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Strategic Advisors in Global Energy
Globalization & De-globalization:
Challenges to Latin American Energy Integration
Cartagena, Colombia
Roger TissotDirector, Latin AmericaCountries Strategies GroupPFC Energy
Mexico at a Crossroads | | Page 2
Economic phenomenon driven by the movement of goods and services, labor and capital
Increasing uncertainty about the benefits of globalization
For globalization to work, some conditions are required:– Peace – Rules – Institutions – A global power
Globalization is not a new concept
Challenges of Globalization What is Globalization?
Mexico at a Crossroads | | Page 3
What we are experiencing is a concerted effort toward de-globalization
This trend is not only driven by NGO’s and anti-globalization protesters
Economic imbalances are feeding de-globalization
Policies that promoted globalization are being abandoned in OECD countries
Russia is opting for centralized resource nationalism
Latin America has also been swept by a “movement to the left”
Challenges of Globalization However, globalization is under attack
Mexico at a Crossroads | | Page 4
Until now, the engine of growth had a three steps transmission mechanism:
– US: the global consumer
– China: the global factory
– LAC/Africa: commodities to China
– Rest of the world: investments to China
-2
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005
Treasury Bonds
China World
Merchandise Exports
United States
Investment
Commodities, Other Inputs
China
USA
Latam
GDP (%)
The Economic Outlook The Engine of Growth: US-China
Mexico at a Crossroads | | Page 5
The American consumer has been the engine of growth. But for how long?
A soft landing may be good for the US, but will impact the rest of the world
Policy coordination is required
0
2
4
6
8
10
12
2005 2006 2007
ChinaUSAJapanEurope
Source: Dansk Bank June 2006
0
2
4
6
8
10
Jan-00
Jul-0
0Ja
n-01Ju
l-01
Jan-02
Jul-0
2Ja
n-03Ju
l-03
Jan-04
Jul-0
4Ja
n-05Ju
l-05
Jan-06
Source Bank of Canada web page
Preferential rates charged by Banks, An Average
GDP growth
The Economic Outlook Changing Conditions Ahead
Mexico at a Crossroads | | Page 6
Drivers of the economic recovery:– increase in commodity
prices– low interest rates– strong growth in US and
China
Areas of growth concentrated in few – capital intensive sectors
The “Peruvian Contradiction”: – High rates of growth– Low trickle-down impacts
0
40
80
120
160
1999 2000 2001 2002 2003 2004
Nonenergy commodities Metals and minerals
Petroleum steel
World Bank Index Commodity Price changes
Globalization & Latin America Latin American economies driven by commodity boom
Mexico at a Crossroads | | Page 7
0
100
200
300
400
500
600
1990 2000 2003
Weak economic growth
Persistence of poverty
Populism is feed by:– lack of social mobility – inequality
47
48
49
50
51
52
53
54
1950 1960 1970 1980 1990
GINI Coefficient - Latin America
Poverty Reduction and Growth. World Bank2006
percentage
unequal
Equal
LAC Total population and population living with less than US$2/day
Million
Globalization & Latin America Neo-populism driven by twin disappointments
Mexico at a Crossroads | | Page 8
Growing sense of energy insecurity– Industrialized countries question the
intentions and capabilities of resource holders
– Resource holders question the sustainability of demand and the new obligations assigned to them
Competition for access to energy resources from industrializing countries in Asia
Populations of the major resource holders demand a greater share of the country’s revenues
The consumer view
The producer view
The Age of Energy Insecurity Suspicious on both sides
Mexico at a Crossroads | | Page 9
Energy insecurity is feeding resource nationalism
The objective is not to expropriate IOCs, but to have a a significant increase in revenues by capturing upside when prices swing
77%
11%6%6%
NOC Oil Reserves(Limited Equity Access)
NOC Oil Reserves (Equity Access)
Oil Reserves Held by New Russian Companies
Full IOC Access
IOCs are becoming rule and price takers
NOC/NOC is also providing a new challenge for IOC’s
The Age of Energy Insecurity Resource Nationalism & the emergence of the NOC
Mexico at a Crossroads | | Page 10
Can the local NOC assume the investment responsibility to develop new reserves?
– Despite increasing revenues, NOCs continue to be governments’ main source of cash
– Governments will prefer to exploit existing resources than investing in new exploration
– Alternative: NOC-NOCENARSA
The Age of Energy Insecurity The Born Again NOC
Mexico at a Crossroads | | Page 11
The NOC-NOC deal refers mostly to Chinese companies investing in Latin America
However, recently also includes the Indians and the Russians
The drivers are based on a Resource nationalism ideology:– Ensure access to a
strategic reserves to maintain economic growth
– Promote domestic industrialization
The Age of Energy Insecurity The NOC-NOC Deal
Mexico at a Crossroads | | Page 12
Venezuela, 152.3Bolivia, 26.1
Colombia, 4
Peru, 11.5
Argentina, 17.8
T&T, 19.2
Brazil, 10.9
0
1
2
3
4
5
Venez
uela
Bolivia
Colombia Peru
Argenti
na
Brazil
T&T
Gas Reserves (Tcf)
Gas ProductionBcf/d = Import
= Export= Self-sufficient= No Market
LNG?LNG?
LNG?
LNG?
Source BP statistical Review 2006
Different options to connect supply and demand.
South American Gas StatusIn 2005
=Import
=Export
=Self-sufficient
=No Market
Mexico at a Crossroads | | Page 13
Currently a handful of pipeline connections are operating
Brazil and Chile are pursuing diversification options favoring LNG and domestic developments
While Venezuela is proposing an ideological regional integration
Bolivia – Argentina
Argentina – Brazil
Argentina - Uruguay
Bolivia – Brazil
Argentina-Chile
South America Gas IntegrationFew projects
Mexico at a Crossroads | | Page 14
Bolivia – Argentina
Argentina – Brazil
Argentina - Uruguay
Bolivia – Brazil
Argentina-Chile
LNG T&T – Jamaica
LNG T&T – Mexico
Uruguay – Brazil
Bolivia Brazil II
LNG Chile
Bolivia – Paraguay
Peru – Chile
GNL Bolivia -Mexico
Peru – Ecuador
Colombia – Panama
Mexico–CentralAm
LNG Peru – Mexico
T&T Caribbean
Colombia - Ven
Ven – Braz – Arg
According to OLADE by 2015 Latin America will be interconnected
Will the political and regulatory conditions be there to achieve these goals?
South American Gas IntegrationDespite a promising future
Mexico at a Crossroads | | Page 15
Different options to connect Supply and Demand:– Island model: Focus on energy independence at higher cost (LNG). – Bolivia hub: Original idea, ignored the political cost of resource
nationalism.– Venezuela Bolivarian integration: focus on regional industrialization
ignoring economic, regulatory and political challenges– Southern Cone Ring: Centers around Peru, expecting future integration
of Bolivia. Limited by Peru’s existing reserves and LNG export option.– Brazil Gas Southern Cone Hub: Petrobras and IOCs develop large gas
reserves from Santos and Espiritu Santos.
Markets will integrate but sub-optimal solutions will emerge due to political uncertainty
Regional Integration Despite a promising future
Mexico at a Crossroads | | Page 16
Final RemarksThere are increasing challenges to globalization.
In Latin America, this is expressed by the rise of resource nationalism and neo-populism
High commodity prices are the drivers of resource nationalism
Nationalists are seeking a renewed effort toward industrialization
IOCs are facing a challenging environment with more “populist initiatives”
Questions remain if in a changing economic environment, “born again”NOCs are able to assume the responsibility to develop reserves
And/or if new agreements “NOC/NOC” will be deliver
Unless there is inter-government intervention, Latin America gas will move toward market driven “networks”
Some regional projects will go ahead based on bilateral or multilateral agreement
But how secure do suppliers and markets feels about these projects?
Mexico at a Crossroads | | Page 17
PFC Energy consultants are present in the following locations:
Bahrain
Beijing
Buenos Aires
Calgary
HoustonHouston
Kuala LumpurKuala Lumpur
Lausanne
London
Mumbai
New York
ParisParis
San Francisco
Washington, D.C.Washington, D.C.
Main regional offices are shown in bold.
www.pfcenergy.com | [email protected]
Main regional offices:
AsiaAsiaLevel 9 South BlockWisma Selangor Dredging142-A Jalan Ampang50450 Kuala Lumpur, MalaysiaTel (60 3) 2168-8870Fax (60 3) 2161-0702
EuropeEurope3 cité Paradis75010 Paris, France Tel (33 1) 4770-2900Fax (33 1) 4770-5905
North AmericaNorth America1300 Connecticut Avenue, N.W., Suite 800Washington, D.C. 20036, USATel (1 202) 872-1199 Fax (1 202) 872-1219
4545 Post Oak Place, Suite 312 Houston, Texas 77027-3110, USA Tel (1 713) 622-4447 Fax (1 713) 622-4448
Strategic Advisors in Global EnergyStrategic Advisors in Global Energy
PFC Energy consultants are present in the following locations:
Bahrain
Beijing
Buenos Aires
Calgary
HoustonHouston
Kuala LumpurKuala Lumpur
Lausanne
London
Mumbai
New York
ParisParis
San Francisco
Washington, D.C.Washington, D.C.
Main regional offices are shown in bold.
www.pfcenergy.com | [email protected]
Main regional offices:
AsiaAsiaLevel 9 South BlockWisma Selangor Dredging142-A Jalan Ampang50450 Kuala Lumpur, MalaysiaTel (60 3) 2168-8870Fax (60 3) 2161-0702
EuropeEurope3 cité Paradis75010 Paris, France Tel (33 1) 4770-2900Fax (33 1) 4770-5905
North AmericaNorth America1300 Connecticut Avenue, N.W., Suite 800Washington, D.C. 20036, USATel (1 202) 872-1199 Fax (1 202) 872-1219
4545 Post Oak Place, Suite 312 Houston, Texas 77027-3110, USA Tel (1 713) 622-4447 Fax (1 713) 622-4448
Strategic Advisors in Global EnergyStrategic Advisors in Global Energy