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Latin Trends

John Donnelly, JPT Editor, jdonnelly@spe.org

Non-OPEC production accounts for roughly 60% of total world supply, according to the Intl. Energy Agency, of which about a tenth comes from Latin America. Long a key supplier to the world’s largest consumer, the U.S., the region is becoming increasingly important to the Asia Pacific region. With global demand forecast to rise significantly in the coming years, the region likely will play a critical role in the world’s energy growth.

Latin American producers appear to be entering a new phase of development, with both government policies and market forces vying to influence the outcome. There has been a decided leftward political drift in Latin America in the past several years, as enthusiasm for the market liberalization of the 1980s and 1990s waned. That has been most apparent in Venezuela, but is also evident in places such as Brazil and Bolivia, as countries try to balance pressing socials needs and the amount of private and state investment in oil infrastructure. Venezuela recently renegotiated some contract terms with several private producers to increase the government’s take of projects, and Ecuador is attempting to do the same.

A second trend has been growth in regional cooperative agreements. Venezuela and Brazil agreed to build a refinery in northeastern Brazil that would process up to 200,000 BOPD, and they have had discussions about additional oil projects. Venezuelan President Hugo Chavez desires to create a “Latin American OPEC” to increase the region’s clout in the world oil market. Brazil’s Petrobras and Mexican state-owned company Pemex also have discussed possible joint energy projects. Pemex would love to have Petrobras’ deepwater expertise to help develop new production, particularly because its giant Cantarell field, which accounts for 2.1 million BOPD of total Mexican production of 3.4 million BOPD, is peaking and on the verge of sharp decline. Mexico estimates that it owns 50 billion bbl in unexplored deepwater reserves. It, in turn, could share its expertise with Brazil on processing heavy oil, which is expected to make up a larger share of future Brazilian oil production. Meanwhile, there are discussions in Mexico’s Congress that would allow Pemex more flexibility in working with private companies on E&P projects and would allow the company to keep more of its money that it could plow into upstream development projects. Even the idea of restructuring the company has been floated.

Brazil, which is on track to become oil self-sufficient next year as production rises to 1.85 million BOPD, is looking north for additional upstream and downstream ventures. Petrobras plans to invest U.S. $1.4 billion in its newly acquired Gulf of Mexico(GOM) upstream assets and increase output there to 100,000 BOPD. Brazil was the top bidder in the August GOM lease round, purchasing rights to 53 largely unexplored blocks in the U.S. part of the GOM. It also signed a memorandum of understanding in November with Astra Oil to form a refining and marketing joint venture, marking its entry into the U.S. downstream. Brazil is eager to secure outlets for its growing heavy-crude output.

Venezuela has a dedicated outlet in the U.S. through its Citgo refining system, but it has been looking increasingly away from the U.S. market for crude sales and has found a willing buyer in China. It signed two supply contracts in November with China Natl. Petroleum Corp., the latest of several agreements between the two, which could signal a trend of more Latin American oil flowing to Asia with its surging demand.

Colombia is trying to rejoin the ranks of major Latin producers with friendlier contract terms. Thanks to production from the BP-operated Cusiana-Cupiagua fields, Colombian production reached 815,000 BOPD in 1999 but since has fallen to just over 500,000 BOPD. Early 1990 production forecasts of 1 million-plus BOPD were never realized. But contract terms have improved, security is better, and state oil company Ecopetrol is spending more on E&P. The government forecasts oil output to increase slightly to 519,000 BOPD next year and is optimistic about new exploration, particularly frontier offshore areas.