Overview and Opportunities Of The Natural Gas Market In Latin America In 2019

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Latin America is today considered one of the world’s major oil and gas-producing regions, in part thanks to its rich energy resources like oil, available in abundance. By the end of 2016, the region held one-fifth of the world’s proved oil reserves, and investors began to flock to the area to capitalize on its potential and generate significant returns on their investment.

Today, oil production in the region is close to an all-time high, with 7.5 million barrels rolling off of production lines every day. Two countries are dominating – Venezuela and Brazil – but that’s not to say investors do not head to other nations, with many doing business in Peru, for example, as the country extracts and refines more than 43,000 barrels of oil per day.

Whilst the world begins to turn towards more renewable sources of energy, there’s still a high demand for natural gasses, and as such, opportunities await for entrepreneurs with the right value proposition and expertise. Today, we delve deeper into the natural gas market in Latin America, exploring new developments and making predictions for the future of the industry… 

Brazil is the One to Watch

Since 1985, Brazil has transformed itself into becoming one of Latin America’s key natural gas players, with figures suggesting the country is responsible for a daily output of 2.6 million barrels – around a 35% regional share of the natural gas market. Perhaps one of the biggest reasons why Brazil has performed so favorably in the sector is because it has a supportive government and a strategy designed to increase interest from international oil companies. On top of that, the region has been developing new offshore technologies designed to increase yield and reduce labor costs, though it has been the responsibility of private firms to fund such projects, which often run into hundreds of millions and require ongoing investment. 

Another key area of growth is the Brazillian biofuel sector, with its soil and optimal climate making the country the second-largest biofuel producer in the world. Indeed, Brazil boasts the perfect climate for producing multiple crops per year, which puts it ahead of areas such as Europe, North America, and some Asian markets, creating an efficient energy production powerhouse, with crops such as sugarcane responsible for producing high-quality ethanol.

Political Involvement Unlocking Opportunities

With new governments recently formed in both Brazil and Colombia, the two countries have fast become hotspots for investment in the natural gas market, with both leaders attracting major investments from some of the world’s most renowned energy companies.

In Colombia, President Iván Duque Márquez has cultivated the perfect platform for foreign investment, and whilst the region has political challenges associated with the Venezuelan refugees, this has not stopped big businesses spend money in the region, with new data suggesting that oil companies in Colombia will attract more than US$5 billion in foreign investment this year, up more than 14% on 2018’s figures. Last year’s $4.35 billion was spent primarily on production – although companies did splash out more than $800 million on new exploration projects, and it is these that will generate the largest returns for such businesses operating in the country.

Mexico, on the other hand, has a more complex political and economic background. Its new president has been vocal against energy reform in the country and said that he would not reserve it when he took office. Many have pondered whether Mexico’s gas crisis will affect businesses in the country long-term, and whilst we cannot answer that question just yet, the moves made so far have shown that Mexican President Andrés Manuel López Obrador is taking the situation seriously, wanting to stamp out corruption and create a healthier, more reliable supply chain for citizens. Privatization of oilfields is currently suspended as the government vows to ‘fix’ the country’s problems, though it’s likely that AMLO will welcome foreign investors back into the country when he is confident that the situation is resolved.

Of course, ALMO has already vowed to build government-owned oil and gasoline refineries in Mexico in the coming years and has already announced a US$8 billion oil refinery project at Tabasco State that will increase the country’s crude processing capacity by 300,000 to 600,000 barrels per day. Over time, this will reduce the reliance on foreign imports of oil and energy, so businesses currently supplying oil to the country should instead incorporate an office in Mexico so they can take advantage of opportunities that arise in the local market.

Deeper Relations with the US

Perhaps one of the most interesting developments in the LATAM natural gas market of late is the idea of deeper relations with the United States. The U.S. Energy Department recently announced plans for faster approval of small scale exports of natural gas including liquefied natural gas to Latin American countries to reduce “the regulatory burden on American businesses while also providing significant benefits to trading partners in Central America, and South America.” Businesses on both sides of the border can benefit from the change, but finding the right value proposition will be key to success; growing demand and capability on home turf makes LATAM gas more cost-effective than importing from the United States in many situations, but investors should react on a case-by-case basis to guarantee returns.

Challenges Await

Whilst Latin America’s ever-changing natural gas market offer opportunities to foreign companies wanting to contribute to the deepening and development of the region, investors should note that many countries and regions simply do not have the infrastructure in place to maximize the potential of their natural resources. In the coming years, Latin America needs to convince big players to make a mark on their resources, or risk being left behind. As an entrepreneur, succeeding in the natural gas market requires either significant capital or an innovative business model to capitalize on both the resources and increased investment in the sector – failing that, piggybacking off of successful ventures will help unlock opportunities.

In the past, Latin America has failed to provide certainty to investors and key players, but as demand for gas remains strong and governments increase their pitch, we’ll likely see many players make their mark on the territory and take advantage of its rich natural resources. 

Source: Craig Dempsey Co-Founder & Managing Director | Biz Latin Hub

www.bizlatinhub.com

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