As the 25th annual La Jolla Energy Conference approached, the landmark climate agreement reached in Paris dominated headlines and pervaded the energy world. The focus on decarbonization and emissions reduction, and particularly the role of technology in the global energy transition cut across the Conference’s panels and discussions on May 25-26, and clearly was on the minds of attendees.

But the need to manage expectations also emerged as a central theme, whether in terms of the Paris Accord, renewable energy, oil prices, Latin America’s upstream, Argentina, or the future of transportation. Thinking about energy, as State Department Deputy Assistant Secretary for Energy Diplomacy Robin Dunnigan noted, is critical and particularly so for managing expectations surrounding the intersection of national security and energy.

The Paris Agreement and nationally determined contributions, or NDC’s, have been roundly applauded for the bottom-up approach. The discussions at La Jolla concurred with the critical nature and great value in this element of the agreement.  But as Professor Tim Duane aptly noted, the Paris Agreement is like a plane where all the passengers have agreed it’s time to land, but the destination and at what pace demand determination. Managing expectations will be required.

State Department Deputy Assistant Secretary for Energy Diplomacy Robin Dunnigan and Roger Tissot, Research Fellow at the King Abdullah Petroleum Studies and Research Center (KAPSARC) discuss energy security and cooperation with Energy Program Director Jeremy Martin.The State Department’s Robin Dunnigan spoke in bold terms about the energy transformation occurring in the United States and its impact on foreign policy and diplomacy. As the US has reasserted itself as an energy super power, so has energy security grown in terms of impact and importance for foreign policy. The State Department, along with several other US government agencies, are working on myriad programs across the globe to boost energy security, access to energy, regional energy integration and the deployment of renewables and emissions reduction initiatives.

Volatility in commodity markets, and particularly oil prices, continues to cast a long shadow over the hemisphere and globe. But despite the continued commodity price downturn, Gil Amengualof Solar Turbines noted that mining economies in Latin America such as Chile, Peru and Colombia have demonstrated greater diversification than their oil exporting brethren, and thus a more positive economic growth outlook.

In their assessment of oil prices and markets, panelists asserted that OPEC still matters and, according to Pedro Haas of Hartree Partners, the cartel has proved itself extremely resilient. More broadly, oil markets are facing a question of peak demand now instead of peak production.

The need to manage expectations when it comes to the price of oil, and what it means for National Oil Companies and economies in Latin America is of utmost importance. Nowhere is this more evident than at Pemex. Gustavo Hernandez’s call for partners as Pemex develops opportunities in the new upstream environment in Mexico was emphatic and consistent throughout his remarks.

Gustavo Hernandez of Pemex highlights the importance of partnerships for the company during the question and answer session with Energy Program Director Jeremy MartinBeyond the role of NOC’s, Latin America’s upstream continues to face challenges. Panelists agreed that given the price environment, and particularly when it comes to deepwater, the industry will become more selective. Expectations must be managed by companies and governments seeking to attract investment, such as Mexico’s Round One and efforts in Colombia, Peru and Argentina, given the constraints on capital to invest in exploration.

Argentina has emerged from more than a decade of a statist and interventionist energy model. Secretary of Strategic Energy Planning, Daniel Redondo, admitted that there may still be perceived risks when it comes to investing in Argentina but he emphasized that the new government was committed to a model of competitive markets, effective regulation, and with a focus on ramping up renewable energy. He asserted that waiting to invest might not guarantee opportunity and reminded attendees that investing early has significant upside.

At the same time, major advances in deployment of renewable energy and electric vehicles, and increasingly competitive costs for these technologies added to the narrative. Renewable energy has seen huge increases in investment despite the persistent downturn in the price of oil. Many speakers pointed to this as a paradigm shift. Similarly, while low oil prices may slow electric vehicle sales, it will not kill them.

Orlando Ribeiro of Petrobras responds to a question about Brazil’s upstream as BP’s Felipe Arbelaez, Berkeley Research Group’s Walter Pesenti and Energy Program Director Jeremy Martin look on.Channeling the theme of managing expectations, Adrian Katzew of Zuma Energia, while touting the April power auction in Mexico and huge gains in cost reduction for renewables, underscored that to be competitive, prices must be at $40 per megawatt hour. He added that storage and intermittency, as well as a focus on enhancing electric grid infrastructure must be taken into account.

The Conference’s final session brought together a series of themes that had echoed throughout the panels and sidebar discussions: the role of technology, decarbonization and the future of energy. In particular, when it came to the element of managing expectations, Tom Doughty from California’s Independent System Operator (CAISO) spoke of CAISO’s efforts to balance peak demand and the so-called Duck Curve, that is the increased load from renewable energy and distributed generation being fed into the California system.

Panelists agreed that technology and data could also provide much of the solution to meeting these issues across the hemisphere. Indeed, energy storage remains one of the key pieces to managing expectations for renewable energy, but also the future of energy markets in the Americas and across the globe.

But CAISO’s Doughty emphasized that the most important expectation power systems and the energy sector across the Americas must manage is that of reliability. Consumers expect the lights to come on when they flip the switch. And all panelists agreed that consumers are more informed, discerning, and better able to manage their energy needs than any time in history.

BUENOS AIRES – Mauricio Macri’s election in late 2015 sent shockwaves across the hemisphere and unleashed a torrent of optimism. Indeed, there was a period of euphoria as he announced his cabinet, economic team and desire to pursue unity and reset Argentina’s regional and global standing. President Macri embraced the expectations for his administration when, during remarks to open this year’s legislative session in Argentina, he said that his government will change the country’s history.

Quickly focusing on the nation’s nearly bankrupt energy sector makes good sense for the Macri administration. Not quite 100 days into his term optimism abounded, as did the necessity to focus on the enormity of the needs for the nation’s energy sector that has ushered in an increasingly workmanlike atmosphere. That was the clear consensus across two days of intense discussions at the Argentina Energy Roundtable convened by the Institute of the Americas on March 9 and 10 in Buenos Aires.

Throughout the election, the Macri campaign made clear their intentions with regards to revitalizing the country’s economic outlook, investment climate and particularly the energy sector. Since assuming power in December, the government has moved swiftly on a variety of fronts from navigating a path to a solution for the long-standing impasse between Argentina and international creditors and confronting onerous capital controls, the country’s currency, export duties and jury-rigged inflation statistics.

The Macri government also brought a technical seriousness to the nation’s energy bureaucracy, as well as a strong push to move beyond the “disorder” and “poor management” they inherited. There have been clear marching orders from the top as the administration works to “normalize” the many government institutions that had languished for years.  In addition, little time was wasted to confront strongly entrenched market distortions and massively costly inefficiencies in the country’s energy system.

Over the last few years, energy contributed around 5 percent of the nation’s GDP, 6 percent of its export revenue and 17 percent of imports. Indeed, the interconnection between the nation’s fiscal imbalance and the cost of energy subsidies and imports was clear and demanded immediate attention. Energy subsidies cost on the order of 12% of all government spending in 2014 while energy imports that same year totaled $6 billion.

President Macri assumed power with a clear understanding that these statistics must be met head on if the country is to revitalize the energy sector and use it as a motor to jumpstart economic growth and be a significant driver of reform.

Only days after taking office in December a state of emergency was declared for the nation’s electric system to avoid what the energy minister called the possible collapse of the system. The presidential decree granted powers through the end of 2017 in an effort to stave off outages, deal with the challenges of the market distortions, and begin medium and long term planning for the system.

As part of the emergency decree, the government also moved swiftly to complete a campaign promise to liberalize prices in the electric sector and deal with the long-standing problem of distortive subsidies.  New prices for the national wholesale power market were introduced in January covering the three months between February and March. Further cuts to electric subsidies are likely later this year in an effort to move electric prices toward more market based rates. The goal in confronting these distortions and fiscal issues is to foster a more attractive investment climate and one that overturns years of confrontation between the government and private investors.

Another early move that was applauded by markets and the investment community, was the government’s creation of a ministry of energy and mining. The new ministry brought into government a wide range of experienced practitioners and energy sector veterans. The ministry replaced a Secretariat of Energy that had ceased to provide policy direction or vision.

As part of the new ministry, several new secretariats and undersecretariats were created including a renewable energy undersecrariat that will work to comply with the national goal of 8% renewables by 2017, a secretariat of energy scenarios to manage energy planning in the medium and long term (15-40 years) and an undersecretariat for energy savings and energy efficiency, which seeks to reduce consumption by 5% by 2020.

Though still early days, the Macri government has clearly been busy in an earnest effort to construct a vision for the energy sector. The first draft, along with several first steps, is in place with the formal energy outlook for the government set to be finalized and published later this year in September.

A key tenet was set forth in opening remarks at the Roundtable by Secretary of Strategic Energy Planning Daniel Redondo: Energy planning and projects must balance supply and demand in Argentina at the same time as reducing imports and supporting modest GDP growth.

Washington, DC – Energy integration is back in vogue in the Western Hemisphere. That was the clear consensus of a panel of government and industry experts convened by the Institute of the Americas on December 3 in Washington, DC.

After a period when economic and political factors conspired to set back the gains of regional integration efforts from the 1990’s and early 2000’s, a booming US natural gas market, myriad initiatives of the US government, and November’s change election in Argentina has reinvigorated the appetite for integration.

The well-known story of booming US oil and gas production from shale played a starring role in reviving the importance of regional energy integration. Natural gas trade between the United States and Mexico has more than doubled since 2005 and will double again by the end of the decade. At the same time, natural gas via LNG from the US Gulf Coast is imminent and will surely plug into the import markets of Chile, Central America and the Caribbean.

The United States government, oft-maligned for “not doing enough” in Latin America and particularly the energy sector, has embarked on a long list of energy diplomacy efforts aimed at the hemisphere’s energy market and integration.

 

Led largely by the US State Department’s Energy Bureau, programs such as Connecting the Americas 2022, the Caribbean Energy Security Initiative and the Energy Task Force all seek to redouble efforts at regional energy integration as well as energy transition, and boosting diversification of Central America and the Caribbean’s energy matrices. Most importantly, significant financial resources are being made available for the programs, including a $20 million clean energy fund being managed by the Overseas Private Investment Corporation, or OPIC.

The State Department representative on the panel, Chris Davy from the Energy Bureau, spoke enthusiastically and optimistically about the programs and the United States’ embrace of energy diplomacy, as well as the upside these initiatives will bring to the Caribbean, Central America and the entire hemisphere.

In addition to the important push from the United States government, there has been a shift in what may be best termed geopolitical forces in Latin America, forces that long caused countries to focus on security of supply and allow domestic concerns to supersede those of the region or regional integration.

An example is the advance and utilization in Central America of the SIEPAC electric interconnection infrastructure to realize regional electric transactions and trade. But also, countries across the Southern Cone have signaled their desire to recapture their pioneering integration efforts. These trends have been greatly buoyed by the change election in Argentina of Mauricio Macri and his pre-inauguration rhetoric on integration writ large, and the role of the energy sector.

Panelist Ricardo Iglesias of Engie pointed to what can be called a wide range of low-hanging regional integration fruit – the under-utilized energy infrastructure that is in place that with minimal investment can be restarted to usher in the next chapter of regional energy integration in the Southern Cone.

Panelists also agreed on the importance to consider the ongoing COP21 meeting in Paris and the global emphasis on confronting the challenges of emissions. Indeed, as the State Department’s Chris Davy put it: energy policy is climate policy and climate policy is energy policy.

The concept that companies are grappling with both internally and as they manage their investments in Latin America and across the globe is that of what can be summarized as an “energy transition” suggested Engie’s Ricardo Iglesias.

The role of renewables and offgrid solutions such as microgrids work hand in glove with the rational for regional integration, Mark Nelson of Sempra Energy noted. In responding to a question on the role of migrogrids across the region, Mark highlighted the lessons Sempra has garnered from their microgrid project in Borrego Springs, California and how it has informed his companies’ international portfolio as well.

It is often difficult to stop and take stock of a major initiative while it is underway. But that is what is occurring in Mexico as the year draws to a close and the nation charges forward with its historic energy reform efforts. Lessons learned from the public bidding process of Round One, as well as measures to rewrite the regulatory and investment framework continue to be organic, that is living and evolving. And the government has displayed an earnest desire to adapt and rethink its vision as milestones are reached and challenges emerge. Particularly with regard to upstream tenders, global insights from industry and stakeholders have been well-received.

On November 18, over 75 representatives from the Mexican government, industry, academia, and civil society convened in Mexico City for the Institute of the Americas’ Mexico Oil & Gas Roundtable. The Roundtable offered a robust half-day discussion of key issues and focused on the question of: What is the vision?

 

As the country moves along the process of tendering oil and gas blocks, as well as throwing open its midstream and downstream sectors of the hydrocarbons chain, there have been immediate lessons learned. Of the myriad practices being absorbed in Mexico, government officials noted that three stand out: 1) Oil and gas is first and foremost a geology business; 2) Striking the right balance between risk and return for oil and gas investment demands never-ending consideration and evaluation; 3) The oil and gas business is a global one and thus competition for investment and capital occurs not on a regional but rather a global scale and stage.

Throughout the Roundtable, plaudits from industry participants were underscored by the government for the speed that energy reform is being implemented. But at the same time, there were voices that noted caution is required in order to insure that the current pace provides for a consistent and sustainable path.

Panelists urged the government to take care and be careful not to overreach and create an environment where it is more of a running-in-place mentality as opposed to forward progress as the increasingly complicated layers of energy reform unfold. Clearly, there are concerns of overburdening the government bureaucracy and overextending nascent agencies. How much additional bandwidth exists and can legitimately be tapped in the coming weeks and months must be considered.

In the opinion of several participants, the next 12 months will determine not just the success of energy reform, but also go a long way to defining the next 12 years for Mexico’s oil and gas sector. Indeed, when it comes to the most appropriate contract model for the upcoming tender of deepwater blocks the focus should be on creating the environment for a “good contract.” This means less concern over the contract model itself and more focus on the elements that will make bidding attractive, competitive and balanced with returns for the nation. Clearly, the government has a greater appreciation for the nature of global competition than it did earlier this year. The development and publication of the Plan Quinquenal or Five Year Oil and Gas Exploration and Production Plan marked an important step as to the vision for industry and the nation alike.

Beyond the issue of competition and drawing up balanced investment opportunities, the issue of social impact and role of local communities has also been thrust to the fore as a key challenge for the implementation of energy reform.

The reform legislation created important legal instruments and regulations to manage social and environmental impacts, but government officials admitted that staff levels, attention to and understanding of the topic may not be commensurate with the sheer magnitude of the challenge. The opening of the energy sector has created a new horizon for investment, and increased the number of sector participants, projects and infrastructure in communities with little to no understanding of or exposure to the basics of interaction with private firms or even federal energy authorities. It is a concern that government and industry alike share and agree requires increased attention.

Collaboration across all facets of industry, government and civil society is necessary, with all parties sharing responsibility. The concept of a social license to operate and what that entails merits further awareness. Indeed, as with the bidding and investment elements, there are a host of international examples to draw from with regards to best practices for community relations and avoiding costly and undesired unrest across the country.

Panama’s economy has been booming. High rise buildings and green entryways to Panama City’s new state-of-the art metro have been seemingly sprouting overnight. Foreign Direct Investment grew 32 percent in the first quarter of 2015 and over the last five years, Panama has been one of the region’s fastest growing economies, averaging annual growth on the order of 8 percent. The country’s economic growth has, not surprisingly, also led to spiking demand for energy. Some estimates project power demand growth of around 150 MW per year over the next several years.

Almost 100 representatives from Panama, the United States and across Latin America gathered in Panama City on Sep. 22 to debate how Panama can strike the appropriate balance between continued economic growth and corresponding energy supplies.

In acknowledging the boom, Secretary of Energy Victor Carlos Urrutia underscored that rapid growth has its impacts. Critical for Panama is how the government balances a market approach with continuing to provide secure, reliable access for all citizens of Panama. With the recent adjudication of a major 350 MW tender and contract for the country’s first ever natural gas fired power station, by way of LNG imports, the country is on the cusp of an energy revolution. How the government manages the next 350MW tender, set for later this year, on the heels of the first award is being keenly watched.

 

Secretary Urrutia emphasized the Panamanian government’s efforts to develop a Strategic Energy Plan and to take into account all issues and options; what many call an “all-of-the-above” energy approach. The strategic vision, supported by Roberto Meana, the head of Panama’s regulatory body, ASEP, includes the thorny issue of reducing and targeting subsidies, market competitiveness, but also a dedicated effort to diversify the country’s energy matrix.

At the heart of the discussion were four overarching themes: the role for natural gas, the role for renewable energy, how to manage energy demand, and regional integration.

But it was the role of natural gas that provoked the most debate during the course of the discussions at the Roundtable. The award of a 350 MW project to Gas Natural Atlántico, a subsidiary of AES Corporation, will bring on-line within 30 months Panama’s first natural gas-fired power plant at an estimated cost of $800 – 900 million.

Moreover, the future for natural gas in Panama’s energy matrix beyond just power generation, and more specifically the issue of open access and how the entire country will benefit from the fuel’s arrival in 2018 is a matter of debate between the government policymakers, regulators and private sector.

Adding to the discussion is the Panama Canal.

Deputy Administrator Manuel Benitez discussed the Panama Canal’s efforts underway to study the possibility of building an LNG receiving terminal for power generation and also with the aim of bunkering and providing LNG for ship borne propulsion, particularly as more stringent ship emissions come into effect in the coming years.  As a related element, the expansion of the Panama Canal is slated for inauguration in April 2016. Once the new locks enter into operation, the Canal will be able to accommodate 92% of the world’s ships according to Deputy Administrator Benitez.

It also bears noting that in the discussion of regional integration, there was much applause for the advances of Central America’s Regional Interconnection System or SIEPAC and the Regional Electric Market. Indeed, panelists underscored how critical regional integration and the regional market were for Panama as the system provided much needed relief during the 2013 drought, which hindered the country’s hydropower generation capacity.

The next step for Panama is moving forward with electric interconnection with Colombia, or the Colombia-Panama Interconnection Project. The project has been complicated by numerous environmental and indigenous concerns and broader geopolitical issues. Yet, panelists at the Roundtable concurred that the ICP would be completed by 2020.

Panama has important energy hurdles ahead, but the level of debate and seriousness of focus set forth by policymakers and market participants alike at the Roundtable points to awareness and competency to confront and manage the coming challenges.

To wit, CNH has granted 22 permits for 11 private companies to conduct assessments and in-depth studies of various subsoil basins across Mexico. In order to synthesize the information contained in the permit applications, CNH will integrate all the appropriate data into a single map. In short, this effort is aimed at creating a national map and profile to show the best expectation for the industry on areas with the highest prospectivity in Mexico.

All of these pieces are part of CNH’s ongoing mission to facilitate investment at the same time as regulating and rendering the utmost transparency for the nation’s hydrocarbons.

A broader, more in-depth understanding of Mexico’s oil and gas potential will not only enable the government to continue to move forward on oil and gas bidding but also deepen the understanding across all of Mexico vis-à-vis the oil and gas sector. Information is increasingly available to anyone interested. In the oil and gas business, like many other technology driven enterprises, data is king.

Moving Mexico’s oil sector forward requires indefatigable efforts and an understanding that today’s failure often greatly informs tomorrow’s success. The turbulence of today’s oil market is not for the fainthearted and demands constant reappraisal of all facets of the bidding process. But Mexico is committed.

Today’s efforts from bidding to historic data and information gathering are intended to provide a window and boost to the future of the Mexican oil industry.

How much time do we have? This question posed by lunch keynote speaker, Dr. Veerabhadran Ramanathan of the Scripps Institution of Oceanography was a clever way to get everyone’s attention as to his presentation length and seriousness of the topic. In wide-ranging remarks delivered at a California-Mexico energy workshop, Dr. Ramanathan shared his groundbreaking research on climate change, solutions and the importance of broad, global engagement on the topic. On this latter issue, he was particularly enthusiastic about his work with Pope Francis and the Pope’s history-making encyclical that confronted the issue of climate change head on from a health and social welfare vantage.

On August 19-21, a delegation of Mexican and California energy officials and industry representatives convened in San Diego to share lessons learned on energy efficiency and renewables, as well as the overarching urgency of climate change. Together with the California Energy Commission, UC San Diego and Mexico’s Energy Secretariat (SENER), the Institute of the Americas was one of several partner organizations that organized the technical workshop and site visits across San Diego.

The workshop, a direct output of the Memorandum of Understanding (MOU) signed in July 2014 between the California Energy Commission and SENER, featured presentations by officials and practitioners from both sides of the border. The MOU was signed during California governor Jerry Brown’s trade mission and visit to Mexico City and set forth a series of goals focused on encouraging cross-border renewable energy investments and research and development.

The workshop highlighted best practices in grid management, and the success of microgrids at UC San Diego and in the small desert community of Borrego Springs, as well as the broader policy prescriptions for enhanced efficiency measures and renewable deployment. The policy elements were particularly relevant for the Mexican delegation as the country rewrites its energy laws and launches a new electric sector, wholesale market and regulatory tableau this year.

Given the nature of the very public drought facing California, the water energy nexus also figured prominently in discussions and presentations during the workshop.

But the show-stealer in many ways was transportation. More specifically, the increasingly important role that the transport sector will play in both Mexico and the United States’ efforts to decarbonize their energy matrices, as well as the implications for the electric sector and grid management.

By one estimate, if California’s approximately 30 million automobiles all transitioned to electric vehicles it would require an additional 180,000 MW of electricity supply, or approximately 3 times the state’s peak load today. Meanwhile, Mexico will also see a significant boost in the number of automobiles across the nation which demands a policy debate over the intersection of emissions, fuel supply and vehicle type.

Interestingly, Dr. Ramanathan never precisely answered his question as to how much time we have. But for the crowd gathered in San Diego in mid-August, furthering effective and sustainable energy policies are a key way to confront the ticking clock.