By
Pietro D
Pitts
Hart Energy

Resource-rich Latin America, and especially Argentina, Brazil, Guyana and Venezuela, will not be able to provide short-term, urgent solutions to Europe’s energy crisis, energy experts concurred during a webinar hosted by Florida International University (FIU).

“There's no short-term solution for Europe's crisis coming from Latin America,” the Institute of the Americas Vice President Energy and Sustainability Jeremy Martin said Oct. 19 during the Energy Outlook in the Americas webinar.

Latin America and the Caribbean is home to reserves of close to 341 Bbbl of oil, including around 11 Bboe in Guyana, and then 285 Tcf of natural gas, according to bp’s 2021 Statistical Review of World Energy. Oil and gas production from the region was around 8 MMbbl/d and 183 Bcm or 18 Bcf/d respectively.

Despite this potential, near-term reserve additions and production rises are only expected to come from Brazil and Guyana based on discoveries in those countries, mainly by state-owned Petrobras and an Exxon-led consortium that includes Hess and CNOOC.

“A legacy, the reason why production has not performed so well in the region, except perhaps for the case of Brazil, is because of what we typically call above ground risks in the sector,” Rice University’s Baker Institute for Public Policy Fellow in Latin American Energy Policy Francisco J. Monaldi said during the webinar. “Meaning the mix of regulatory, expropriation risks and mismanagement of the national oil companies and the likes has made this region, that concentrates the second largest resource base outside of the Middle East, a significant underperformer in contrast.”

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In the not-so-distant past, Venezuela was the region’s dominant oil and gas producer and a key U.S. ally. Today, despite the frequent headlines, the country has little to offer in terms of near-term production after years of oil rent mismanagement and the recent weight of U.S. sanctions imposed in early 2019 aimed at provoking a regime change.

Venezuela, the lone OPEC member country in the Americas, produced just short of 700,000 bbl/d in September and is still far from its peak potential, IPD Managing Director and Founding Partner David Voght said during the webinar.

Voght argued U.S. sanctions wouldn’t be lifted but instead recalibrated while the private sector participation was needed and the best to likely “preserve” Venezuela’s oil infrastructure.

Argentina’s Vaca Muerta Shale Bet

Argentina’s Vaca Muerta formation, on par with the U.S. Permian Basin and Haynesville in terms of total resources, holds the most potential for the South American country to boost gas production and potentially LNG exports in the future if key infrastructure is ultimately built.

Persistent political and economic uncertainties remain as Argentina’s main headwinds despite potential for short-term production gains.

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“Argentina has been a tremendous underperformer after they privatized the oil industry in the 1990s,” Monaldi said. The country has been able to level off its production in recent years, and there’s potential to boost it more, the executive said.

“Part of the reason why Argentina will be able to develop at least some of Vaca Muerta despite all their problems in terms of institutions and macroeconomics is that the type of investment in shale is… that short cycle investment where the risks are much smaller than in other, longer term, bigger projects,” Monaldi said.

But there is still some pessimism regarding Argentina’s export potential.

“If Argentina had gotten serious about exporting LNG five years ago, they would have been the solution to Europe's current crisis. But they didn't,” Martin said. “And they still aren't going to be able to develop the kind of infrastructure needed to export gas.”

Brazil and Guyana Lead Exploration Boom

South America’s Brazil and Guyana have led the region’s exploration boom in recent years. Prior finds in Brazil will boost production over the near-term as new FPSO vessels arrive. More recent finds in Guyana coupled with FPSOs coming online almost yearly will continue to have a positive impact for the country, its citizens and the oil companies involved.

Brazil has emerged in recent years as the largest oil and gas producer in Latin America as Venezuela has backtracked amid political uncertainties and U.S. sanctions.

Despite the uncertainties around elections in Brazil, the country's production “is geared towards reaching levels of close to 6 MMbbl in the next decade,” Monaldi said, citing data from Rystad Energy, which would imply doubling current production.

Guyana, the other exploration hotspot, is arguably a more exciting story given the country’s small population and the fact that it only recently started producing oil in late 2019.

Exxon’s partner Hess foresees at least six FPSOs with a production capacity of more than 1 MMbbl/d gross coming online on Guyana’s Stabroek Block in 2027, with the potential for up to 10 FPSOs to develop gross discovered recoverable resources, the company announced earlier this summer. Average production in Guyana is expected to exceed 300,000 bbl/d this year.

“Guyana could become…the largest oil producer per capita on earth surpassing Kuwait and the Emirates, but in any scenario, it looks like that is going to be also one of the top three or four producers in the region,” Monaldi said.

U.S. Sanction Recalibration Needed

Venezuela, with its massive oil found in its Orinoco Heavy Oil Belt or Faja and its massive gas potential offshore, can’t be overlooked by companies or the U.S. government as it scrambles to find barrels and molecules to replace lost supply from Russia after its invasion in Ukraine and subsequent sanctions.

Venezuela’s near- and long-term potential is arguably being held prey by U.S. sanctions, which are holding back investors and the only western oil producer still in the country, U.S.-based Chevron.

“But basically, what we can see is that there is little upside in the short term for Venezuela, and it will require very significant investment by Chevron if there is a license,” Monaldi said, adding they could probably only add a bit over 100,000 bbl/d.

“Some people are saying the United States is considering lifting sanctions. No, that's not true. There's going to be no lifting of sanctions. What there is hopefully going to be is a recalibration of sanctions,” Voght argued.

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Voght said the private sector – including companies like Chevron involved in joint ventures that account for around 50% of Venezuela oil production – was in a better position to preserve Venezuela’s oil infrastructure, which has deteriorated in recent decades due to a lack of maintenance and cannibalization of parts.

Besides the recalibration of sanctions, Voght said it was necessary for Venezuela to pivot geopolitically away from China and Iran. Around 95% of Venezuela’s oil exports go to China at heavily discounted rates, while Iran continues to provide Venezuela with necessary resources such as condensate to assist in the production of its heavy and extra-heavy oils.

“I think there's value in creating optionality for Venezuela to divert crude from China to the Atlantic basin here, promoting improved regional security, regional energy security, particularly for the European market,” Voght said.

Venezuelan Gas for Trinidad’s Atlantic LNG

In terms of Venezuela’s gas production and potential to export molecules to Trinidad for later re-export as LNG, Venezuela has two options.

There’s potential that could initially come from offshore but then around 2.5 Bcf/d that is currently being flared onshore in Monagas, Venezuela, Voght said.

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The vast majority of Venezuela’s gas is “associated with oil production and therefore cannot be exportable necessarily, but our assessment is that within three years, Venezuela could be producing enough to supply Trinidad's Atlantic LNG train one at about 3.3 million tonnes per annum through both the Dragon offshore fields and through gas collection in the northeastern part of the country,” Voght said.

Editor’s note: This story was previously posted at 5:30 p.m. CT on Oct. 24.