Latin America: Assessing Shale’s Potential Impact On The Energy Landscape
Latin America is set to benefit from the rapid spread of fraccing (hydraulic fracturing) technologies. However, as countries and companies try to replicate the expansion of new oil production in North America, Latin America’s traditional energy dynamics hang in the balance.
Argentina’s shale resources are estimated as the third largest in the world. If it invests in these, the country could become a regional and even global gas powerhouse.
Mexico has the world’s fourth-largest shale resources, but is unlikely to make a large-scale investment into production any time soon. Domestic dynamics are against it, and Mexico’s access to cheap US gas means natural gas retrieval is not a pressing issue.
This reinforces our view that the Mexican energy sector will continue to decline despite its significant below-ground potential. Policies around controversial fraccing techniques are under question throughout the region, leading to significant regulatory uncertainty and the risk of popular objection on environmental grounds.
In Business Monitor Online this week, we published a special feature examining the impact of the expansion of fraccing and other unconventional production techniques on Latin American countries, including Argentina, Chile, Colombia, and Mexico. The full article is available to subscribers.
Overall, there are risks to Latin America’s shale resource development outlook, despite the continent’s significant potential resources and growing interest in developing them. Broadly speaking, the risks around unconventional production are similar to those around other methods of resource extraction. They include the insufficient regulation of fraccing and other unconventional techniques and concern about environmental implications, specifically groundwater contamination.
Many Latin American societies have strained relations with extractive industries, and their response to widespread fraccing is likely to be no different. Countries with the strongest environmental opposition to oil and gas, infrastructure, and mining projects are Peru, Chile, Bolivia, Brazil, and Ecuador.
Furthermore, several countries have significant concerns about water supply security, namely Chile, Mexico, and Peru. Mining companies in Chile have already warned they are not able to secure water supplies in the Atacama region, and the conflict over water will only be heightened by the introduction of fraccing methods, which are highly water-intensive.
With these issues in mind, we believe Latin American states will seek to regulate unconventional oil production over the long term. As this kind of production is at an early stage on the continent, Latin American governments will probably take their cues from other parts of the world, including the US and Europe. As such, the evolution of fraccing policies and regulations globally stands to have a significant impact on Latin America, and will determine whether the region’s shale potential leads to a dramatic shift in its energy landscape.
This Week’s Trivia Question
Last week, the theme was anniversaries. The question was: Following the signing of the Paris Peace Accords (40 years ago on January 27) aimed at ending the Vietnam war, what did the North Vietnamese negotiator refuse to accept? And separately, what major literary work marked its 200th anniversary this week?
The answers are as follows: North Vietnamese negotiator Le Duc Tho refused to accept the Nobel Peace Prize of 1973, which he was awarded jointly with US National Security Advisor Henry Kissinger. Tho argued that there was no peace to celebrate. The answer to the second question is Jane Austen’s Pride and Prejudice.
This week, we change the theme to cities of the world:
Which world city announced this week that it would need to expand its land supply by 8% to accommodate a 30% increase in its population to almost seven million by 2030?
And how long did it take for Rome’s population to return to its Empire-era peak?