Latin America has historically been the recipient of vast attention by successive US administrations, seeing the South American nations as proxies to fight international disagreements. Yet in recent years, their regional neighbours have fallen down the pecking order of foreign policy concerns, even more so under former President Trump’s isolationist ‘America First’ policies. In lieu of direct US-influence, corporate actors have been lobbying South American governments to expand and liberalise their energy sectors with the intention of developing competitive markets in the natural gas and renewable energy generation sectors.

In the period following Biden’s inauguration, the core focus from an energy perspective, has been to accelerate a sustainable energy transition and induce to reconsider their approach to oil and gas production. In many quarters, it is no longer deemed acceptable to deny emissions impacts or not seek to decarbonise processes, and as the tide of public opinion changes, there has been a concerted push to develop a cleaner and more climate conscious oil and gas sector.

From a foreign policy perspective, there has been little indication of direct influence yet, but rather an encouragement of capital flows southward to help fund the growth of solar and wind-power generation. In April, Biden hosted a ‘Leader’s Summit on Climate’ that announced a range of initiatives to facilitate additional financing and investment into Latin America and elsewhere around the globe.

The Energy Council looks at how US policy shifts are directly and indirectly affecting the oil and gas sectors of Latin America – accelerating both the natural gas and renewable generation sectors.

National Approaches to energy policy – state-control vs liberalisation policies

The energy liberalisation policies coming out of Colombia and Brazil can be seen as an after effect of Trump’s loss to Biden (and therefore a Biden influence). Bolsanaro’s most prominent ideological ally is no longer in power and the walls are closing in on Brazil’s president; a failure of Covid controls coupled with rampant corruption, state-controlled violence and acceleration of Amazon deforestation – has led to a legislative push in anticipation of political change.

Brazilian legislature is seeking to liberalise and untangle the state-monopolisation of the oil and gas sector. However, this is more an internal battle between right and left, than a direct Biden influence – a Democrat well-known for his neoliberal stance towards the market. In fact, the privatisation of Petrobras will work in favour of any American president seeking to expand the opportunities for US-based operators who may increasingly be constrained domestically.

Similarly,  Colombia has sought to attract global energy players that can maximise the untapped natural gas reserves. The country has sought to attract the return of foreign investors who had pulled out or placed their projects on halt due to Covid. It could prove an interesting prospect for oil majors who may continue to add a greater share of gas to their portfolios, with an estimated 7 billion barrels of untapped shale reserves. Despite the sector seeing 49% decline in investment in 2020, the remains a belief that it will grow from $350 million this year to upwards of $550 million in 2021.

While Colombia and Brazil have opened up their markets, Mexico has sought to regain state control of their oil and gas sector. The left-wing Mexican President Andrés Obrador, has introduced a range of policies to reverse the liberalisation controls of 2013, in order to return control to state-owned oil company, PEMEX, and concentrate sectoral authority under the ministry and energy commission. This change will significantly impact many of the US-based operators, unable to conform to stringent and opaque regulations.

Affecting all private companies operating in the oil and gas sector, the bill will enhance the state’s capacity to control private company’s operations, including the power to have their permits revoked if there is non-compliance for the quality, quantity or measurement of hydrocarbons or meet the minimum storage requirements set out in the framework

Re-consideration of energy supplies across the continent.

The petro-states of Venezuela, Ecuador, Bolivia, Guyana and Suriname have experienced a turbulent 18 months, as successive fuel price collapses deepened economic uncertainty. Venezuela are the worst hit as European oil companies Total and Equinor have left the country for good, citing the lack of attention to carbon reductions but no doubt influenced by continued US sanctions. However, just off the coast, Trinidad and Tobago has reopened borders to international workers as the island nation seeks to reinvigorate the economy.

Bolivia, Guyana and Suriname have each opened up their fields to attract international oil and gas companies seeking low-cost per barrel production in a regionally advantageous markets. Exxon, Total Energies, Qatar and CNOOC have been drilling for the light, sweet crude found beneath their waters.

Elsewhere in the Andean; Paraguay, Chile and Argentina are expanding their gas infrastructure to expedite their gas developments to aid domestic consumption, develop a regional market and to feed export demand. Gas is seen by many as the bridge to the energy transition; opening a route to shift away from coal and heavy-fuel oils, while providing the consistency of supply and drive down the costs to consumer.

Argentina remains the continent’s leading gas producer and will look to entrench this position, as global demand soars and the need for alternate supply during renewable down turns. Their fragile economic state requires a cheap and efficient supply of energy, a route the gas provides while the state develops their renewable supplies. 

There has been a big focus on the potential for natural gas to allow states to swiftly shift from coal-thermal power to natural gas, while enjoying the benefit of their advantageous river systems, solar and wind capacity throughout the diverse South American landscapes. Experienced US gas players, together with the rapidly maturing renewable sector, will be keenly targeting a region that has great ambitions to use the energy transition for economic development.

Capital Flows and the duality of US-policy interference

The Biden administration is still in its adolescence with broad focus toward international concerns of climate change and Covid, more so than direct imposition of US-foreign policy on states. That being said, it has been Biden’s intention that the US will reassert their leadership position as the Western hegemon.

Critical to this position will be how the US challenges Chinese influence in developing states, and while the US has historically been unflinching in their approach to South America, it will require a subtler approach due to widespread public exasperation of US-backed interference in Latin American democratic processes.

International financial and investment restrictions on oil and coal will have direct affects to South American economies. Replacing coal with gas-powered infrastructure is an increasingly common route to decarbonise energy supply, however as oil restrictions grow, it will be the underdeveloped petro-states that feel the greatest pressures.

Freeing up and incentivising the flow of capital southwards, to accelerate the uptake of renewables will be the greatest affect from US-policy shifts. The internal bipartisan drive to initiate an extensive infrastructure spending bill intends to create a range of incentives so that companies are compelled to decarbonise their processes. And in doing so, the scale and falling costs will drive renewable players to exoand their projects to new markets with advantageous environments.

US policy to their Latin American neighbours must be subtler than in decades past, especially in the context of resource extraction. However, the crucial need to restart ailing oil and gas sectors will likely see domestic apprehensions be placed aside for the economic gains. Either way, South America is poised to have one of the most diverse energy landscapes that should induce development for the continent’s underserved communities.