Reforms Bolster Long-Term Growth Prospects
BMI View: We continue to take a relatively positive view of Latin America's oil production, anticipating solid growth, although we note that above-ground factors, rather than below-ground potential, remain the key determinants of the rate of expansion. Indeed, while a poor regulatory environment will hinder the realisation of significant potential in Venezuela and to a certain extent in Brazil, with major oil producer Mexico having recently passed game-changing energy reform, we have turned more optimistic towards the region's broader oil output potential. Similarly, although above-ground risks continue to threaten the gas production potential of countries like Bolivia and Peru, a spate of recent investment deals, as well as an interim agreement between YPF and Spanish-firm Repsol, has begun to noticeably de-risk the Argentine gas sector.
We expect Latin America's oil production to increase steadily over the next 10 years, with average growth of 2.9% year-on-year (y-o-y) between 2014 and 2023. Moreover, while this is still below Latin America's potential, with a poor regulatory environment stymieing even greater potential in major producers Venezuela and Brazil, recent reform in Mexico suggests some upside risk to our long-term forecast. At the time of writing, a landmark energy reform bill had been recently pushed through Mexico's legislature - and this could open the hydrocarbons sector up to significant private investment.
Similarly, we believe the regulatory environment will also be the ultimate driver of growth (or a major hindrance) for Latin American natural gas output. Increasing signs that shale gas powerhouse, Argentina, may be willing to make a credible commitment to developing its resources suggests upside potential in the Southern Cone country, and this could act as a major driver of growth throughout Latin America. That said, the rest of the region still presents a somewhat mixed picture. Indeed, while we expect production to continue to grow over the long-term in Bolivia, Peru, and Trinidad & Tobago, we also see significant risks. Meanwhile, although Mexico has the resource potential to be a major gas play, access to plentiful and cheap natural gas from the US gives less of an impetus for the country to bring its gas resources online. As such, we continue to anticipate that demand will outpace production growth, leading to a rise in the volumes of natural gas being imported into the region.
|Increased Oil Export Capacity, Gas Import Dependency|
|Latin America - Oil & Gas Production & Consumption|