Argentina: Flogging a dead cow to revive a dead horse

By Eric Watkins

LOS ANGELES, June 25 – Sooner or later we all expect to see the headline, don’t we? You know, the one that proclaims China’s national oil companies are buying into Argentina’s recently nationalized oil company Yacimientos Petroliferos Fiscales.

Well, that headline is coming closer by the day, with both Russia and China now courting Argentina’s President Cristina Fernández de Kirchner. Remember her?

She’s the lady – we don’t know if she’s made of iron yet – who had no compunction in nationalizing Repsol’s share of YPF a few weeks back or in personally confronting British Prime Minister David Cameron over her country’s endless demand for the return of the Falkland islands.

Well, Kirchner seems to have been biding her time in the knowledge that a dead cow may represent just the bargaining chip to get what she wants. A dead cow? Oh, that’s the English translation for Vaca Muerta, the name of the oil-rich region she seized from Repsol.

VACA MUERTA

As a reminder, Vaca Muerta holds a fairly large amount of oil – shale oil to be precise. According to estimates of the United States Geological Survey, Argentina’s reserves of shale oil rank only behind those of the United States and Canada.

Repsol YPF began to attract attention to the project late last year when reporting “its biggest ever oil discovery” in the Vaca Muerta formation, which it described as “one of the world’s largest non-conventional reservoirs.”

The company confirmed recoverable resources of 927 million barrels of oil equivalent (boe) of non-conventional hydrocarbons, of which 741 million boe are high quality oil (40-45º API).

At the time, Repsol YPF cited the highly respected consultants Wood Mackenzie as identifying the Vaca Muerta shale as “one of the best in the world” in comparison with other areas it examined in Australia, China and Europe.

CASH COW

That represents a cash cow to someone, and the Chinese are just as interested in cash cows as anybody.

To be sure, the Chinese government made polite noises at the time of Argentina’s takeover of YPF, saying something about the disturbance to the country’s investment climate. But that was then and now is another moment.

China’s President Wen Jibao, in Mexico for last week’s meeting of the Leaders’ Summit of the Group of Twenty, or G20, added other destinations to his Latin American ‘goodwill tour’ – among them Uruguay, Brazil and Argentina.

Argentina’s government naturally attached great importance to Wen’s June 23-25 visit, considered a major diplomatic event between the two countries after Chinese President Hu Jintao’s visit to Argentina in 2004.

CHINA’S ‘PARAMOUNT ROLE’

Kirchner and Wen wasted no time in hailing 40 years of strong diplomatic ties between their two countries, with the Chinese leader calling the four-decade mark an “important milestone” in the “deepening friendship and trust” between Buenos Aires and Beijing.

Kirchner said China had played a “paramount” role in fuelling global growth over the past 10 years, while stressing that their two countries have a common vision in “defending territorial integrity.”

Wen agreed, saying that both countries have offered staunch support for each other on major issues concerning sovereignty and territorial integrity and have established firm political mutual trust.

China’s Ambassador to Argentina Yin Hengmin used that phrase just a day ahead of Wen’s visit, saying that China and Argentina could seek more collaboration in international affairs based on political mutual trust.

POLITICAL FLIRT

Argentina always adheres to the one-China policy and China backs Argentina’s stance on the Malvinas Islands, called the Falkland Islands by Britain, Yin said

Quite what level of support Argentina could expect from China over the Falklands remains to be seen, but there can be little doubt that Kirchner will be seeking to use the Vaca Muerta development as an enticement to greater Chinese involvement in her country’s effort to see the islands’ return

But Kirchner is leaving nothing to chance. She’s nothing if not a political flirt, and she’s certainly been flirting with Russia’s President Vladimir Putin, with much the same purpose in mind as with the Chinese.

RUSSIANS EYE VACA MUERTA

Indeed, it emerged that Putin and Kirchner used a June 19 meeting at the G20 summit to map out several strategically important areas in which the two governments want to broaden their cooperation.

According to Russia Today, the two heads of state discussed hydrocarbons and nuclear energy, transportation and railroad development, and agriculture and agro-industry as key areas for greater cooperation – all areas of interest to China as well.

Indeed, officials from Russia’s state-owned OAO Gazprom even said they plan to contact the new leadership of YPF to discuss a specific work plan for cooperation in the exploration, exploitation, and distribution of natural gas in Argentina – including development of Vaca Muerta.

There was no mention of the Falklands in the report. But then, there was no mention of oil in the Chinese reports either.

REVIVING A DEAD HORSE?

One thing, though, will certainly be true: Kirchner’s efforts to woo the Russians and Chinese will stimulate their most ardent efforts – as well as the narrow-eyed attention of Washington and London.

It’s amazing the kind of attention someone can drum up by beating a dead cow and playing suitors off against one another. Who knows? Kirchner may yet beat some life into that erstwhile dead horse known as Las Malvinas.

© Glamma Productions Inc. 2012

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Myanmar: Caution over oil, gas investing

By Eric Watkins

LOS ANGELES, June 19 – Even as Western nations anticipate the lifting of trade restrictions against Myanmar due to last week’s positive report by the International Labour Organization, oil and gas firms have been warned against forming joint ventures with the country’s state-owned oil company.

“The EU fully recognizes the importance of the ILO report and considers this a positive step forward in the process of the reinstatement of preferential market access for Myanmar /Burmese products to the European market,” said EU Trade Commissioner Karel de Gucht and EU foreign policy chief Catherine Ashton.

The EU statement came just a day after the ILO issued a positive statement concerning the government of Myanmar, also known as Burma, and its progress regarding labor issues that had seen the imposition of punitive restrictions on the Southeast Asian nation more than ten years ago.

“The International Labour Organization has lifted its restrictions on the full participation of Myanmar in its activities and decided to review the progress on the elimination of forced labour in the country next year,” the ILO statement said.

FORCED LABOR

Myanmar was banned from any meetings or technical assistance from the ILO in 1999 after failing to implement recommendations of an investigation by the UN body, which found evidence of “widespread and systematic use” of forced labor by the authorities.

That view has changed following a high-level mission of the ILO to Myanmar this month, with an agreement reached on forced labor after members of the ILO mission met President Thein Sein, senior government ministers and opposition leader Aung San Suu Kyi.

“The Government of Myanmar and the ILO have agreed on a joint strategy for eliminating forced labor,” the ILO announced, adding that, “the Government acknowledges the need for immediate action on this strategy with a view of implementing it before the declared target date of 2015.”

The ILO’s changed position opened the way for the EU to begin relaxing some of its restrictions on trade with Myanmar. Ashton and de Gucht said they were studying the ILO report, but hoped to introduce legislation to reinstate Myanmar’s trade access.

THE POSITIVE AND THE SUCCESSFUL

In her speech before the ILO, Suu Kyi called for the investment to create jobs for young people, saying that unemployed youth “lose confidence” in the society that has failed to give them the chance to realize their potential.

“It’s not so much joblessness as hopelessness that threatens our future,” she said, urging the invitation of foreign direct investment that results in job creation, as well as coordinated social, political and economic policies “that will put our country once again on the map of the positive and the successful.”

Suu Kyi thought oil firms Total SA and Chevron Corporation, long targets of human rights activists, should continue to operate in the country.

“I have to say that I find that Total is a responsible investor in the country, even though there was a time when we did not think they should be encouraging the military regime by investing in Burma,” she said.

HUMAN RIGHTS, ENVIRONMENT

“They were sensitive to human rights and environmental issues and now that we’ve come to a point in time when we would like investors who are sensitive to such issues, I am certainly not going to persuade Chevron or Total to pull out,” she said.

But the political activist warned international oil companies against forming joint ventures with the state-owned Myanmar Oil & Gas Enterprise, citing its dubious business contracts with CNPC.

“Quite frankly none of us know what’s in those contracts, this is what I mean by lack of transparency in the country,” said Suu Kyi, adding that “Lack of transparency leads to all kinds of suspicions that shore up trouble for the future.”

Suu Kyi urged caution when dealing with what she called “extractive industries” such as oil and gas.

ABUNDANT ENERGY RESOURCES 

“The reason why we have to be careful about the extractive industries is because what you extract doesn’t go back in, and secondly because they don’t provide as many jobs as some other industries,” she said.

“Burma is a land with a lot of energy resources. We do not want to dissipate it. I would like to see a sound effective energy policy in Burma and this should be related to the kind of extractive investments that we invite in.”

Very clearly, Myanmar has made steady progress in its efforts at democratization, and investment is being viewed as a means of furthering the country’s political development.

If Suu Kyi has anything to do with the matter, then companies willing to accept their responsibility as engines of political change clearly will succeed in the Myanmar now emerging under watchful Western eyes.

© Glamma Productions Inc. 2012

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IEA: Russia scratching its head over gas markets

By Michael Robison

NEW YORK, June 13 – The International Energy Agency’s (IEA) Medium-Term Gas Market Report faces one looming obstacle in forecasting the global gas landscape: figuring out the shelf-life of the recession born in 2008.

IEA assumes that the global economy will continue on the upswing, and bases its projections for gas to 2017 on that assumption. But the onset of double-dip recession would drastically reshape IEA’s predictions.

IEA said the consequences of a double-dip recession are revealed in Europe’s “weak macroeconomics,” as well as the region’s push towards renewable energy – two factors that also are felt by Russia, Europe’s main supplier of gas.

The string of economic malfunctions since 2008 has pushed Europe’s gas demand way down, IEA said. “There is no ‘golden age of gas’ in Europe, as gas demand remained below 2010 levels during the whole projection period.”

EUROPE’S DEMAND DROPS

Overall,  gas demand in the European region of the Organization of Economic Cooperation and Development (OECD) dropped to 520 billion cubic meters (bcm) in 2011 from 570 bcm in 2010.

In 2010, Russia exported 110 bcm of gas to Russia – representing more than half of its production for the year and revealing its dependence on Europe as a market.

IEA said the current situation presents further difficulties for Russia, now struggling to continue its “revovery from the dramatic fall in production in 2009, when when it collapsed to a low of 572 bcm, a level unseen since 2001.”

Given Europe’s declining demand, Russian gas would surely be in trouble were it not for demand growth in East Asia, especially China, described by IEA as “the fourth largest gas user in the world.”

CHINA’S DEMAND RISES

IEA said that China’s demand for gas rose in 2011 to 132 bcm, from 110 bcm in 2010 – more than enough to make up for Europe’s reduced demand for gas.

China’s demand for gas is projected to grow at 13% a year, increasing to 273 bcm in 2017 from 130 bcm in 2011.

Furthermore, the Chinese government recently released its newest Five Year Plan (FYP), outlining its desire to promote gas as a primary energy source for the country.

“Natural gas consumption doubles over 2011-17, following the implementation of the 12th FYP, which promotes the use of natural gas within the energy mix,” IEA said.

‘TOO AMBITIOUS’

But IEA said that the FYP, which forecasts a doubling of the natural gas share in the energy mix, is too ambitious in its own forecast for China’s gas consumption going forward.

IEA said the FYP forecast of a gas demand of 260 bcm by 2015 is too high, and that “the consensus regarding gas demand by 2015 among Chinese experts” is closer to 230 bcm.

The past year has also seen an increase in gas demand for Japan, as the country seeks several alternatives to nuclear energy in the wake of the March 2011 Fukushima disaster.

“Japan was the driver behind the [OECD Asia/Oceania] region’s demand increase from 195 bcm to 212 bcm,” IEA said.

UNCERTAINTY OVER JAPAN

While unsure just where Japan’s nuclear energy levels will eventually reach when some of the country’s reactors are restarted, IEA is relatively sure they will not reach pre-Fukushima levels. But it said that Japan is cautious, and will not rely solely on gas to replace the loss in nuclear energy.

Instead of using gas and other easily accessible fossil fuels to supplement domestic energy needs, Japan is encouraging energy-austerity.

“To compensate for this loss of nuclear, the country relies primarily on energy savings,” IEA said.

The report predicted that projected “total electricity supplied in 2017 is still 3% lower than 2010 levels,” largely due to Japan’s complete lack of domestic energy resources.

TWO-PRONGED APPROACH

Unlike Japan, which will need to import gas to replace all 54 shut down nuclear reactors, China is pursing a two-pronged approach to meet its energy needs.

In its continued search for gas supplies, China has looked into its own resources, primarily coalbed methane (CBM) and shale, IEA said.

“The projection horizon will witness the beginning of commercial scale shale gas production in both Poland and China,” IEA said.

But IEA said that “it remains to be seen at what pace and at which costs it will be possible to develop shale gas resources outside North America.”

IEA said this is good news for China, but worrisome for Russia.

NEW PARTNERSHIPS

As demand for gas in Europe stabilizes and wanes, Russia is beginning to look for new partners, including China.

“While it is not expected that Russian supplies to China will be in place before 2017, they are nonetheless expected to represent a significant part of Chinese gas imports in the longer term,” IEA said.

However, IEA said that could change if China rapidly develops such shale gas production volumes that importing Russian gas becomes unnecessary – a possibility very much on Russia’s mind.

Indeed, IEA said that China’s interest in developing its own gas resources complicates Russia’s interest in the region.

QUESTION MARKS

“Russia is unlikely to commit to either the development of new green fields in the Far East or Eastern Siberia or the corresponding pipeline infrastructure to Chinese borders, without being sure that the volumes will be significant, even if the ramp-up takes time,” IEA said.

If it is going to invest the funds necessary to bring pipelines and general infrastructure up enough to satisfy future Chinese gas demand, Russia wants to be sure China will not eventually take care of its own demand with domestic supply.

© Copyright Glamma Productions Inc 2012

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UK: Church’s wind power plans haven’t a prayer

By Eric Watkins

LOS ANGELES, June 12 – The English have a deep love of their green and pleasant land and no desire to see any dark Satanic wind mills dotting it. That message was repeated this week when parishioners in Devon forced the Archdiocese of Exeter to drop plans for construction of six giant wind towers in three local parishes.

The Archdiocese of Exeter has done its level best to promote the use of renewable energy throughout its area of responsibility, even to the point of invoking God in its website postings on green power.

“As a response to dangerous climate change, and as a part of its call to preserve God’s creation and promote justice for all, the Diocese is committed to cutting its carbon emissions by 42% by 2020 and 80% by 2050 in line with the Church of England’s national Shrinking the Footprint campaign,” it said.

“By looking at wind energy, we are being responsible stewards of the land God has given us to look after, for future generations,” said the Archdeacon of Barnstaple, David Gunn-Johnson, referring to plans to put two small wind turbines on three different sites, owned by the church, in north Devon.

‘POPULAR MACHINE’ 

“These three projects look to develop two small Gaia 11kW machines per site,” the Archdiocese said. “The Gaia is a small turbine with a hub height of 18m and a total height of 24.8m,” it said, adding that, “It is a very popular machine with rural businesses, farms and properties.”

But apparently the Gaia wind turbine is not as popular as officials thought as angry residents in the parishes of Chittlehampton, East Anstey and Black Torrington voted against the Diocese’s plan to install towers on tenanted farmland it owns.

At an angry meeting in Chittlehampton, reports said that 150 residents voted unanimously to oppose the Diocese’s plans, while similarly vocal meetings took place in the other parishes.

The parishioners’ successful campaign against the wind turbines was condemned by the Bishop of Exeter, the Right Reverend Michael Langrish, in a letter read out at church services in the three parishes last Sunday.

‘VERBAL ABUSE’

Even as he acknowledged that the plans would be dropped, Langrish accused protesters of “outright verbal abuse” and “bullying” at a series of hostile public meetings attended by diocesan representatives.

One can only wonder why the Church tried to impose such a scheme on residents, especially since the British government announced in April that it would be taking a more hostile line to new onshore wind farms after a revolt by more than 100 backbench Tory MPs concerned at the blight on the countryside.

Then, too, a High Court judge recently ruled that the right of people to preserve their landscape is more important than the government’s renewable energy targets. Perhaps the Diocese of Exeter thought a ruling against the government did not apply to the Church.

The people of Devon have been acquainted with wind power for several months now, following the completion of the 22-tower Fullabrook wind facility, which has been described as the largest onshore wind farm in England, generating enough green electricity to meet the needs of 30,000 homes in North Devon.

LONG-TERM OPPOSITION

But even in Devon, there long has been opposition to the plans for wind power – including the Fullabrook wind farm itself. Local government spent hundreds of thousands of pounds fighting the plans, which the Campaign to Protect Rural England said would “destroy the local countryside.”

That’s still the view of local residents who applauded the decision by the Church to withdraw its plans for the wind towers after continued protests. ‘I’m jolly glad they have withdrawn the application,” said Patricia Eva of East Anstey. “It would have spoilt the landscape.”

Others noted the fact that the Church did not consult local residents, many of whom opposed what, essentially, they saw as a business plan. “They did not ask us before this plan was put in,” said resident Kate Ives, who said “the majority of the villagers feel they were only doing it for money.”

Worse, local residents would not have benefitted from the planned £50,000 a year in income. “The money generated will go straight to the Synod,” said one, who added that hard-pressed parishioners recently had to reach into their own pockets to repair the church clock.

BLIGHT ON THE LAND

Proponents of wind power in the U.K. clearly did not reckon on the effect their plans would have on the public, least of all that their towers would be considered a blight on the land – a form of pollution.

Now, they will have to recalibrate their plans for the future or – like the Diocese of Exeter – they won’t have a prayer of succeeding.

© Glamma Productions Inc. 2012

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Myanmar: Forced labor under ILO spotlight

By Eric Watkins

LOS ANGELES, June 11 – Leaders of the international energy industry will likely have their eyes and ears turned toward the International Labour Conference later this week in Geneva.

Aung San Suu Kyi, Chairperson of the National League for Democracy and Member of Parliament in Myanmar, will give a keynote address at the International Labour Conference on June 14.

The International Labour Organization had long championed Suu Kyi’s release, and she will be lionized at the event. Her speech will impact global thinking as much – if not more – than her remarks at the recent World Economic Forum.

SIGNIFICANT BEARING

In particular, what Suu Kyi has to say could have a significant bearing on energy developments in Myanmar, especially from the standpoint of investors like Total SA and Chevron Corp.

Myanmar’s record on forced labor is a main item on the agenda at this year’s ILO conference, and allegations of using forced labor long have been the bugbear of international oil companies, with Total SA especially sensitive to them.

Those sensitivities were very much in view over the weekend, when Total SA Chief Executive Christophe de Margerie traveled to Myanmar to meet with Suu Kyi, as well as Myanmar’s president and minister of industry.

While no one has revealed anything of substance concerning any of these discussions, de Margerie took the time to tweet a positive statement over Suu Kyi’s recent release.

DE MARGERIE TWEETS

“I am pleased to see Aung San Suu Kyi free again!” de Margerie said over Twitter after his meeting with her on Saturday. “I’m delighted our discussions will continue,” he added. And well he might.

Total began operations in Myanmar in 1992, signing a contract to develop the Yadana offshore gas field and pipe the gas to Thailand. Later that year, Total sold a stake in the field to Union Oil Co. of California, later purchased by Chevron Corp.

According to Total, the Yadana project is “a favorite target of activists who oppose the current government in Yangon advocate a boycott of the regime.”

“To create a wider audience for their cause in Europe and the United States, the activists’ message has included attacks against the Yadana project and Total, as well as against other Western companies that operate in the country,” the firm said.

FORCED LABOR

Total drew particular attention to claims that it used forced labor on its Yadana development, saying that reports by the ILO and the U.S. Department of Labor also mention these allegations.

But Total has always denied the allegations.

“Total has made it abundantly clear that everyone employed by Total E&P Myanmar, its affiliates and its subcontractors to build and operate the pipeline was a paid, voluntary adult with a written contract, and underwent a physical examination prior to hiring and received safety training,” the firm said.

Chevron’s predecessor, Unocal, likewise dismissed claims aired by National Public Radio that slave labor had been used in the Yadana Project, saying that “these allegations are absolutely false and clearly absurd” to anyone familiar with the project.

VOLUNTARY WORKERS

“In reality, the pipeline was constructed by paid, voluntary workers under the direction of Totalfina, the project operator, and its contractors,” Unocal said – a message still carried by Chevron on its website.

But the allegations of forced labor have persisted through the years nonetheless, and they remain a central issue in the eyes of the ILO, which this week will receive a first-hand report on the matter by a committee it dispatched to Myanmar.

That report will mark a crucial moment for firms like Total SA and Chevron Corp., signaling whether Myanmar has made enough progress on the labor front for them to move forward with long-delayed plans to ramp up their activities in the Southeast Asian nation.

But even more important than the words of the ILO’s committee will be the speech of Aung San Suu Kyi. Hers is a voice that has earned the respect of the world, a voice that speaks with an unimpeachable integrity.

Anyone thinking of investing in Myanmar must heed her remarks.

© Glamma Productions Inc. 2012

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Book Review: Winner Take All

By Felicia Graham

SAN DIEGO, June 10 – Winner Take All: China’s Race for Resources and What it Means for the Rest of the World is the latest offering by Zambian economist and commodities expert, Dambisa Moyo.

Winner Take All, Moyo’s third book examining the global economy, follows Dead Aid which looked into the pitfalls of foreign aid in Africa, and offered alternative financing options.

Moyo’s second book, How the West Was Lost, detailed the economic deterioration of the United States’ policies over the years and how that tipped the world balance in favor of developing economies.

Winner Take All thus comes as a further extension of Moyo’s ongoing critique of the global economy.

Given changes in the global make-up, the book is a particularly relevant follow-up to How the West Was Lost. While that book details what Moyo sees as the policy mistakes of the U.S., Winner Take All expounds on China’s policy decisions.

The overarching portrait Moyo paints for us in Winner Take All is of a global economic competition for long-term stability and growth.

For Moyo, this competition takes up any and every commodity: water, food, land, timber, minerals and – most importantly – energy.  Furthermore, Moyo describes this global commodity duel as a zero-sum game, with clear winners and losers.

The winners are those countries that can ensure access to vital commodities and extend their country’s dominance. The losers are those that cannot ensure that access.

Winner Takes All asserts that China is emerging as a winner.

But how has China done this? What kind of policies has China embarked on that enable it to out-pace the long-running economic behemoths of the U.S. and Europe? And what are the global implications of a world economically dominated by China?

Winner Takes All brings us back to the battlefield of the global commodities market to answer these questions. Going through the arenas of land, water, and energy, Moyo traces her own version of the global race for what’s left, and how China is moving in quickly.

Throughout the book Moyo discusses the systematic approach China has taken to obtain resources – befriending regions previously excluded and granting aid packages that are amenable to the host country.

Moyo’s discussion is highly relevant, as China has inserted itself into new markets the world over – from Asia to Africa and Latin America to obtain resources. In a word, Moyo’s analysis of China’s policies depicts a foreign policy that works.

As Moyo notes, the West would do well to mind the actions of its Asian counterpart, and her book does well in providing a valuable insight into the stark differences between Eastern and Western foreign policies.

Overall, Winner Take All, is a good read that gives a straight-forward and thoughtful overview of China’s rise to global prominence, and the implications associated with it.

Those readers seeking a basic understanding of the intricacies of the global interplay at work should find Winner Take All quite valuable, while readers already accustomed to these intricacies might find the book a tad redundant.

But Winner Take All is a solid read and an excellent addition to Moyo’s literary work.

Felicia Graham is Managing Editor at Oil Diplomacy.

© Copyright Glamma Productions Inc. 2012

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IEA: Latin America’s gas demand growing

By Felicia Graham

SAN DIEGO, June 9 – The International Energy Agency (IEA) gave Latin America an optimistic demand forecast in its first-ever Medium-Term Market Report for the global gas issued this week.

“Latin America’s gas demand is projected to increase by 29% over 2011-17, from 139 bcm (billion cubic meters) in 2011 to 179 bcm in 2017,” IEA reported, saying that 80% of the region’s total gas consumption in 2011 came from Argentina, Brazil, Trinidad and Tobago, and Venezuela.

Brazil was the force behind much of the demand growth in 2010, and that held true throughout 2011, despite a slight decrease in growth demand, IEA said. It added that Brazil’s demand growth nearly tripled to 24 bcm in 2010 from 9 bcm in 2000.

IEA predicts that Brazil’s demand will nearly double again within the next five years, reaching 43 bcm in 2017. It said Brazil accounts for half of the additional gas demand predicted between 2011-17, while Argentina represents the region’s second largest demand growth.

NOTEWORTHY INCREASES

Several other Latin American countries also witnessed noteworthy increases in gas demand, IEA said. “Demand in Bolivia rose by over 10%, benefiting from higher domestic production,” IEA said, while detailing a “surge” in Argentina’s gas consumption

Peru also saw steady growth in gas demand as new liquefaction plants came online in 2011, but demand for gas dropped in Colombia and Trinidad and Tobago

Overall gas consumption in members of the Organization for Economic Cooperation and Development (OECD) Americas increased to 862 bcm in 2011 from 840 bcm in 2010, IEA said.

Most of this was due to steep increases in demand from the U.S., but Latin American states such as Mexico and Chile saw larger increases, too.

Mexico and Chile, the only two Latin American OECD countries, are witnessing “rapidly growing demand,” while “Mexico is another rapidly growing LNG market. Its LNG demand has doubled over the last three years.”

POWER GENERATION

Meanwhile, Chile’s gas demand is steadily increasing, rising to 6.2 bcm in 2011 from 5.3 bcm in 2010. “The main drivers behind gas demand increase are the power generation and industry sectors, contributing to half of the incremental gas consumption,” IEA said.

IEA said Latin America’s overall demand will have increased by roughly 3 bcm, reaching 139 bcm, with demand driven largely driven by Brazil.

Meanwhile, on the supply side, the Americas are set to see the world’s largest increase in production, led largely by the U.S.

In 2011 the U.S. produced 653 bcm of gas, but IEA said the figure will rise nearly 18% to reach 769 bcm in 2017, due mainly to developments in shale gas.

In Latin America, IEA said most growth in supply will come from Brazil (62%), with “some modest production growth in Bolivia, Colombia, and Peru.”

‘MARGINAL INCREASES’ IN PRODUCTION

IEA said Latin America’s gas production witnessed “marginal increases” from 161 bcm to 164 bcm in 2011, again due largely to production boosts in Brazil, but also in Peru and Bolivia.

“Brazil is expected to be the fastest growing producer in Latin America, with gas production increasing from 16.7 bcm to 32 bcm by 2017,” it said.

Brazil alone increased by an estimated 18% in 2011, with most of the incremental production coming from offshore areas outside the Campos basin where production gained 44%. Onshore production represented only 28%.

Argentina’s gas output has continued the decline that begun in 2004, dropping 3% in 2010-11. The IEA attributes this decline to the slow move towards nationalization and a “cloudy” investment climate.

ARGENTINA ‘MOST PROMISING’

“As of April 2012, YPF, Petrobras, Tecpetrol and Argenta Argentina had also lost some license areas, because they failed to increase production,” IEA said.

“Argentina could be the most promising country given its alleged tight and shale gas resources,” IEA said, citing estimates of 19 trillion cubic meters (tcm) of shale gas. But IEA said that extensive reorganization will be required to realize Argentina’s potential.

Overall, IEA said that the outlook for Latin America’s gas production is “not particularly bright” if one excludes Brazil from the picture as countries such as Argentina, Bolivia and Venezuela have promising gas reserves, but have failed to reach their production targets.

Luckily, Latin American countries have cheap U.S. shale gas to rely on while their own production capacities develop, IEA said.

© Copyright Glamma Productions Inc. 2012

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