With urbanization and population growth trending upward, Brazil has increased its demand for energy, especially in the areas of oil, natural gas and electricity. On the supply side, oil and gas production has increased and there have been several well-publicized, large deepwater finds that have generated much excitement. These include the pre-salt reserves off the coast of Rio de Janeiro state where the potential reserves total over 50 billion barrels of oil. Brazil has only approximately 14 billion barrels of proven reserves, making these finds quite significant.
However, without foreign investment, Brazil will be unable to effectively and efficiently extract the potential oil and gas because of the size and complexity of the untapped reserves. Shale gas and shale oil present an added layer of complexity for development. Because the extraction of shale relies on horizontal drilling and hydraulic fracturing (“fracking”), only companies experienced in these sophisticated techniques are able to extract the shale gas.
To generate investment interest, the Ministéria de Minas e Energia (Ministry of Mines and Energy), in conjunction with the Agência Nacionaldo Petróleo, Gas Natural e Biocombustíveis (National Agency of Petroleum, Natural Gas and Biofuels—ANP), is publicizing the oil and gas bidding rounds that will take place this year. Interestingly, as part of its effort, the ANP has been looking to target small and medium-size oil producers with auctions either in mature basins or inactive fields where there still may be accumulations of oil and gas.
President Obama’s Inaugural Address and State of the Union speech have one thing in common. The emphasis is on jobs and America is changing. Its demographics clearly showed that the electoral map favors the party that is more attuned to minorities, women’s rights and the youth. Its social fabric is being tested regarding gay marriage, gun control restrictions and the possible legalization of marijuana. The economic picture is transforming itself as the U.S. sees energy self sufficiency on the horizon as it actively searches for expanded markets for exporting its goods. Finally, the interminable debate around the debt and annual deficits will go a long way in defining the role of government for future generations.
Canadians observe the U.S. political landscape with interest, and sometimes, with bewilderment. They see the Democrat and Republican parties stuck in political gridlock, and conclude that America still holds to a status quo that is out of tune with new realities. Yet, this is far from accurate, suffice it to say that America has made great strides in many areas that affect our lives north of the border. We must take note.
Canada and the United States form the largest commercial partnership on the planet. And while trade flows have generally stagnated in the decade since 9/11, Canada still sends more exports to the U.S. than any other country (over 70 percent). My home province of Québec sent 68 percent of its exports to the U.S. in 2011; in the state of New York alone, we exported $7 billion of goods compared to $2.4 billion in China, $1.5 billion to Germany and $1.4 billion to France.
Mexico’s successful deep-water drilling of wells “Trion-1” (August 29) and “Supremus-1” (October 5) in the northwestern Gulf of Mexico has caused national euphoria. It has shown the country’s considerable oil potential and revamped public confidence in state-owned company Pemex (Petróleos Mexicanos), whose reputation had dwindled for the past years following a decrease in production, corruption scandals, an inability to stop criminal groups from stealing oil, and drilling failures.
The news has brought a much needed respite for President Felipe Calderón, helping him to balance a record that has been severely undermined over the past years due to his security strategy and the situation of the economy. In fact, the drilling of both wells would have turned into ammunition for his detractors had there not been any positive results, as it follows a 528-percent increase in investment for exploration. Now, however, the outgoing administration has had no qualms in affirming that the discovery may be part of an oil system with an overall production potential of up to 10 billion barrels of oil.
Yet, what has become a “golden egg” for President Calderón may quickly rot for President-elect Enrique Peña Nieto.
The high expectations produced by the discovery will be difficult to achieve due to Pemex’s lack of technological capabilities and the prohibitive cost of deep-water drilling. Indeed, it would be a mistake to take the successful drilling of the aforementioned wells as a sign that Pemex has recovered from decades of managerial excesses, corruption, vested interests, inefficient populist policies, and discretionary policy-making.
The negative effect of these factors, along with the government’s dependence on oil exports for revenue, have resulted in a severe decrease in Pemex’s efficiency.
Chilean Minister of Energy Jorge Bunster addressed concerns on Wednesday afternoon over the threat of rising energy prices and the risk of a power shortage in Chile after its Supreme Court ruled on Tuesday to halt the planned Central Castilla thermoelectric power plant and port project. While the $5 billion, 2,100-megawatt planned power plant would provide much needed energy for the growth of the mining industry, Minister Bunster made clear that there were alternative projects that will supply electricity in the medium and long term.
The Supreme Court ruling, coupled with setbacks on other power projects, has caused concern that copper production will slow or become too expensive. Increased costs of electricity also poses the threat of a reduction in mining investments—a major source of national revenue with roughly $20 billion inmining project investments planned over the next 10 years. According to some analysts, the concern is not about a shortage of electricity, but the risk of anincrease in price. Chile’s mining minister, Hernan de Solminihac, has called for a national development solution, so that the mining industry continues to be an engine of growth. Mining represents roughly 15 percent of its gross domestic product.
The Castilla project is a joint venture between Brazilian billionaire Eike Batista’s, MPX Energia SA and Germany’s E.ON. They will now have to go back to the drawing board to reevaluate their strategy in Chile. It remains to be seen whether they will resubmit their proposal with an environmental impact study. The ruling on the project brought cheers from local fisherman and artisan groups who expressed concern over potential environmental effects such asair and water quality.
On August 7, India’s foreign minister held the country’s first dialogue with a troika representing a recently formed 33-nation Latin American group, the Comunidad de Estados Latinoamericanos y Caribeños (Community of Latin American and Caribbean States—CELAC). The meeting drew little attention, and most media outlets dismissed it as a routine affair, akin to India’s engagements with other multilateral blocs. A more nuanced look, however, indicates a window of opportunity for both India and Latin America.
First, we must explore Latin America’s changing geopolitical priorities over the past few years.
The very nature of the CELAC grouping is reflective of this shift: it was formed in defiance of the Organization of American States to leave out the United States from its political confabulations. Latin America now looks less to its traditional trade partners—Europe and the U.S.—which are preoccupied with their debt crises and political transitions, and the region also no longer sees them as a model they can emulate.
As a result, China is a dominant player in Latin America, with an annual trade of $240 billion. The Chinese presence there is maintained by two pillars: primarily, by a massive exchange of commodities and natural resources, and secondly, by a large Chinese diaspora totaling upwards of 2 million people. This will continue to sustain China’s relationship with Latin America, though more recently there has been a subtle change of policy positioning toward Beijing. Some perceive the flooding of Chinese goods into their markets as a risk; others simply want to engage with new markets.
This is where India comes in. It presents Latin America with an opportunity to diversify and opens the door to a large and promising market.
Raizen, a joint venture of oil giant Shell and Brazilian energy company Cosan, has agreed to give up its plans to buy sugar cane grown on Indigenous lands in the Brazilian state of Mato Grosso do Sul. The deal was reached after months of campaigning by Guarani farmers and Indigenous rights organization Survival International, as well as pressure from Brazilian authorities.
Raizen, which was established in 2010 and produces 2.2 billion liters of ethanol annually, had been obtaining some of the sugar cane used for its ethanol production on land claimed by the Guarani in Mato Grosso. In the agreement signed yesterday with Indigenous affairs body Fundação Nacional do Índio (National Indian Foundation—FUNAI), which will go into effect this November, Raizen promised not to source sugar cane from any lands declared by Brazil’s Ministry of Justice as belonging to Indigenous tribes. It also promised to consult FUNAI to avoid further investment or expansion in conflict areas that might be recognized as Indigenous lands in the future. The company said in a statement that the decision reflected its “commitment to combine sustainable development with the well-being of the local communities,” and that it hoped its withdrawal would be used “as a good example for other companies to follow.”
Guarani leaders and Indigenous rights activists have welcomed the news. Survival International director Stephen Corry said,“Raizen’s decision is excellent news for the Guarani, who have been…squeezed off their land by sugar cane production.” Valdelice Veron, a Guarani Indian living in Mato Grosso, said the rivers in her community had been polluted by pesticides, but now “we will be able to drink from our land again.”
It is highly unusual for a major company to back down on business opportunities on Indigenous land, but pressure has mounted as tensions between the Indigenous inhabitants of the land and large-scale farmers have increased and violent clashes erupted—including the death last year of Guarani leader Nísio Gomez. Conflicts over Indigenous-claimed lands and the resources on them remain a major unsolved issue in Brazil ahead of the Rio+20 summit on sustainable development, the high-level meetings of which are scheduled to take place in Rio de Janeiro next week.
Peru Declares State of Emergency amid Mining Protests
The Peruvian government declared a state of emergency yesterday in the southeastern province of Espinar after a week of protests left at least two dead and 70 injured. Espinar residents are protesting a $1.5 billion expansion of the Tintaya copper mine, claiming that the mine’s Swiss owner Xstrata—the largest single mining investor in Peru—does not contribute enough to the local economy. Similar demonstrations took place last year in the province of Cajamarca, where residents protested the expansion of a gold mine.
Brazil Plans Five New Hydroelectric Dams
On May 25, Valor Econômico reported that the Brazilian government is forging ahead with plans to construct five hydroelectric dams in the Tapajos River basin, a tributary of the Amazon. The publication said that environmental studies are underway and bidding for operators will begin next year. Belo Monte—one of the country’s largest hydroelectric construction projects also located in the Amazon basin—encountered numerous obstacles to construction, including lawsuits and worker strikes.
Dilma Announces Changes to Polemical Forest Code
On May 25, Brazilian President Dilma Rousseff issued a number of alterations to the new version of the Forest Code, a legal framework for forest preservation in Brazil. She made 12 line-item vetoes and 32 modifications, most notably nixing amnesty for large-scale illegal deforesters who cleared land before 2008. The law now returns to Congress, where it won’t likely be discussed until after Brazil hosts the UN Rio+20 environmental conference in June.
Read more about the Forest Code in an AS/COA News Analysis on environmental issues in Brazil.
Brazil, Venezuela Rank High in Software Piracy
Four Latin American countries—Argentina, Brazil, Mexico, and Venezuela—make the top 20 in the Business Software Alliance’s annual report on software piracy. Brazil comes out on top (and fifth overall) in terms of value of pirated software at $2.8 billion. But Venezuela leads the pack with the highest rate of pirated software—88 percent.
Venezuela Targets Civilian Aircraft in Drug Fight
The Venezuelan Congress passed legislation May 23 permitting the country’s air force to shoot down aircraft suspected of carrying illegal drugs. Though the government believes the law will help Venezuela in its fight against international organized crime groups, InsightCrime believes “a policy advocating the use of force against civilian aircraft carries risk.”
Poll Shows Narrower Lead for Chávez
A recent survey by Venezuelan polling firm Varianzas puts opposition candidate Henrique Capriles Radonski within five points of his competitor, President Hugo Chávez. The current president leads with 50.7 percent of likely votes while Capriles has 45.5 percent, the poll found. However, 53.3 percent of respondents said they believed Chávez would win in October, compared with 42.4 percent for Capriles.
With the expiration of the U.S. tariff on ethanol imports at the end of 2011, this year marks a potential watershed in U.S.–Brazil trade ties. For three decades, Washington protected corn-based ethanol producers from Brazil’s more environmentally-friendly and economically-efficient sugar-based ethanol. Now, without the 54-cent-per-gallon tariff on imported ethanol or the corresponding 45-cent-per-gallon tax credit, the U.S. market is open for business for ethanol imports.
The demise of these protectionist measures removes a bone of contention with the Brazilian government, saves U.S. taxpayers about $6 billion a year and expands access to cleaner energy for U.S. consumers. Though the move will have positive foreign policy repercussions, it stemmed from domestic political dynamics: as the industry matured, subsidies became a harder sell, particularly at a time of high corn prices.
Ironically, Brazilian ethanol production fell in 2011, requiring imports from the United States to meet local demand. This unusual situation, largely due to poor weather and delays in crop replanting after the 2008 financial crisis, will minimize the immediate impact of the end of the U.S. ethanol tariff. Still, industry analysts expect new investment to revive exports.
With his decision on November 10 to review the route of the Keystone XL pipeline—and delay a final determination on whether to give the green light—President Obama had likely wished that the issue would not surface again until after the 2012 elections. But politics are not so easy, especially when it comes to this 1,700-mile long project that would carry 800,000 barrels per day of heavy crude oil from Alberta, Canada, to Oklahoma and the Gulf Coast. To put it in perspective, that amount is about half of what the U.S. imports from the Middle East.
This week, the Keystone XL pipeline is yet again taking center stage. Republicans in the House of Representatives are threatening to hold hostage the president’s top legislative priority for December—extension of the payroll-tax cut and unemployment insurance—unless the package includes a provision that would move the decision making over the pipeline from the State Department to the Federal Energy Regulatory Commission and shorten the period in which a decision must be made. Obama’s response came yesterday after a meeting with Canadian Prime Minister Stephen Harper: “Any effort to try to tie Keystone to the payroll-tax cut, I will reject.”
Get ready for a showdown. On Thursday, the House leadership announced that the vote will occur next week.
Peru’s new Minister of Mines and Energy, Carlos Herrera, announced yesterday that authorities from the country’s Comité de Operación Económica del Sistema—the national agency responsible for energy oversight—would begin rationing energy in Peru’s major northern cities Trujillo and Cajamarca.
Although the likely need for electricity rationing in 2011 was predicted last year by former Mines and Energy Minister Pedro Sánchez, the implementation of cuts highlights Peru’s infrastructural shortcomings in the energy sector. According to the government statement, hydroelectric facilities in Peru’s central regions produce sufficient energy to fulfill demand, but the country “does not have the capacity to transport sufficient electricity to the north.”
Power will initially be cut only during nighttime hours in the affected areas and the government has voiced support for plans to import electricity from Ecuador, Colombia and Chile in the near future.