USMCA and Latin American Energy Diplomacy Under a New US Congress

USMCA and Latin American Energy Diplomacy Under a New US Congress

Dec 11 2018 – Washington DC

November’s midterm elections altered the balance of power in Washington, and the new Democratic majority in the House of Representatives, which will mean new chairs on key committees, will play an important role in shaping US energy diplomacy and energy markets in the Western Hemisphere. At an event co-hosted by the Inter-American Dialogue and the Institute of the Americas, panelists discussed how the new Congress will approach key issues affecting energy within the context of Latin America’s evolving role in US trade and foreign policy.

In his keynote remarks, Nelson Cunningham, president of McLarty Associates, stressed that the approval of the United States Mexico Canada Agreement (USMCA) will take center stage as the new Congress assumes power, with major consequences for North American trade. Though the Democratic base has become increasingly pro-trade, Speaker-designate Nancy Pelosi and House Democrats may be reluctant to yield a major political win to President Donald Trump, and Pelosi could attempt to stall a vote on the deal as she did with the Colombia Free Trade Agreement in 2008.

At least publicly, Democratic leaders have expressed their desire to work with the president on reaching an agreement, which could deliver some minor improvements over the original North American Free Trade Agreement (NAFTA), but they have concerns about elements related to labor and the environment, as well as about the deal’s overall enforceability, panelists noted. It remains to be seen whether the president is willing to negotiate or will resort immediately to his nuclear option: a unilateral withdrawal from NAFTA, which would leave Democrats with six months to decide between the USMCA and the grim alternative of no free trade deal at all. All parties would lose in North America’s highly integrated energy industry, including US refiners and gas producers that import crude oil, steel, and aluminum from both neighboring countries and export heavily to Mexico.

Beyond trade, Congress also has broad powers in global energy diplomacy. The House has important influence on areas such as foreign aid, tax policy, and natural gas exports. Panelists discussed strategic goals the new Congress can pursue next year, such as preventing oil from becoming part of conflicts in the region and reinforcing political stability and good governance. In particular, two new committee chairs will shoulder special responsibility in setting the agenda. Representative Eliot Engel, who will take the helm as chair of the House Foreign Affairs Committee, brings a strong track record in US-Latin America engagement, having previously chaired the Western Hemisphere Subcommittee. Representative Albio Sires will assume the top role on that subcommittee, and will emphasize his tough stance on Venezuela and on Cuba, where he was born. Closer cooperation on energy in the hemisphere will benefit both the US and Latin American partners, and in the current complex political environment, the new Congress should resolve not to let it fall by the wayside.

Women Empowerment in Renewable Energy Program

Women Empowerment in Renewable Energy Program

October 2018
Jacqueline Sanchez Pando, Energy & Sustainability Policy Associate at the Institute of the Americas is currently participating in the Women Empowerment in Renewable Energy Program developed by the US Department of Energy and the Asia-Pacific Economic Cooperation (APEC).

The program’s objectives are to support participants to expand their knowledge and skills in the renewable energy sector (i.e. technology, markets, policies, economic and social dimensions); to further their understanding of the energy-women nexus & the possible link to energy poverty; and to expand their professional network to other regions of the world.

The aforementioned program initially hosted a group of 50 female executives, government officials, and academia in their mid-career in the field from APEC’s 21 economies.

Jacqueline and a group of fifteen fellow participants have been nominated to attend the one-week face-to face training in APEC HQ in Singapore to take place in late Oct. early November. The training will bring policy, gender and business experts to widen participants learning of social, gender and environmental co-benefits of renewable energy developments. It will take place during Singapore International Energy Week (SIEW).

Argentina’s Energy Outlook: Normalization and Boosting Compettiveness

Argentina’s Energy Outlook: Normalization and Boosting Compettiveness

Continuing a discussion begun in 2015 on the key elements facing the energy sector in Argentina, the Institute of the Americas convened an Energy Roundtable on March 21 in Buenos Aires.

The Roundtable counted three high-level discussion panels and was attended by over 75 representatives from industry, government, and academia. The panels at the Roundtable featured optimistic and robust discussion of Argentina’s energy sector, but particularly the structural adjustments and reforms enacted by the Macri administration.

The efforts to “normalize” the sector are beginning to pay dividends with an improved fiscal outlook and institutional and market credibility. A series of regional integration projects and energy exchanges with neighboring countries, ones that were but dots and lines on a power point slide just 2-3 years ago, are now a reality.

But amid the optimism and positive outlook, there were words of caution. Of greatest concern for all segments of the energy sector are the impacts of stubbornly high costs and inflation, elements that have and will continue to impede competitiveness but particularly the development of the highly-touted Vaca Muerta unconventional play in the country.

Beyond managing labor costs, the topic of how to boost a more competitive oil and gas sector focused on the need to greatly expand not just the number and capabilities of service and equipment providers, but also to exponentially increase the amount of operators in the country’s oil patch. One panelist persuasively argued that an increase on the order of ten times the current number of market participants is required to develop a competitive oil and gas ecosystem; a growth in not just majors, but all manner of companies and expertise.

The profound transformation of the global energy sector is clearly being felt in Argentina panelists concurred. Indeed, the country’s renewable energy auctions were oversubscribed and highlighted as an important step. However, panelists tended to agree that the adoption of key tenets of the energy transition are moving slowly with deployment of renewables hindered by financing and the country’s boom-bust and default legacy, while significant advances on storage and electrification of the transport sector seem farther off in Argentina.

Mexico’s Fuels Market and Infrastructure – A Complex Transition

Mexico’s Fuels Market and Infrastructure – A Complex Transition

Mexico’s energy reforms have brought a major overhaul of the nation’s entire energy sector. Among the myriad changes being implemented, major opportunities have emerged with regards to Mexico’s fuels and liquids market, as well as infrastructure development associated with fuel sales, supply, storage and distribution. Mexico’s fuels market is the fourth largest in the world and has experienced considerable growth in the last several years making it attractive to a wide-range of companies and investors. Growth is driven by transportation, power demand and underpinned by strong population growth.

Last year saw several deregulation milestones met on the path toward a liberalized fuel market, as well as important advances in open seasons aimed at ultimately boosting related infrastructure, both in liquid fuels and natural gas.  In what has become a rapidly changing market, a growing list of international companies, traders and Mexican firms have begun to develop projects with an eye to establishing themselves in Mexico’s fuel and liquids business.

This “complex transition” was at the center of three high-level discussion panels hosted by the Institute of the Americas on February 27 in Mexico City and attended by over 90 representatives from industry, government, and academia.

Panelists generally agreed that development of the fuel market was on the right track and that the reform measures had boosted investment in energy infrastructure. The proliferation of new market players (40 brands as of this week) in the fuel retail market and the choices being created for consumers is important.

But, there was less consensus on whether Mexico would soon see a truly competitive fuels market that could fully serve the growing demand in Mexico and its citizens, not to mention what the key next steps should be before the July elections. In an interesting development, several speakers put on the table the need for further energy reform in Mexico. Panelists also argued that government and industry alike must continue to aim for efficiency, continuity, stability and long-term regulatory certainty.

Event Summary: The Trump Administration, Latin America and Energy: Mexico, Natural Gas and LNG Exports

Event Summary: The Trump Administration, Latin America and Energy: Mexico, Natural Gas and LNG Exports

Energy continues to be a bright spot in the US-Latin America relationship and new developments, like an uptick in US LNG exports, offer opportunities to increase energy security and cooperation across the Western Hemisphere, said panelists at an event co-hosted by the Inter-American Dialogue and Institute of the Americas on December 15th.

Energy plays a central role in bilateral and trilateral cooperation with Mexico and Canada. The United States is working to expand this cooperation through increased data sharing for cross-border transmission, generation, and renewable energy mapping, as well as through technology sharing for carbon capture and storage, noted Department of Energy Deputy Assistant Secretary Beth Urbanas.

The three countries work on energy issues both trilaterally and through larger multilateral efforts like APEC and the G20. Mexico also recently joined the International Energy Agency and the North American Electric Reliability Corporation (NERC), providing two additional avenues for cooperation. Mexico joining NERC benefits both Mexico and the United States, noted Mark Nelson, regional vice president and director of issues management at Sempra, as Mexico can help provide system reliability and voltage support to the United States in times of energy distress.

Investment by US companies in Mexico following its energy reformhas also strengthened bilateral energy ties. Oil majors are entering the downstream space in Mexico, even though they are largely divesting from those assets in other countries, said Carlos Sole, partner and Latin America practice co-chair at Baker Botts.

A recent uptick in US natural gas exports represents another significant opportunity for US-Latin America energy trade and investment, said John McCarrick, deputy assistant secretary at the Department of State’s Bureau of Energy Resources. LNG exports – which began in earnest just last year – reached 465 billion cubic feet in the first 9 months of 2017, already 2.5 times greater than total 2016 LNG export volumes. LNG exports are projected to reach 4.4 trillion cubic feet by 2035.

At the same time, Latin America is increasing its capacity to receive LNG. Regasification capacity in the Americas, excluding the United States and Canada, will reach 50 million tons in the next few years, said Leslie Palti-Guzman, director of global gas at Rapidan Energy Group. Central America and the Caribbean alone will account for 8 million tons of this regasification capacity, and will be a significant growth opportunity for US LNG exporters.

These terminals may see low utilization rates, however, as LNG is used more as a backup fuel in Latin America. But the flexible contract terms offered by US LNG exporters and the United States’ geographic proximity make the fuel particularly attractive as a backup to baseload power and intermittent renewable energy. In Brazil, for example, US LNG is imported when hydropower supply is lower during the dry season, said Edmar Luiz de Almeida, professor at the Federal University of Rio de Janeiro’s Institute of Economy. In Central America and the Caribbean, US LNG can also help fill the vacuum left by Venezuela’s Petrocaribe shipments, which have fallen sharply in recent years, and a decline in shipments from Trinidad.

Going forward, the US government may try to create a more favorable regulatory environment for gas exports, but the success of US LNG exports also depends tremendously on global gas demand.

By Rebecca O’Connor, Inter-American Dialogue

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