Energy

Latin America is rich in energy resources, but these resources are unevenly distributed among the region's countries. Petroleum dominates commercial energy production and consumption at every level throughout Latin America. The region is also richly endowed with natural gas and hydroelectric power potential, and Colombia and Venezuela have begun to develop their coal reserves for export.

Development of Latin American energy resources has come at great expense. Brazil is a prime example, with over 40 percent of public investment in the early 1980s accounted for by domestic energy investment. Foreign debt mounted during the 1970s and 1980s as the World Bank, Inter-American Development Bank, and other lenders injected much-needed capital into grandiose petroleum, gasohol, nuclear, and hydroelectric projects. Oil price fluctuations eroded the ability to repay these debts, causing many to rethink the approach to development of Latin American energy resources.

ENERGY CONSUMPTION

Latin America and the Caribbean are dependent on oil for a disproportionate share of their energy needs—almost 52 percent in 2004. The degree of dependence on oil among the smaller countries is more pronounced. For the Caribbean islands, oil represents 90 percent of the commercial energy requirements. From 2002 to 2006 Venezuelan oil exports to the United States slowed as relations between the two countries soured. However, Venezuela increased its oil exports to Latin America, with 36.7 percent going there in 2006.

Total primary energy consumption for Latin America and the Caribbean in 2004 equalled 28.45 quadrillion Btu, of which oil consumption represented 14.8 quadrillion Btu. Natural gas and hydropower contribute approximately 21 percent each, whereas coal represents 4 percent.

Most of the region's energy is consumed in Brazil (30 percent) and Mexico (22 percent). Mexico is the region's largest consumer of petroleum, using 29 percent of the petroleum available in 2004. Brazil also relies more on hydropower as a commercial source of energy than does any other major country in Latin America.

The primary determinants of increased energy consumption in developing countries are population growth, income growth, industrialization, and urbanization, each of which requires more energy services. Increases in energy prices tend to reduce the rate of growth in energy demand; this occurred during the early 1980s. Latin American energy demand surged in the late 1980s, increasing at an annual rate of 2.9 percent. Most of the growth was in hydroelectric, natural gas, and coal demand.

COMMERCIAL ENERGY PRODUCTION

Latin America produced surplus energy throughout the twentieth century. The region will likely remain a net exporter into the twenty-first century despite the fact that the rate of growth in energy production has fallen below that of energy consumption. Venezuela is a member of OPEC and must abide by its production quotas. (Ecuador withdrew from OPEC in 1992.)

Most Latin American countries exercise strong, monopolistic control over energy development. The lack of competition has negative effects on energy resource management. In Mexico and Venezuela, state control of oil and gas exploration and production sectors is absolute. In other countries, private sector participation is strictly controlled. Brazil in the 1990s began to let its oil company operate more independently and allowed foreign investors to buy shares.

Oil and Gas

In 2004 Latin America produced 36.144 quadrillion Btu of primary energy (petroleum, natural gas, coal, hydropower, and nuclear) while consuming only 28.45 quadrillion Btu. Petroleum production of 21.4 quadrillion Btu represented 59 percent of total energy production.

Latin America had 116 million barrels of conventional crude oil reserves in 2006. Venezuela and Mexico together accounted for 79.25 percent of that total. Venezuelan reserves are the sixth-highest in the world, and in 2006 Venezuela was also the world's sixth-largest oil exporter; Mexico was the tenth-largest. Nine other countries (Bolivia, Brazil, Chile, Colombia, Argentina, Ecuador, Guatemala, Peru, and Trinidad and Tobago) have oil reserves of varying sizes that are not considered significant by world standards.

Natural gas reserves are also dominated by Venezuela, which in 2006 accounted for 60 percent of the 250.8 trillion cubic feet in Latin America. Nearly all current gas production is associated gas, and production levels have been restrained by oil production levels. Brazil has a huge natural gas resource that is being underutilized. In 2007, natural gas met only 2 percent of the country's energy requirements, mainly due to lack of infrastructure.

Intraregional oil and gas trade has become common in Latin America. Petroleum dominates intraregional trade in northern Latin America, whereas natural gas is more popular in the south. Argentina renewed a twenty-year agreement to import 2.19 billion cubic meters of natural gas annually from Bolivia. Brazil signed a deal with Bolivia whereby 1.28 billion cubic meters of gas will be burned annually in the thermal power plant to be built at the Bolivian border town of Puerto Suárez, and the electricity will be sent to the Brazilian state of Mato Grosso do Sul.

Bolivia and Argentina have turned to Chile, which also is in need of gas. Argentine-Chilean negotiations over routing, volume, price, and pipeline construction delayed bidding until November 1991. Bolivia entered the Chilean scene, offering alternative supply to mining complexes in northern Chile. However, any deal may founder due to the lack of diplomatic relations between Bolivia and Chile.

Coal

Recoverable coal reserves in Latin America were estimated to be 23,263 million short tons in 2006. Brazil's reserves represent 62 percent of Latin American reserves, and the country produced 47.9 percent of the region's total. Colombia has the largest export coal mine in the world, the opencast El Cerrejón. The mine has been exporting one million tons of coal per month since the mid-1980s.

Brazil, Chile, Mexico, and Venezuela are investing to spur bituminous coal production. Coal use in Brazil is very low despite substantial resources, due to its poor quality. Mexico has offered to invest in the mining of Colombian coal, which would be used in Mexican power generation.

Hydropower

Hydropower represents the largest single supply source for electricity in Latin America. In 2004, 55.7 percent of all electricity supplied came from hydropower. Several Latin American nations have pursued development of hydro resources as a means of reducing their dependence on oil imports. Brazil, Argentina, Colombia, Venezuela, and Paraguay all have large shares of hydropower in their electricity generation. Hydro incurs high capital costs long before electricity begins flowing, and these projects accounted for sizable proportions of these countries' foreign and domestic debts.

The Itaipú plant on the Paraná River along the Paraguay-Brazil border has the largest hydro capacity in the world, at 11.7 megawatts. Brazil underwrote all the construction costs and purchases all electricity generated. Despite supplying 24 percent of current primary energy needs and nearly 90 percent of its electricity, Brazil has exploited less than 20 percent of the country's estimated hydro potential. Another 12 percent is under construction or planned through 2000.

Nuclear

Nuclear-generated electricity provides less than 1 percent of Latin America's primary energy. Argentina has the longest experience with nuclear power; its 344-megawatt Atucha 1 heavy-water reactor has been operational since 1974, but by 1984, Atucha 1 was operating at half capacity, unable to compete with cheaper hydroelectricity. Work on Atucha 2 was delayed. Brazil brought its 626-megawatt Angra dos Reis 1 plant into operation in 1981. Angra 2 came online in 2000.

Construction on Mexico's first reactor, the 650-megawatt Laguna Verde, began in 1970, but it never went into operation, and Uramex, the state-run mining company that had begun exploiting uranium reserves, closed in 1985. Mexico's nuclear program calling for twenty reactors by the year 2000 was canceled during the 1980s after it was estimated that the program accounted for more than half of the public-sector debt attributable to the energy sector. Nuclear power in Latin America was not anticipated to have much of a future.

Traditional Fuels

Wood and agricultural-animal wastes are used in the rural sectors and account for an estimated 800,000 barrels per day of oil equivalent. Firewood provided as much as half of the region's energy in 1945. It continues to be used by rural populations in residential applications.

Sugarcane waste (bagasse) has become a significant source of energy for sugar mills producing their own electricity and steam. Bagasse is used in independent facilities, isolated from electricity grids, in Belize, Brazil, Mexico, Cuba, the Dominican Republic, Jamaica, and other Caribbean islands.

Renewables

The island nations of the Caribbean face pronounced isolation problems. Regional solutions such as electricity interconnections or cross-border road networks are not viable. Caribbean islands are ideal candidates for smaller-scale renewable energy applications. Geothermal, wind, biomass, and photovoltaic technologies have been demonstrated with the assistance of international agencies.

The tectonic regions of Mexico, Central America, and the Caribbean offer ample geothermal resources. El Salvador has exploited geothermal resources since 1975. Mexico is operating geothermal wells in Baja California, exporting half the output to southern California utilities. Guatemala is planning to build a 15-megawatt geothermal plant.

In addition to funding geothermal development in Central America, the Inter-American Development Bank has financed wind power in Barbados, bagasse cogeneration studies in Guyana, biogas from chicken manure in Guatemala, microhydro in Brazil, and photovoltaic cell production in Mexico.

Alcohol Fuels

The alcohol fuel program, seen at one time as the savior of Brazil, was moribund by August 1990. Heavy subsidies on alcohol cost Brazil $7 billion since the fuel was introduced fifteen years earlier in an effort to reduce the country's heavy dependence on imported oil. Removal of sub-sidies would mean that the 4.5 million owners of alcohol-fueled cars would be grounded. Production of alcohol fuel costs twice as much as gasoline. Excessive production costs are blamed on bureaucratic bungling, greedy sugarcane producers, corruption, and the vested interest of Petrobrás, the monopoly distributor of alcohol fuel.

Sales of alcohol-fueled vehicles in Brazil fell from 85 percent of total vehicle sales in 1985 to less than 5 percent in July 1990. Fuel production was not expected to meet demand, and imports will be required if rationing is to be avoided. In 1989, 29 distilleries closed down, and ten more closed during the first half of 1990. However, there was renewed interest in the ethanol program due to the high oil prices in the early twenty-first century. Guatemala also has a small alcohol fuel program.

DEVELOPMENT AND COOPERATION

In order to develop an energy infrastructure that will sustain economic growth, the countries of Latin America will have to attract new investment. World Bank lending for energy projects in 1990 totaled $3 billion. Of that, $1 billion went to Latin America. Two-thirds of the bank's lending goes directly to utilities to reinforce internal electric transmission systems. The balance goes to coal and oil-gas projects.

The U.S. Trade and Development Program has been operating in the private and public sectors of Latin America since the 1980s. Energy funding has been almost exclusively for oil and gas. The U.S. Agency for International Development energy programs are limited and small, except for Central America. Their period of active involvement in large thermal and hydroelectric projects was in the 1960s and 1970s, particularly in Brazil. The Inter-American Development Bank allocated an average of 27.6 percent of its loans ($10.97 billion) to energy projects from 1961 through 1987. In 1988, $405 million was lent for energy, of which 88 percent was for electric projects. A small portion of the Caribbean Development Bank's loans are for energy.

Under President Hugo Chávez, the petroleum-rich nation of Venezuela has promoted alternatives for energy development. In 2005 Chávez's new energy policy focused on six new projects, including refining, infrastructure, and integration in the Magna Reserve, and the Orinoco and Delta-Caribbean regions. In 2007 he announced the nationalization of the oil industry, and the state took over holdings by foreign multinational companies such as ExxonMobil, which had failed to give majority control of hydrocarbons to Venezuela.

Regional cooperation was promoted as the best way to develop Latin American energy resources. In the past, the joint energy option was for costly, controversial, and time-consuming hydroelectric projects. Cross-border hydro projects account for 25 percent of Latin America's generating capacity and much of its crippling debt. Grandiose schemes financed by the World Bank, the Inter-American Development Bank, and the United Nations fell out of favor. For example, Argentine president Carlos Saúl Menem shelved the Yacireta Dam on the Paraná River between Paraguay and Argentina after receiving approval for an Inter-American Development Bank loan of $250 million.

Latin America was anticipated to look to its own regional organizations specifically established to assist in energy development: the Organization of Latin American States for Energy Cooperation, the Regional Electrical Intergration Commission, and the Latin American State Oil Company Assistance Organization.

See alsoChávez, Hugo; Electrification; Industrialization; Inter-American Development Bank (IDB); Mining: Modern; United Nations; World Bank.

BIBLIOGRAPHY

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                                        Mindi J. Farber