Cone would do well to return to their long-ago innovative ways when it comes to energy integration, exchanging both natural gas and electricity. That remains clear regardless of the exact outlines of Uruguay’s role as a regional energy hub.

Take but one example, the AES Uruguaina project: with minor investment and the renewed supply of natural gas made possible by the Gas Sayago terminal in Uruguay, the long-dormant power plant could be restarted and able to offset some of the increasing energy demand in southern Brazil.

However, the Uruguaina project underscores the importance of reinvigorating regional integration. Despite the minimal new investment required, restarting the power station is not feasible without a tripartite agreement amongst Argentina, Brazil and Uruguay for use of pipeline infrastructure to land the gas at the plant.

Countries in the Southern Cone are at a critical juncture in terms of ensuring long-term energy security. Opportunities abound and policy makers would be unwise to allow the moment to pass.

NAFTA and the China Factor is Focus of IOA/USC Conference

NAFTA and the China Factor is Focus of IOA/USC Conference

LOS ANGELES – The University of Southern California (USC) and the Institute of the Americas held conference titled “NAFTA at Twenty: Trade, Transformation and the China Factor” on USC campus on March 5, 2014. The event attracted nearly 100 business executives and academic scholars, as well experts from multi-national organizations such as the United Nations.

China’s role in the North American Free Trade Agreement (NAFTA) was the focus of the first panel. Dr. Enrique Dussel, director of the Institute for China-Mexico Studies at the National Autonomous University of Mexico (UNAM), divided NAFTA’s 20 years into two parts: between 1994 and 2000 there was increasing integration in terms of trade within North America; yet after 2000, China began to compete with both Mexico and US in the regional market, which could be seen as an “interruption” of the integration process of NAFTA.

Dr. Ralph Watkins from Americas Trade Analysis stated that Mexico’s maquiladora sector lost 288,000 jobs due to the China factor, yet China is not mainly to blame for the job loss in US because the imports from China were not high-value-added goods. Dr. Watkins raised the question of ways in which Mexico could compete with China. He suggested that Mexico lower transport costs and shorten the time from manufacture to market. According to Dr. Watkins, Mexico is competitive with China in products that require just-in-time deliveries, frequent changes in design and protections in intellectual property rights.


Amy Liang from Deloitte in Mexico City shared her experience in helping a Taiwanese company set up a maquiladora in Tijuana, Mexico in 1999. She recalled the language and cultural barriers of bringing technicians from Taiwan. She said translators and local managers were hired at the maquiladora for better communication and management. She stated that nowadays Chinese companies are focusing on ethical business practices in their global expansion, including in Latin American countries.

The second panel featured American Quarterly’s winter issue on “NAFTA @ 20”. Christopher Sabatini, Editor of American Quarterly, and Ambassador Arturo Sarukhan, former ambassador of Mexico to the United States, promoted the idea of “North American goods” instead of products from the three individual countries. According to Ambassador Sarukhan, the challenge is to re-engage the private sectors from the three countries. He expressed optimism that the Mexican energy reform will open new doors for this process. He promoted the Trans-Pacific Partnership (TPP), saying that it will be the way to bring up the idea of “North American goods” without mentioning NAFTA once again in the political debates.

Jeremy Martin, Energy Program Director of Institute of the Americas, also spoke at this panel and stated that while Mexico’s energy reform will be the big game changer for North America, Mexico still needs to embrace the opportunity in an international context. Martin commented that US-Canada is the world’s largest energy integration, and when coupled with Mexico’s energy reform, a self-sufficient North American energy market will be a driving force with strong competitiveness that will bring geo-political changes to the region.

Three representatives from Tijuana, Mexico, talked about innovation, relocation and human capital. Israel Lopez, from Universidad Technologica de Tijuana, said foreign firms are coming to the city to recruit future engineers for their companies. Flavio Olivieri, of the Tijuana Economic Development Corporation, gave a presentation on innovation and said Asia’s shift towards innovation creates added competition with Mexico. Rafael Solorzano, former Director of Secretariat of Economic Development, named the city of Wuhan as the Chinese Sister City of Tijuana and said that the Chinese investors are increasingly interested in the infrastructure financing opportunities in Mexico.

Dr. Juan Carlos Moreno-Brid director of the Mexico office of the U.N. Economic Commission in Latin America and the Caribbean (ECLAC) gave closing remarks for the half-day conference. He commented on the North American regional integration, and brought up topics of fiscal and banking reform and industrial policy adjustment for both Mexico and NAFTA.

Natural Gas in the Caribbean: Matching Opportunity and Reality

Natural Gas in the Caribbean: Matching Opportunity and Reality

SANTO DOMINGO – For over 10 years, the Dominican Republic has counted natural gas as an important fuel source for its energy matrix. Yet despite developments that have catapulted gas-fired power generation to almost 1/3 of installed capacity, 40% of the nation’s electricity is still generated from fuel oil. Dependence on oil is a familiar story across the Caribbean. According to a study by AES, fuel oil comprises 85% of power generation in the region.

And while the current high price oil environment presents a financial driver to pursue natural gas as an alternate power generation source in the Caribbean, its introduction would also lower the environmental costs of fuel oil consumption.

The natural gas boom in the United States has further piqued the interest of policy-makers and project developers across the Caribbean, raising hopes that cheaper natural gas supplies from the US will open a new chapter for the Caribbean’s energy outlook and an alternate to the status quo.

These were the issues over one hundred policy makers and industry experts debated at the Institute of the Americas’ Forum on the Outlook for Natural Gas in the Caribbean on February 13 in Santo Domingo.

That interest in natural gas for the region exists is not surprising. However, several nations of the Caribbean face a troika of impediments, ranging from scale to supply to credit.

The size of most Caribbean nations and, more importantly, their power generation demand do not reach the threshold for traditional LNG imports. Moreover, their small market size has kept traditional LNG suppliers from focusing on the region. Despite the increased discussion of smaller scale LNG or compressed natural gas (CNG) supply options, none have completely materialized in a commercial manner.


Further, when it comes to the LNG business, one industry member was quick to highlight that “credit is king”. When the costs of the LNG business are taken into account and the requirements for strict take or pay terms in contracts are considered, most off takers (utilities, really) in the Caribbean are unable to post the requisite guarantees.

Forum participants agreed upon four focal points that must be further addressed and considered by regional policy makers, multilateral development bank officials and the private sector to overcome these hurdles in the near term: 1) A Caribbean Basin Index; 2) Guarantees and credit enhancement; 3) Supply and the role of Trinidad & Tobago; and, 4) Clarification on US restrictions for re-export of LNG.

Perhaps most challenging, but important, is the need for a price index for natural gas in the Caribbean. Today’s focus on Henry Hub prices does not properly reflect the realistic options for landing natural gas in the Caribbean. A more accurate index as conceived by a “Caribbean Basin Index” would more appropriately inform policy makers and sector participants and allow for more transparency vis-à-vis project development.

Devising a way to address the lack of access to credit or reasonably priced credit options is also key for realizing LNG opportunities in the Caribbean. Moreover, as part of the equation, understanding options to burdensome “take or pay” contract language and clauses is essential.

Indeed, credit enhancement support is perhaps the linchpin to landing LNG in the broader Caribbean basin. It is a role that multilateral development banks such as the IDB and CAF could fill.

The long history of LNG exports from Trinidad & Tobago should be used as a way to further deployment of natural gas in its Caribbean neighborhood. Dealing with the issues of scale must be addressed but there are huge upsides including geopolitical, distance and, most notably, cost. Liquefaction infrastructure in Trinidad & Tobago has the huge benefit of being largely depreciated and thus not as costly in terms of the LNG value chain for new LNG contracts.

The Caribbean coast of Colombia also offers a potential regional supply source and fit in terms of scale, size and cost for the nations of the Caribbean basin.

Finally, there is great optimism that the boom in US natural gas production and potential for LNG exports from the Gulf Coast will provide increased supply options for the Caribbean.
But many of these opportunities rely on the concept of a “hub and spoke” system for delivering natural gas supplies to the broader Caribbean basin. That is, a main, larger scale receipt terminal that distributes smaller cargoes of LNG to forward destinations.

This raises a potential problem for US supplies. If LNG were exported from the US to a “hub” that had a Free Trade Agreement (FTA), such as the Dominican Republic, it is currently unclear whether LNG could then be delivered to a “spoke” location that was not party to an FTA with the US. The issue merits further review and clarification by officials at the US Department of Energy.

The Caribbean’s long-time dependence on oil-derived products for the bulk of its energy needs has increasingly come with deleterious effects. Despite increased attention on diversification and deployment of renewable energy, as well as cut-rate oil imports through the Petrocaribe agreement, the volatility of oil prices continues to impact economies of most Caribbean nations.

The potential and opportunity provided by incorporating (or in the case of the Dominican Republic, increasing) the potentially cheaper and cleaner-burning natural gas supplies has raised hopes for a new chapter for the Caribbean’s energy outlook.

But, as the foregoing analysis underscores, there are several key elements of the equation that demand attention and will determine exactly what role natural gas will play for the energy future of the Caribbean.

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