11:55 - 12:20
Wednesday, 18 September 2019
S2.4 South America's Natural Gas Future: A Tango for Three
South America is an important region for gas development with about 11% of the world’s technically recoverable resources including substantial unconventional deposits. With regional and global gas demand expected to increase in the near future, how soon can this potential be sustainably monetized? A closer look at the resource base and policies of three countries in the midst of a developing market, indicates diverging outcomes and reveals lessons to be considered.
Argentina, already a gas producer, is well positioned to monetize vast resources in the shale formation of Vaca Muerta. Despite a slow start, production has exceeded expectation over the past year. Indeed, during the October 2017-October 2018 period, production grew by 7% with shale gas increased by 243%. As a result, exports to Chile have restarted and LNG exports are expected by the summer of 2019. Yet, major bottlenecks remain including labor rigidity, limited infrastructure and notably, a deteriorating economy that is forcing the government to reduce subsidies for unconventionals that underpinned market growth. Presidential elections in 2019 will present both opportunity and risk for regulatory reform.
Brazil, ranked third in proven reserves in the region, will likely take important steps to monetize its gas reserves and further develop its market. President Bolsonaro’s administration will likely continue pro-market reforms in the energy sector to increase investment and competition, including reducing Petrobras’ presence along the gas value chain. Increased associated offshore production will even hold the promise of opening the export market. Yet, efforts are still in their infancy and are hampered by reinjection and insufficient infrastructure to bring production onshore, and a modern regulatory framework stuck in Congress.
Finally, Guyana still has a way to go, but can take solace in the Argentinean and Brazilian experiences. The U.S. Geological Survey ranked the Guyana-Suriname basin as the world’s second highest resource potential among under-explored offshore basins with an estimate of gas reserves of 32 trillion cubic feet. However, the country faces formidable institutional, regulatory and infrastructure challenges in monetizing this potential. While private sector interest is present to assist in the development of Guyana’s energy wealth, constructively channeling its benefits while avoiding a resource curse for a developing economy will require steady governmental stewardship. Whether that is in the cards not only for Guyana, but for the region as a whole, has always been the uncertainty that has become the hallmark of political and economic development.
Through a qualitative review of these countries’ gas resource base and current markets, supported by robust literature review, elite interviews and rigorous data analysis, the paper seeks to identify and analyze the main drivers and obstacles to gas development. The paper will also touch upon issues related to energy policy and the role that gas should play in these countries and in the region’s future. The article will close with a set of recommendations to address obstacles to the fulfillment of South America’s gas potential.