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Australia's Natural Gas Project Calls into Question Latin America's Energy Tactics

September 14, 2009

by Eric Farnsworth

Prior to the economic crisis that began exactly one year ago with the Lehman Brothers collapse, Latin America was on an economic tear.  For over five years the region had enjoyed historic economic growth, reducing poverty and building the small but growing middle class.  Growth was based primarily on the commodities trade; Asian nations, particularly China, were sucking up virtually everything Latin America could grow, mine or drill. Many Latins are now looking at the prospects for renewed mid-term growth in Asia as the key to restoring their own economic fortunes.  On the surface, that makes sense.  But if the idea is simply to return to the previous model exporting primary commodities, with a healthy dose of politics thrown in, the result may not be as lucrative for Latin America as the immediate past proved to be. 

Primary commodities face competition no matter where they come from; there is generally little product differentiation absent efforts to add value through processing and refinement, technology, manufacturing, branding, or other knowledge-based inputs.  This is particularly true in energy, and a major new project off the west coast of Australia could, in extremis, challenge Latin America’s development model. 

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The Gorgon Project, according to the Financial Times, among the world’s most ambitious and costly natural gas projects, is set to be given the official go-ahead this week.  Once fully on-line, the project will catapult Australia to the top ranks of global producers, changing the pan-Pacific energy profile, particularly with reference to liquefied natural gas, or LNG.  The project will help China and Japan reduce their dependence on coal while amplifying Australia’s role in supplying the Asian nations—China, Japan, India, and South Korea—that Latin America has targeted for commodities exports.  In contrast, Latin Americans continue to tie themselves in knots over basic questions of ownership, production and basic supply arrangements in the natural gas sector, even to the point of foregoing uncertain gas supplies from immediate neighbors such as Bolivia and Argentina to import LNG from Asia. 

That’s not to say that Latin American nations, with the exception of Venezuela for naked political reasons, had developed a strategic plan to supply natural gas to Asian markets.  But they could have, given bountiful supplies in Bolivia, Ecuador, Peru, Venezuela, and elsewhere.  Rather, the politics of natural gas in the Americas have overwhelmed a broader strategic vision that otherwise might have been put into place.  The result: major Asian markets will soon be supplied for the long-run from a source that is plentiful, geographically convenient, and politically one of the most stable nations on earth—Australia.  Why would they then look to Latin America to obtain the same non-differentiated product?  Short answer: they won’t.  Even communist China knows that to keep its economic growth charging ahead they must find reliable commodities suppliers around the world.  Political ideology has no place in Chinese economic relations today.  Security of supply, reliability of the product and market conditions come first. 

But the broader point is this.  While some in Latin America continue to consume themselves with populist governance, resource nationalism and anti-Americanism, the rest of the world is moving on, to Latin America’s long-term detriment.  Markets are being lost over political ephemera.  When the global economy has finally recovered, anyone awaiting the commodities train to pick up Latin America and deliver the region back to its previous rates of economic growth may well end up disappointed. 

*Eric Farnsworth is a contributing blogger to americasquarterly.org. He is Vice President of the Council of the Americas in Washington DC.

Tags: energy, China, Gorgon Project, Liquefied natural gas, Japan, Lehman Brothers

To speak with an expert on this topic, please contact the communications office at: communications@as-coa.org or (212) 277-8384.
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