SOUTH AMERICAN ENERGY DAILY ROUNDUP (March 13, 2009): Ecuador and Repsol YPF reach tentative agreement over royalties
South America Energy Markets (SAEM) will begin a daily roundup of the top-five stories affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. I aim to publish SAEM Daily Roundup from Monday through Friday at noon London time.
March 13, 2009
ECUADOR – UPSTREAM
The government of Ecuador and Spanish major Repsol YPF reached a tentative agreement to set aside their differences over royalty and tax payments. The problem between both parties has been ongoing for months after President Rafael Correa’s government announced that it will charge royalties of 99% but has now lowered them to 70%. This is a tentative agreement so the jury is still out over the final outcome of the dispute.
ARGENTINA – POWER CONSUMPTION
As with many economies in the region, global financial turmoil has meant slower economic growth and political hardships. Power consumption in February slumped 5.6% to 8,241.6GWh compared with 8,728.8GWh a year ago, according to power association Fundelec. There is a silver lining: less demand on Argentina’s chronic gas-power supply woes that have exacerbated in recent years due to robust economic growth. The bad news is that the Argentine government has less funds to subsidize energy prices and long-overdue projects.
PERU – ECONOMIC GROWTH
A report by the World Bank sees Peru, the darling of foreign investment community, as the only country in the region that will not suffer from a recession. According to the World Bank, Peru will see growth of 5% this year compared with 9.48% in 2008. While foreign investors have confidence and guarantees in Peru, lower economic growth could fuel nationalism, which has been no stranger in the country’s history.
BRAZIL – GAS TRADE
Brazil has pledged to help Bolivia increase trade owing to lower gas prices and skimpier export revenues. Last year, Bolivia exported thanks to gas $1.14 billion and imported $2.85 billion from Brazil. Some analysts believe that slower global economic growth will wipe off $1.5 billion from Bolivia’s export revenues. That is a significant amount taking into account that annual exports from Bolivia amount to about $6 billion. Apart from correcting the trade deficit, Brazil has a strategic interest to help Bolivia since about 40-50% of its gas imports come from the landlocked country.
REGIONAL – SAEM ANALYSIS
If the region saw extensive deregulation in the 1990s and an about-turn during this decade through energy market intervention in countries such as Argentina, Bolivia, Ecuador and Venezuela, what regulatory winds will be blowing in South America in the next decade? Without a doubt, LNG will play a greater role in countries such as Chile, Argentina and Brazil at the cost of piped dry gas. Looking back on the past two decades, I believe that nationalism will strengthen with gas being used as a geopolitical weapon to gain more clout. Possibly the biggest winner of the South American energy self-sufficiency gas and oil game will be won by Brazil, Venezuala and to a lesser extent Peru. These will most likely be the countries that will shape and influence supply, policy and the geopolitics of the region in the next decade.
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