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ENERGY OPPORTUNITIES IN SOUTH AMERICA

HEARING

BEFORE THE

SUBCOMMITTEE ON 

THE WESTERN HEMISPHERE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS

FIRST SESSION

MAY 17, 2017

Serial No. 115–24

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

MO BROOKS, Alabama 

PAUL COOK, California 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

ADAM KINZINGER, Illinois 

LEE M. ZELDIN, New York 

DANIEL M. DONOVAN, JR., New York 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

ANN WAGNER, Missouri 

BRIAN J. MAST, Florida 

FRANCIS ROONEY, Florida 

BRIAN K. FITZPATRICK, Pennsylvania 

THOMAS A. GARRETT, JR., Virginia 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

KAREN BASS, California 

WILLIAM R. KEATING, Massachusetts 

DAVID N. CICILLINE, Rhode Island 

AMI BERA, California 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania 

DINA TITUS, Nevada 

NORMA J. TORRES, California 

BRADLEY SCOTT SCHNEIDER, Illinois 

THOMAS R. SUOZZI, New York 

ADRIANO ESPAILLAT, New York 

TED LIEU, California

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON THE WESTERN HEMISPHERE

JEFF DUNCAN, South Carolina, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

MICHAEL T. MCCAUL, Texas 

MO BROOKS, Alabama 

RON DESANTIS, Florida 

TED S. YOHO, Florida 

FRANCIS ROONEY, Florida 

ALBIO SIRES, New Jersey 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

NORMA J. TORRES, California 

ADRIANO ESPAILLAT, New York 

GREGORY W. MEEKS, New York 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Jorge R. Pinon, director, Latin America and Caribbean Program, Jackson 

School of Geosciences, The University of Texas at Austin ............................... 4

Ms. Lisa Viscidi, director, Energy, Climate Change, and Extractive Industries 

Program, Inter-American Dialogue .................................................................... 13

Mr. Jason Bordoff, professor and director, Center on Global Energy Policy, 

School of International and Public Affairs, Columbia University .................... 20

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Mr. Jorge R. Pinon: Prepared statement ............................................................... 7

Ms. Lisa Viscidi: Prepared statement .................................................................... 16

Mr. Jason Bordoff: Prepared statement ................................................................. 22

APPENDIX 

Hearing notice .......................................................................................................... 56

Hearing minutes ...................................................................................................... 57

(1)

ENERGY OPPORTUNITIES IN SOUTH AMERICA 

WEDNESDAY, MAY 17, 2017

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE WESTERN HEMISPHERE,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The committee met, pursuant to notice, at 10:00 a.m., in room 

2172 Rayburn House Office Building, Hon. Jeff Duncan (chairman 

of the subcommittee) presiding. 

Mr. DUNCAN. Okay, a quorum being present, the subcommittee 

will come to order. I would like now to recognize myself for an 

opening statement. 

This is the third hearing that we have had on energy in the 

Americas since I have begun my chairmanship. I am passionate 

about this topic because I firmly believe that energy is an important key to creating more jobs for the Americans and to helping our 

hemisphere achieve a better quality of life via electricity coverage, 

energy production, and benefitting from the resulting economic 

growth. 

In the past, the U.S. supported energy initiatives in the region 

through investment and the exploration and production of traditional energy resources, providing regulatory and technical guidance and under the Obama administration renewal energy projects. 

In fact, a congressional delegation led by me and Ranking Member 

Sires visited an extensive solar energy project in Chile. 

Today, I believe that the U.S. could do much more to prioritize 

hemispheric-wide energy security in our approach to the region. 

After all, the discovered and reportedly undiscovered energy potential alone is enormous. 

South America is home to a vast wealth of natural resources including nearly 20 percent of the world’s proven crude oil reserves 

and 4 percent of proven natural gas reserves. An effective use of 

such energy resources could result in more people having a higher 

quality of life through receiving electricity coverage, a higher number of jobs in needy areas, and greater investment from international companies into the communities where they do business. 

In addition, the energy landscape is diverse. Venezuela has the 

largest proven oil reserves in the world and the second largest natural gas reserves in the Americas. Significant oil and natural gas 

production is also occurring in Argentina, Bolivia, Brazil, Colombia, 

Ecuador, and Peru. 

Furthermore, the hemisphere produces the largest amount of hydroelectric power. Brazil is the world’s second largest producer of 

2

ethanol and third largest liquid fuel producer. And Colombia is the 

world’s fifth largest producer of coal. Chile also has the world’s 

largest lithium reserves and Argentina possesses one of the world’s 

largest potential markets to produce unconventional hydrocarbons. 

Similarly, Argentina is also the only Latin American country 

that is producing commercial quantities of oil from shale deposits. 

According to the U.S. Energy Information Administration in 2015, 

Argentina was second of 46 countries in terms of its undiscovered 

shale gas resource potential, and fourth in its undiscovered shale 

oil potential. Such prospects offer multiple areas for greater partnership with our country, given the U.S. experience with shale and 

with the U.S. energy technology. 

In addition. Brazil’s offshore pre-salt basins may be one of the 

world’s largest oil finds, recoverable volumes of oil reported are estimated at over 40 billion barrels. Combined with Brazil’s other 18 

on-shore basins, Brazil’s energy market offers huge promise for the 

country, the region, and expanding energy ties with the U.S. Likewise, Colombia and Ecuador and Peru also have significant oil and 

gas production. And Guyana reportedly possesses substantial 

amounts of oil offshore. This is in addition to what Paraguay hopes 

to do in the northern part of the country; and to what Chile hopes 

to do with furthering other energy sources such as solar in their 

vast sunny areas. 

Today’s robust energy landscape in South America is made even 

more compelling for deeper U.S. engagement given recent political 

shifts in the region. Countries seem to be waking up to the realization that status economic policies simply do not generate the kind 

of economic growth that they need. A change appears to be underway and countries are now making reforms to advance free market 

friendly energy policies and attract foreign investment. 

Argentina, Bolivia, Brazil, Colombia, and Peru, have all made 

some effort to improve their respective regulatory structures. Moreover, South America has become a growing market for U.S. oil and 

natural gas exports. Over the past decade, U.S. petroleum product 

exports to the region have grown by over 400 percent and last year 

for the first time ever U.S. exported liquefied natural gas (LNG) to 

the region. Argentina, Brazil, and Chile were the first three South 

American countries to become LNG importers. 

Furthermore, under U.S. law, the Department of Energy must 

prioritize exports of U.S. LNG to countries with which we have free 

trade agreements. This creates additional opportunities for expedited U.S. LNG exports to Colombia and Peru, as well as to the 

Caribbean. 

Although the price of oil may remain low, energy prospects in 

South America are plenty. At a time when Venezuela continues to 

grow more unstable, threatening countries that depend on PDVSA 

for energy security, and as countries in the Middle East and North 

Africa continue their volatility, it is critical that the United States 

work with other energy-producing countries in South America to 

increase our energy security. 

The Western Hemisphere has vast energy potential. The U.S. 

and South America, along with our neighbors in Canada and Mexico, just need to build on those opportunities and create hemiVerDate 0ct 09 2002 13:27 Jun 06, 2017 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 F:\WORK\_WH\051717\25455 SHIRL
3

spheric-wide energy security effort using our respective countries’ 

strengths. 

I will never forget the experience that Ranking Member Sires 

and I had last year when we visited the binational dam at Itaipu, 

the world’s second largest hydroelectric plant jointly operated by 

Paraguay and Brazil. The spillways were open and it was an incredible display of hydroelectric power. The region has an amazing 

opportunity right now with energy and I look forward to what our 

witnesses will have to share on the subject and with that, I will 

turn to the ranking member, Albio Sires, for his opening remarks. 

Mr. SIRES. Well, good morning, everyone. Thank you to our chairman for holding this important hearing and to our witnesses for 

taking the time to be here with us today. 

Today’s hearing looks at both the opportunities and challenges 

toward enhancing our energy cooperation with South America. I believe integrating our energy interests in the region have been ignored for far too long. 

Although we often focus on the resources of the Middle East, it 

is worth noting that there are significant energy resources right 

here in our hemisphere. South America is home to vast oil and gas 

reserves and possesses tremendous renewable energy potential. 

Venezuela is home to 88 percent of the region’s proven oil reserves. 

In regards to nontraditional source of energy, Brazil is the world’s 

second largest producer of ethanol after the United States. 

Engaging with the Caribbean is critical, especially with the petro 

dollars from a crumbling Venezuela are drying up and the entire 

country is on the verge of collapse. Unfortunately, Maduro and his 

cronies have squandered the opportunity this could have brought 

to the Venezuelan people. Every day, we see the situation becoming 

more dangerous with the Venezuelan people suffering at the hands 

of Maduro’s authoritarian tactics. 

That is why I hope this new administration will build on some 

of the bipartisan initiatives Congress worked on during the last few 

years. In 2016, Congress passed H.R. 4939, the U.S.-Caribbean 

Strategic Engagement Act. With the leadership of Ranking Member 

Engel and Congresswoman Ileana Ros-Lehtinen, this bill mandates 

that the State Department develop a strategy to support enhanced 

engagement with the Caribbean region. 

Moreover, the growing presence of anti-democratic actors such as 

Russia and China whose self-interests are counter to the strategic 

concerns of the U.S. should not be taken lightly. China pledged to 

increase trade with the region by $500 billion and foreign investment to $250 billion by 2025, seeking to boost their influence in the 

resource-rich region. 

Immediately following the election of President Trump, China released a white paper calling Latin America and the Caribbean a 

land of vitality and hope. The U.S. cannot fall behind as the Western Hemisphere plays a critical role in our energy security. Our national security requires that energy policy be a central component 

of our foreign policy. Furthermore, we should build upon and expand our energy diplomacy efforts, mitigate Caribbean dependence 

on subsidized Venezuelan oil and support the economic growth of 

the region in ways that are both relevant and practical to the needs 

of everyday people. No one single project or initiative is a cure-all 

4

for our energy security needs and no proposal will satisfy everyone’s need or alleviate every doubt, but we must continue to work 

with our neighbors to develop a beneficial energy policy for the region. 

I look forward to hearing from our panel on how we can address 

these critical issues. Thank you. 

Mr. DUNCAN. I want to thank the ranking member and I want 

to thank the witnesses as well for being here. I look forward to 

your testimony. 

Before we get started, there is a lighting system in front of you. 

You are given 5 minutes for your opening statements and the 

lights will change from green to yellow to red. When it gets to yellow, start trying to wrap up. I will be a little lenient with that, but 

we will try to stay on schedule. 

Also, when we finish your testimony, we will recognize ourselves 

and I will recognize other members for 5 minutes to ask questions. 

And I ask that we try to stick to that 5-minute rule. 

So with that, the bios are in your information provided. I will not 

read those. I will just introduce the witnesses. We are going to 

start with Mr. Pinon for 5 minutes. You are recognized. If you will, 

there is a button that says talk, cut that microphone on until it is 

red. There you go. 

STATEMENT OF MR. JORGE R. PINON, DIRECTOR, LATIN 

AMERICA AND CARIBBEAN PROGRAM, JACKSON SCHOOL OF 

GEOSCIENCES, THE UNIVERSITY OF TEXAS AT AUSTIN 

Mr. PINON. Thank you. I would like to thank you, Mr. Chairman, 

and Ranking Member Sires for giving me the opportunity to underscore South America’s energy potential and its contribution to a 

broader energy integration within the Western Hemisphere. My 

oral comments will be summarized in my written statement. 

The Western Hemisphere holds approximately 35 percent of the 

world’s proven oil reserves, 49 percent of the world’s undiscovered 

conventional oil resources, and 38 percent of the world’s technically 

recoverable shale oil resources. 

Not as large, but very important and strategic within the regional context are the Western Hemisphere’s natural gas reserves 

representing 10 percent of the world’s proven natural gas reserves, 

but 42 percent of the world’s technically recoverable natural gas 

shale resources. 

It is the ability to monetize and produce these natural gas reserves that gives the Western Hemisphere a competitive advantage 

by being the second largest natural gas producing region in the 

world, as its Liquefied Natural Gas, LNG, trade 

demonstrates. 

The challenge in Latin America, Mr. Chairman, is not the lack 

of oil and natural gas resources, but the host countries’ onerous 

contractual and fiscal terms and conditions, regulatory environment, and the lack of political stability and continuity that international oil companies need in order to invest and sustainably 

monetize and commercialize those resources. 

A good example is Venezuela, the world’s largest holder of oil reserves surpassing those of Saudi Arabia, but who is unable to develop its potential as its production has declined from a high of 

5

over 3 million barrels per day to less than 2 million barrels per 

day. 

It is also important to highlight that these oil and natural gas 

resources are concentrated in unconventional deposits and frontier 

areas making its sustainable and economical extraction challenging 

as advance technology, high capital requirements, and operational 

know-how are critical for their development. 

The region’s energy potential is not only in hydrocarbons, as was 

stated. More than a quarter of primary energy in Latin America 

today comes from renewables, mainly from hydropower and 

biofuels. However, all countries in the region are developing other 

renewable energy sources, such as wind, solar and biomass-based 

electricity. 

I would like to address, Mr. Chairman, the importance of regional energy integration as the cornerstone to the energy security 

of the United States. Please note that I avoid mentioning the idealized concept of energy independence since I am deeply concerned 

that the use of the term would lead us to a state of complacency 

which would prevent us from recognizing external threats and 

risks to our energy security, a much broader and strategic concept. 

The United States needs to support the building of infrastructure 

and logistic assets which would allow us to monetize and commercialize the Western Hemisphere’s crude oil, natural gas, refined 

products, and electric power potential. 

We should look at the Western Hemisphere as an integrated, 

interdependent, and self-sufficient energy market which would provide the United States uninterrupted performance of our energy infrastructure and the ability to react quickly to changes in supplydemand disruptions. 

Despite a 70 percent increase in domestic crude oil production 

since 2008, the United States still imports 49 percent of the crude 

oil it refines. Canada and Mexico constitute approximately half of 

all U.S. imports with an additional 18 percent coming from South 

America. In 2016, the United States exported over 5 million barrels 

of crude oil and refined products of which nearly 50 percent were 

destined to Latin America. 

The U.S. largest fuel customer in the region is Mexico with approximately 33 percent of total U.S. refined product exports to 

Latin America; followed by Brazil, Colombia and Ecuador. This 

new regional trade pattern is expected to continue, since declining 

refining capacity in Latin America makes it unable to meet its 

growing demand for clean transportation fuels. U.S. Gulf Coast refineries, operating at 90 percent of utilization today, have become 

the de facto oil refining center for Latin America. 

In conclusion, Mr. Chairman, I would like to briefly address the 

current situation in Venezuela as I believe that U.S. imports of 

Venezuelan crude oil and the operations of its U.S. refining subsidiary Citgo could be threatened by external and internal events 

as a result of the political and economic crisis that Venezuela faces 

today. 

The U.S Government should be ready with contingency plans on 

possible short-term alternatives on how to replace Venezuelan imports until the free market find its own solutions just like it did 

during the 2003 Venezuelan oil strike. Also, a casualty from the 

6

possible collapse of the Venezuelan government is Cuba who depends on Venezuela to meet its oil imports. The island already is 

beginning to identify and diversify its oil supply sources and it 

seems that Russia could play the same supplier role as it did during the Cold War period. 

Thank you very much, Mr. Chairman, and members of the subcommittee. I look forward in answering any questions that you 

might have. 

[The prepared statement of Mr. Pinon follows:]

7


25455a-1.eps

United States House of Representatives 

Committee on Foreign Affairs 

Subcommittee on the Western Hemisphere 

Energy Opportunities in South America Hearing 

May 17, 2017 

Testimony of Jorge R. Pinon 

Interim Director, Center for International Energy and Environmental 

Policy and Director, Latin America and Caribbean Energy Program, 

Jackson School of Geosciences, 

The University of Texas at Austin 

The opinion and analyses herein do not necessarily state or reflect those of The University of 

Texas at Austin. The University of Texas at Austin is committed to transparency and disclosure 

of potential conflicts of interests of its researchers. The "Truth in Testimony" disclosure form is 

attached and meant to be part of the written and oral testimony. 

JORGE R. PINON, THE UNIVERSITY OF TEXAS AT AUSTIN 
8


25455a-2.eps

I would like to thank you Mr. Chairman and ranking member Sires for giving me 

the opportunity to underscore South America's energy potential and its 

contribution to a broader regional energy integration within the Western 

Hemisphere. 

My oral comments will be summarizing my written statement. 

Oil Resources 

The Western Hemisphere holds approximately 35 percent of the world's proven 

oil reserves, 49 percent of the world's undiscovered conventional oil resources 

and 38 percent of the world's technically recoverable shale oil resources. (USGS) 

Natural Gas Resources 

The Middle East and Russia are the world's largest holders of proven natural gas 

reserves with approximately 73% of total share. (EIA) 

Not as large; but very important and strategic within the regional context are the 

Western Hemisphere's natural gas reserves representing 10 percent of the 

world's proven natural gas reserves and 42 percent of the world's technically 

recoverable natural gas shale resources. (USGS) 

It is the ability to produce and monetize these natural gas reserves that gives the 

Western Hemisphere a competitive advantage by being the second largest natural 

gas producing region in the world; as its Liquefied Natural Gas LNG trade 

demonstrates. (EIA) 

JORGE R. PINON, THE UNIVERSITY OF TEXAS AT AUSTIN 
9


25455a-3.eps

The Main Actors 

Crude oil and natural gas resources abound in South America; Venezuela, Guyana, 

and Trinidad and Tobago in Northern South America Caribbean region; Colombia, 

Peru, Bolivia, and Ecuador within the Andean community; Argentina and Uruguay 

in the Southern Cone and Brazil. 

Challenge 

The challenge in Latin America Mr. Chairman is not the lack of oil and natural gas 

resources but the host countries onerous contractual and fiscal terms and 

conditions, regulatory environment and the lack of political stability and 

continuity that international oil companies need in order to invest and sustainably 

monetize and commercialize those resources. 

A good example is Venezuela, the world's largest holder of oil reserves surpassing 

those of Saudi Arabia; but who is unable to develop its potential as its production 

has declined from a high of over 3.0 mmbd to less than 2.0 mmbd. (OPEC) 

It is also important to highlight that these oil and natural gas resources are 

concentrated in unconventional deposits and frontier areas making its sustainable 

and economical extraction challenging as advance technology, high capital 

requirements and operational knowhow are critical for their development. 

JORGE R. PINON, THE UNIVERSITY OF TEXAS AT AUSTIN 
10


25455a-4.eps

Renewables 

The region's energy potential is not only in hydrocarbons as more than a quarter 

of primary energy in Latin America today comes from renewables, mainly from 

hydropower and biofuels. 

However all countries in the region are developing other renewable energy 

sources, such as wind, solar and biomass-based electricity. 

Brazil, Chile and Mexico ranked amongst the top ten global renewable energy 

markets in terms of investment in 2015. 

The United States, Brazil and Argentina produce today about 73% of world's 

production of Biofuels. (EN I) 

Western Hemisphere Energy Integration 

I would like to address Mr. Chairman the importance of regional energy 

integration as the cornerstone to the Energy Security of the United Sates. 

Please note that I avoid mentioning the idealized concept of Energy 

Independence since I am deeply concerned that the use of the term would lead us 

to a state of complacency which would prevent us from recognizing external 

threats and risks to our Energy Security, a much broader and strategic concept. 

The United States needs to support the building of infrastructure and logistic 

assets which would allow us to monetize and commercialize the Western 

JORGE R. PINON, THE UNIVERSITY OF TEXAS AT AUSTIN 
11


25455a-5.eps

Hemisphere's crude oil, natural gas, refined products and electric power 

potential. 

We should look at the Western Hemisphere as an integrated, interdependent 

and self-sufficient energy market which would provide the United States 

uninterrupted performance of our energy infrastructure and the ability to react 

quickly to changes in supply-demand disruptions. 

Despite a 70% increase in domestic crude oil production since 2008 the United 

States still imports 49% of the crude oil it refines. Canada and Mexico constitute 

approximately half of all US imports with an additional18 percent coming from 

South America. (EIA) 

In 2016 the United States exported over 5.0 mmbd of crude oil and refined 

products of which nearly 50 percent were destined to Latin America. (EIA) 

The U.S. largest fuel customer in the region is Mexico with approximately 33% of 

total U.S. refined product exports to Latin America; followed by Brazil, Colombia 

and Ecuador. (EIA) 

This new regional trade pattern is expected to continue since declining refining 

capacity in Latin America makes it unable to meet its growing demand for clean 

transportation fuels. 

JORGE R. PINON, THE UNIVERSITY OF TEXAS AT AUSTIN 
12


25455a-6.eps

U.S. Gulf Coast refineries, operating at 90 percent of utilization, have become the 

de-facto oil refining center for Latin America. (EIA) 

Venezuela-Cuba 

Mr. Chairman I would like to briefly address the current situation in Venezuela as I 

believe that U.S. imports of Venezuelan crude oil and the operations of its U.S. 

refining subsidiary CITGO could be threatened by external and internal events as a 

result of the political and economic crisis that Venezuela faces today. 

The U.S government should be ready with contingency plans on possible short 

term alternatives on how to replace Venezuelan imports until the free market find 

its own solutions just like it did during the 2003 Venezuelan oil strike. 

Also a casualty from the possible collapse of the Venezuelan government is Cuba 

who depends on Venezuela to meet its oil imports. 

The Island already is beginning to identify and diversify its oil supply sources and it 

seems that Russia could play the same supplier role as it did during the cold war 

period. 

The result for Cuba could very well be a second "special period", however the 

economic impact would not be as dire as in 1991-1992; but this time social unrest 

in our opinion could pose a risk to the political stability of the country. 

Thank you very much Mr. Chairman and members of the Subcommittee; I look 

forward to answering any questions that you might have. 

JORGE R. PINON, THE UNIVERSITY OF TEXAS AT AUSTIN 
13

Mr. DUNCAN. Thank you so much. And now, Ms. Viscidi will be 

recognized for 5 minutes. 

STATEMENT OF MS. LISA VISCIDI, DIRECTOR, ENERGY, CLIMATE CHANGE, AND EXTRACTIVE INDUSTRIES PROGRAM, 

INTER-AMERICAN DIALOGUE 

Ms. VISCIDI. Thank you. I would like to thank the committee and 

subcommittee chairmen and ranking members. 

Mr. DUNCAN. Pull that microphone over just a little bit. Thank 

you. 

Ms. VISCIDI. Thank you and I would like to thank the other committee members for the opportunity to be here today. 

My testimony will focus on the energy landscape in South America, the importance of U.S. investment in oil and gas, and clean energy in the region, and opportunities for energy policy engagement 

between the U.S. and South American countries. 

South America is an important destination for energy investment 

due to abundant natural resources, growing markets, and favorable 

policy frameworks in several countries. The continent holds massive oil and gas reserves, from the Orinoco heavy oil belt in Venezuela to the Vaca Muerta shale play in Argentina. There is also 

abundant potential for renewable energy including hydro, wind, 

and solar. 

South America has large domestic markets with rapidly growing 

consumption of oil for transportation and soaring demand for electricity. Many countries have recently become more open to energy 

investments, enacting market-friendly policies and regulatory reforms to attract private capital and international expertise. For example, administrations in Brazil and Argentina have removed longstanding barriers to investment in the oil and gas sector; and Colombia, looking to maintain current levels of production and reserves despite the drop in prices has revised its investment terms. 

Several South American countries also offer strong incentives for 

renewable investments such as wind and solar auctions, renewable 

portfolio standards, and favorable financing. Chile joined Brazil as 

one of the top ten renewable energy markets globally in 2015, almost doubling its share of renewables investment from 2014. And 

Argentina held its first two renewable energy auctions late last 

year. 

There are, however, exceptions to this generally more favorable 

investment climate in South America. Venezuela, marred by political upheaval in an economic crisis, has seen a sharp decline in 

production and investment. Oil output declined by 235,000 barrels 

per day in the first three quarters of last year. And it will likely 

drop below 2 million barrels a day by the end of this year. 

As a result, countries in Latin America and the Caribbean that 

have relied on imports of crude oil and refined products from Venezuela, have turned to alternative oil suppliers and replaced oil 

with natural gas and renewable energy. Exports of Venezuelan oil 

to key partners like Jamaica, the Dominican Republic, and even 

Cuba have declined considerably. 

U.S. investors and companies are key partners in developing energy resources and supplying markets in South America thanks to 

the human, technological, and financial resources of rapidly growVerDate 0ct 09 2002 13:27 Jun 06, 2017 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 F:\WORK\_WH\051717\25455 SHIRL
14

ing oil and renewable energy industries here, as well as proximity 

to other countries in the hemisphere. 

U.S. investment in energy brings multiple benefits to the U.S. 

and South America. For South American Governments, oil exports 

to the U.S. market provide a critical source of revenue, and the development of energy resources is an economic driver for prosperity 

in the region. Investment in renewable energy also brings environmental benefits. South America has the cleanest electricity matrix 

in the world, although several large cities face severe local air pollution due to heavy traffic and weak fuel efficiency and fuel quality 

standards. For the United States, energy investment in South 

America also has the potential to generate investment revenue and 

employment in the country. 

Foreign investment also facilitates energy trade integration between the U.S. and its neighbors in South America. U.S. relies on 

South America for almost 20 percent of crude oil imports and South 

America is emerging as a key market for U.S. LNG. 

However, U.S. companies are by no means the only players, and 

if the U.S. cuts energy ties with South America countries, other actors will likely gain influence. China is a leading investor in oil and 

gas in many countries and is making inroads into hydropower and 

other renewable energy development. Russia is also increasing its 

stake in Venezuela’s oil industry. Chinese and Russian engagement 

in the region is driven by geopolitical, as well as commercial interests. 

While most U.S. investment in South America’s energy sectors 

has been market-driven, policy has also played a role in promoting 

energy integration and cross-border investment. U.S. Government 

initiatives have helped improve investment climates, create commercial opportunities for U.S. companies and facilitate clear and 

consistent investment rules. 

Collaboration on energy issues in turn helps bolster broader economic, political, and security relations with South American countries, many of which serve as key allies for the United States and 

cooperative on a range of issues from immigration to counter-narcotics. 

Therefore, it is important that the U.S. Government engage with 

Latin America on energy policy issues as part of broader bilateral 

relations. Strong diplomatic and economic ties, including free trade 

agreements, are most important and provide the foundation for energy trade and investment between the United States and South 

America. Within the energy sector I would highlight two areas of 

potential and important engagement. 

In the oil sector, the U.S. should support reforms that enable private investment and continue to engage in regulatory cooperation 

including for shale development in Argentina and offshore in Brazil 

and Colombia. 

And in clean energy, I think the U.S. should support clean transportation with countries like Colombia, Brazil, Argentina, and 

Chile, because sustainable transport is a major challenge for these 

countries, given the large degree of urbanization, rapidly growing 

transportation needs and air pollution issues. 

In conclusion, given the importance of U.S. energy relations with 

South America and the rest of the hemisphere, it is critical to 

15

maintain energy policy engagement with U.S. allies in the region. 

That concludes my oral testimony. I look forward to the opportunity to respond to any questions or comments you may have. 

[The prepared statement of Ms. Viscidi follows:]

16


25455b-1.eps

Statement of Lisa Viscidi 

Energy, Climate Change and Extractive Industries Program Director 

Inter-American Dialogue 

House Committee on Foreign Affairs 

Subcommittee on Western Hemisphere 

Hearing on Energy Opportunities in South America 

May 17, 2017 

I would like to thank the Committee and Subcommittee Chairmen and Ranking Members and 

the other committee members for the opportunity to be here today. 

My testimony today will focus on the energy landscape in South America, the importance of US 

investment in oil and gas and clean energy in the region, and opportunities for energy policy 

engagement between the United States and South American countries. 

The investment landscape for South American energy sectors 

South America is an important destination for energy investment due to abundant natural 

resources, growing markets and favorable policy frameworks in many countries. The continent 

holds massive oil and gas reserves, from the Orinoco heavy oil belt in Venezuela to the 

deepwater presalt zone in Brazil and the Vaca Muerta shale play in Argentina. South America 

holds 20% of global proven crude oil reserves, or 330.1 billion barrels, and Venezuela has the 

largest proven oil reserves in the world. There is also abundant potential for renewable energy. 

The region has an estimated 430GW of unexploited hydropower potential. Brazil is the third 

largest country in the world for hydropower potential, only one third of which has been 

developed. 

Additionally, South America has large domestic markets with rapidly growing consumption of oil 

for transportation and soaring demand for electricity. With strong economic growth and growing 

middle classes, Latin America overall is expected to see primary energy demand increase by 

110 percent between 2000 and 2040, including a 183 percent rise in electricity demand and a 

52 percent rise in oil demand. 

Many countries have recently become more open to energy investments, enacting marketfriendly policies and regulatory reforms to attract private capital and international expertise. New 

opportunities have opened up for private investment as more market-oriented leaders have 

come to power in Brazil and Argentina since late 2015. Since the collapse of global oil prices in 

mid-2014 many South American governments have offered increasingly favorable terms to draw 

investment after international oil companies cut exploration budgets. 

Several South American countries also offer strong incentives for investment in renewables, 

such as wind and solar auctions, renewable portfolio standards, and favorable financing. South 

American countries have sought to expand non-hydroelectric renewable energy in response to 

numerous droughts and growing opposition to large hydroelectric dams because of social and 

environmental concerns. Wind and solar energy costs have fallen dramatically, reaching grid 

parity in multiple markets in the region. Legislation has also been approved in some countries to 

allow distributed generation. 
17


25455b-2.eps

In Brazil, President Michel Temer's government has opened opportunities for private investment 

in oil exploration and production by removing a requirement that Petrobras be the sole operator 

in all presalt fields and easing local content requirements. After virtually freezing oil licensing 

rounds for the last decade, Brazil is planning 10 oil and gas tenders over the next three years, 

including four in 2017. In the power sector, Brazil's development bank offers favorable financing 

for renewable energy projects, particularly solar. 

In Argentina, investment in the oil and gas sector has accelerated since President Mauricio 

Macri took power in December 2015. Macri has taken steps to dismantle many of the longstanding barriers to private sector investment in Argentina, reducing subsidies for residential 

electricity consumers, eliminating currency controls and renegotiating labor costs with unions. 

Argentina also held its first two renewable energy auctions late last year under renewable 

energy program RenovAr. 

Chile joined Brazil as one of the top ten renewable energy markets globally in 2015, almost 

doubling its share of renewables investment from 2014 and increasing installed capacity by 580 

MW. In 2016, Chile attracted 84 participants to its renewable energy auction, resulting in the 

lowest price for solar PV projects globally at $29.1 0/MWh. 

Colombia, seeking to maintain current levels of oil production and reserves despite the drop in 

prices, has offered very favorable investment terms. For example, the government has cut taxes 

on the oil sector, allowed companies to extend exploration and production periods, and reduced 

minimum investment requirements. 

There are, however, exceptions to this generally more favorable investment climate in South 

America. Venezuela, marred by political upheaval and an economic crisis, has seen a sharp 

decline in investment in recent years. State oil company PDVSA has held majority stakes in oil 

projects since the industry was nationalized under former president Hugo Chavez, and the 

company controls operations and marketing for the bulk of its projects. PDVSA's joint venture 

partners have been frustrated by their inability to control operational decisions and to access 

their share of profits from oil sales. Private company partners have also seen their profits tumble 

because of exchange rate controls. Underinvestment has led to a steep decline in oil production 

-- output declined by 235,000 barrels per day in the first three quarters of last year and will likely 

drop below 2 million barrels per day before the end of the year. As a result, countries in Latin 

America and the Caribbean that have relied on imports of crude oil and refined products from 

Venezuela have turned to alternative oil suppliers and replaced oil with natural gas and 

renewable energy. Exports of Venezuelan oil to key partners such as Jamaica, the Dominican 

Republic, and even Cuba, have declined considerably. 

In Ecuador, oil investors have largely pulled out since President Rafael Correa nationalized the 

industry in 2010- with the notable exception of Andes Petroleum, a consortium of Chinese 

state oil companies. Ecuador's President-elect Lenin Moreno has yet to define his energy policy, 

and it is unclear whether he will reverse his predecessor's policies. 

Even in countries such as Brazil, Colombia and Argentina, there are uncertainties over future 

energy policy. Brazil and Colombia will both elect new presidents next year, and Macri's energy 

policies have been unpopular and could come under threat 
18


25455b-3.eps

The role of US investment in energy in South America 

US investors and companies are key partners in developing energy resources and supplying 

markets in South America. US companies, which benefit from the human, technological, and 

financial resources of rapidly growing oil and renewable energy industries, as well as proximity 

to other countries in the hemisphere, have been at the forefront of the investment wave. US 

companies play an important role in bringing capital and expertise to produce oil and gas, 

generate power and build related infrastructure in the region. 

US investment in energy brings multiple benefits to both the United States and South America. 

For South American governments, oil exports to the US market provide a critical source of 

revenue, and the development of energy resources is an economic driver for prosperity in the 

region. Investment in renewable energy brings environmental benefits. South America has the 

cleanest electricity matrix in the world, although several large cities face severe local air 

pollution due to heavy traffic and weak fuel efficiency and fuel quality standards. For the United 

States, energy investment in South America also has the potential to generate investment 

revenue and employment within the country. 

Foreign investment also facilitates energy trade integration between the United States and its 

neighbors in South America. Despite the shale boom, which led to a 75 percent increase in US 

oil production over the past ten years and a drop in imports, the United States still relies on 

South America for about 20 percent of crude oil imports. Foreign investors are critical to 

developing oil resources in South America and to building midstream and downstream 

infrastructure to enable the flow of oil across the hemisphere. South America has also emerged 

as a key market for global LNG demand. The United States is projected to become a net natural 

gas exporter in 2018. A large number of US LNG export projects have already been approved 

by the Department of Energy but their ability to access financing and reach a final investment 

decision will depend on securing access to markets. US investment in energy infrastructure, 

such as power plants and natural gas pipelines in South America, can help create markets and 

spur demand for US natural gas. 

However, US companies are by no means the only players, and if the United States cuts energy 

ties with South American countries, other actors will likely gain influence China is a leading 

investor in oil and gas in many countries and is making inroads into hydropower and other 

renewable energy development. The China Development Bank and China Export-Import Bank 

have made more than $135 billion in loan commitments in South America since 2005, almost 

three quarters of which are focused on energy. China is second only to the United States as 

Latin America's largest source of greenfield FDI, and between 2011 and 2015, almost 40 

percent of Chinese mergers and acquisitions investment in Latin America was in the oil and gas 

sector. Russia is also increasing its stake in Venezuela's oil industry. Chinese and Russian 

engagement in South America is largely viewed as driven by geopolitical as well as commercial 

interests. 

Energy policy engagement between the United States and South America 

While most US investment in South America's energy sectors has been market-driven, policy 

has also played a role in promoting energy integration and cross-border investment. A host of 

US government initiatives has been established over the past decade to assist other countries 

to develop regulatory standards that are in line with those of the United States. These initiatives 
19


25455b-4.eps

have helped improve investment climates, create commercial opportunities for US companies 

and facilitate clear and consistent investment rules. 

Collaboration on energy issues in turn helps bolster broader economic, political and security 

relations with South American countries, many of which serve as key allies for the United States 

and cooperate on a range of issues from immigration to counter-narcotics. The United States is 

also deeply integrated economically with South America; it is the top export market for many 

countries in the region, and South America is also a destination for many US goods and 

services. 

Therefore it is important that the US government engage with Latin America on energy policy 

issues as part of broader bilateral relations. Strong diplomatic and economic ties, including free 

trade agreements, provide the foundation for energy trade and investment between the United 

States and South America. Within the energy sector specifically I would highlight two important 

areas of engagement. 

First, in the oil sector, the United States should engage in regulatory cooperation and support 

reforms that enable private investment, such as the energy reforms in Brazil and Argentina. The 

United States should continue to engage in technical cooperation on regulations for shale oil 

development in Argentina and offshore exploration in Brazil and Colombia. Brazil and Colombia 

may also look to US assistance on best practices to develop their shale resources in the future. 

A critical aspect of this technical cooperation is on environmental regulations. The lack of a 

robust and efficient environmental regulatory process is a major obstacle to developing oil and 

gas resources in South America, and US experts in the Departments of Energy and the Interior 

as well as state regulators can share best practices on addressing this challenge. 

Second, in clean energy, the United States could explore the creation of a working group on 

clean transportation with countries like Colombia, Brazil, Argentina and Chile. Reliable and 

sustainable transportation is one of the greatest challenges for many South American countries 

given the large degree of urbanization, rapidly growing transportation needs and critical 

problems with air pollution. The working group could share best practices in promoting higher 

fuel quality, fuel efficiency, urban mass transportation and electric mobility, which would be 

particularly beneficial in South America because of clean electricity generation. 

In conclusion, given the importance of US energy relations with South America and indeed the 

rest of the hemisphere, it is critical to maintain energy policy engagement with US allies in the 

region. I look forward to the opportunity to respond to any questions or comments you may 

have. 
20

Mr. DUNCAN. Thank you so much. Mr. Bordoff, you are recognized for 5 minutes. 

STATEMENT OF MR. JASON BORDOFF, PROFESSOR AND DIRECTOR, CENTER ON GLOBAL ENERGY POLICY, SCHOOL OF 

INTERNATIONAL AND PUBLIC AFFAIRS, COLUMBIA UNIVERSITY 

Mr. BORDOFF. Thank you, Chairman Duncan, Ranking Member 

Sires, and members of the committee. Thanks for the invitation to 

be here today. 

It is certainly hard to survey all of South America in 5 minutes 

and so you have somewhat lengthy written testimony given the importance of this issue. I hope that will be helpful to the committee. 

But let me just summarize a few points in the 5 minutes that I 

have. 

As you have already said, Mr. Chairman, and the other witnesses have said, South America plays a key role in global energy 

supply, trade, geopolitics. It is a net exporter of hydrocarbons. Venezuela has what may be the largest crude oil reserves in the world. 

Brazil alone could add well over 1 million barrels a day of oil supply over the next 5 years which may be crucial to keep a lid on oil 

prices, notwithstanding the low price environment that we are in 

today. And Argentina, as you have said, may be best positioned to 

replicate the shale revolution that we have seen in the U.S. South 

America also plays a leading role in clean energy technologies. The 

region produces more than 60 percent of its electricity from hydropower, along with rapidly growing solar and wind in different parts 

of the region. 

Although the impacts of climate change, it should be noted, including more frequent droughts are actually threatening that clean 

energy resource of hydropower. So South America is acting to scale 

up its clean energy sources in lots of different ways. 

South America is especially important I think for the U.S. because it is such a key energy trade partner with the U.S. and that 

is only growing. Two of the five largest sources of crude oil imports 

to the U.S. come from South America. It is also a growing market 

for U.S. energy exports as we have heard. Over the last decade, the 

U.S. has gone from the largest importer of refined petroleum products in the world to the largest exporter of refined petroleum products in the world. And about a quarter of that goes to South America. Because South American countries have failed to invest in refining, in effect, despite their very large oil reserves in effect, South 

America is sending its oil to the U.S. for us to turn into the useful 

products people want like gasoline, diesel, and then we send that 

back to South America. 

We are also sending some oil to South America after the U.S. lifted its crude oil export ban, often used for blending as diluent with 

the heavier crudes that they have. And then Latin America has 

emerged as a key market. This was unexpected, a key market for 

U.S. LNG exports with a quarter of U.S. cargo so far making their 

way to Latin America, South America, about half if you include 

Mexico. 

As for the oil and gas outlook, there are many opportunities, as 

well as challenges in the region. Jorge talked about the onerous 

21

regulatory and other terms. The pain of the oil price collapse I 

think has helped catalyze serious reform efforts to liberalize South 

America’s energy sector, so countries are now taking steps to make 

themselves more competitive, more attractive to foreign investment 

which can help increase regional political stability, economic 

growth, global energy market stability. I talk about those in some 

detail in my written testimony. 

Brazil, with some of the largest offshore resources in the world 

implementing reforms to reverse the damage done by years of resource nationalism and political turmoil and the corruption scandal 

at Petrobras. Argentina, pursuing reforms to attract technology 

and foreign investment for their shale. Venezuela, on the brink of 

complete collapse with really frightening potential implications for 

the health and safety of the people there, as well as regional political stability, not to mention the global oil market. Jorge mentioned 

that, too. The only point I would add I think that is an important 

reminder of why given the potential for disruptions like Venezuelan supply, it still remains a critical national security asset 

that we have a well-supplied strategic petroleum reserve, which I 

know there have been some efforts to reduce the size of recently 

in Congress. 

And Colombia is working to attract investment and address environmental and indigenous concerns as they think about shale development. And that is not just oil and gas, obviously, but renewables. We see a lot of potential for further hydropower although it 

faces some opposition. Countries like Chile, Brazil, and Argentina 

have adopted regulatory reforms to boost renewables like solar and 

wind and these efforts, along with efforts to curb deforestation and 

land use related. Land use change related emissions I think are 

key to reducing greenhouse gas emissions and addressing the urgent threat of climate change. 

So lastly, I would just note, I think, how important it is for the 

U.S. to continue to engage deeply and collaborate with South 

American countries as they pursue many of these efforts on economic diversification, to reduce their vulnerability to the inevitable 

boom/bust cycles that we have always seen, and will always see in 

oil markets. We need regulatory reform to attract much needed 

technology and foreign investment; safe and responsible energy development regulations to make sure production happens safely, not 

only to protect the environment, but also to build public trust and 

confidence and social license to operate so industry can go to work; 

more robust climate action, given how important it is to move more 

quickly with that; and then reduced energy demand and subsidy 

reform to reduce both fiscal strain on governments as well as reduce energy consumption and carbon emissions. 

And with the right policies, I think the U.S. and South America 

have worked well together and can work even better together moving forward to develop the regions’ energy potential and help meet 

our share of economic security and environmental goals. 

So members of the committee, thanks again for inviting me today 

and I look forward to your questions. 

environment. 

[The prepared statement of Mr. Bordoff follows:]

22


25455c-1.eps

i\hy 17,2017 

Co!{f!/'eJJiona! TeJ!inJOf!J· ?! 

Jason E, Bordoff 

Cmteron 

Before the 

Committee on Foreign Mfairs, Subcommittee on Western Hemisphere 

United S tute.)' HauJe ~/ Keprr.)'entatiJ,eJ 

r SeJ.rirmJ 115'6 Congre.r.f 

inl11ternational and 

Chairman Duncan, Ranking i\ifember Sires, and \1embers of the Committee, th::mk you for inyiting 

me here today to discuss the energy outlook in South -'\meric1. name is Jason Bordoff. I am 

Professor of Professional Practice at Columbia l~ ntversity's of International and llubltc 

Afhirs r1nd Founding Director of Colutnbia Cnivcrs1ty SIP A's Center on Global Energy Policy. 

In my testimony, I will (1) summarize the importance of South iunerica to the global energy system; 

(2) discuss the region's irnportancc as an energy trading partner of the CS; (3) provide an ovcnicw 

of opportunities for oil and gas and(+) of renewable energy in the region; and (5) offer a few 

thoughts on key areas of focus and potential partnership \Vith the US if South ,'\mericL is to realize 

its energy opportunities. 

Broadly spe1k..ing, the recent oil price colhpse and economic strain throughout the region has helped 

to cat.aly:t:e refom1 efforts to liberalize South Arnerica's energy sector. Countries in the region arc 

nm;v~ taking steps to tnake themselves tnorc cmnpetitivc and attractive to foreign inycsttncnt. It is in 

the national interest of the US to help these countries succeed and develop their energy sectors in 

order to increase regional political stability cmd econotnic gro\vth, promote global energy tnarket 

stability, and open up ne'\v opportunities for tnvestment of foreign capital from the L:S and 

else\vhere in the region . .:vhny South ~\.tneric:u1 tLTtions are also tr1king \velcotne steps to grow the 

share oflo\v-c::~rbon enermr sources in their enert,ry mix. Continued partnership to support 

cooperation on climate change 1s itnportrult to r1ccelerate efforts to trr1nsinon to r1 cleu1er energy 

future. 

South America's Importance to the Global Energy Landscape 

South _,_\rneriet1 phys an itnportant role in global energy supply, trade and geopohtics. The region, as 

a whole, 1s 11 net exporter of fossil energy \vith r1 posit1ve balance in o.il, g,1s and coal al.ike. Vene:t:ueb 

is home to the world's largest crude oil reserves, brgcr even than those of Sr1udi Arabia. 1 Bra:t:il r1lone 

could add well over a million barrels per day of oil production in the next t!ve years, and deepwater 

production in Brazil-,Llongside US shale-may be key to meeting global oil demand gn_}\\;-th and 

keeping a lid on oil prices in d1e foreseeable future. c\rgentina has the second largest technically 

1 i\t' of end-2015, :1ccording to the RP St:1hstic:1l Revie"v of\Xlorld Fnergy 2016. 
23


25455c-2.eps

recoverr1blc shr1lc gas and fourth largest tight oil resources 111 the world, 2 and the country is perhr1ps 

the best positioned to replicate something resembling the CS shale revolution outside North 

\tnerica. 

South ,\merica is also phylng ,1 leading role in clean energy technologies. In 20 1+, the region 

produced more than 60 percent of its electricity from renewable sources, compared \vith a world 

of 22 percent, according to the Intenutional Energy _A .. gency. 3 ~lost of this is hydropower, 

r1re rer1sons to be optimistic that other renewables c1n sc1le up in the cotnmg years, 

including the region's prodigious solar and wind resource potential. 

South America Is a Key Energy Trade Partner for the United States 

South _,_\rneric1 is r1 key market for energy trr1de with the United States. As seen in Figure 1, the 

United States is a rnajor recipient of South Arnerica's energy resources, although \'Olun1es ha\'e 

declined as US shale oil production hr1s risen. Venezuela and Colon1bt-1 are two of the five largest 

sources of Atnerica's cn1de oil itnports, and South _,_'\.tnerica, as a ,,,.hole, accounted for 1.6 million 

b/ d (or about a fifd1) of our gross cn1de oil imports in 2016. (that rises to nearly 30 percent if 

Mexico is included.) The L:S Culf Coast refineries are optimtzed for processing heavy or high sulfur 

cn1des that make up ,1 high percent,Lge of exports from Venezuela and i'vlexico (and to a lesser 

degree Brazil ::md Colombia). C::mad::tts a big competitor, and if the Keystone XL pipeline is 

cotnpleted, in1ports of herwy crudes from Latm Atnerica are likely to decline. \\Te in1port rehti\-ely 

little coal as a share of our total consumption (-lA percent),' but 80 percent of tl1ese imports come 

from South Arnerica, most of it frorn Colornbia.5 

::: C.S. Encrg~ Infonnalmn Adnnru::;tral.wn. "\\-'odd Shale Rc,;oun.c At>o;c,;,;mcnl," riL-l, September 24.2015. 

https:/ /\"\'\V\v.eia.gov/analy"'i:-/stud!e"'/world"'halega"'/-

1 International Energy A!:,>-t'n<.:y, "IEA \\?odd Energy Outlook 2016, 

+ FI i\, '"(201 (J) Tahle E:=:.-1 l~.S. Coal Summary Statistics, 2010-201 G," Odober-Dco·cmher 2016. 

https:/ /w\V\F.eia.gov/ coaJ/prnduction/ qwuterly /pdf/tes 1 pOI p 1 .pdf. 

s EIA, "(2016) Table 18 C.S. Coal Imporls," EL4Quar!er/J' Co11! Rtpor!, Odober-Deamber 20!6, 

https:/ /\V\V\F.eia.gov/ coal/ production/ quarterly/ pdf /t I Rp01 p !.pdf. 

2 
24


25455c-3.eps

Figure 1. CS Cn1dc Oil Imports from Latin c\merica (million barrels per dav) 

4.0 

3.5 

3.0 

2.0 

1.5 

1.0 

0.5 

00 

a Venezuela liE Colon:bia !ill Ecuad'Jr /t Brazil Ill Ot~e~ S Ame~ica .lvnerica anc CariCJoea.r '·· Mexico 

Source: FT \ 

~\s seen 111 Pigure 2, Latin Arnerica is also r1n importru1t r1nd gto\ving n1;.1rket for LTS energy exports, 

particularly refined products and-incrcasingly-liquctlcd natural g .. 1s (L~G). (her the hst dcc1dc, 

the US has gone !rom being the largest importer of refined petroleum in the world to the largest 

exporter of relined petroleum. A little less than a third (or about lA million h/d) of our relined 

petroleum product exports go to South c\merica and the Caribbecm, am! just about half (or about 2.3 

mill ton b/d out of ..J-.7 million b/d) if one includes rv1extco.6 Despite their large crude ml resen,.,.es, 

nuny South _,_\rnerican countries have f:-11led to invest in refining due to the lack of c1pital to build 

expensiYe infrastn.Khlre, cost overnms, and m::~rket uncertainty. The E1ct that many countries tn the 

region have subsidi:ted don1estic fuel prices has nude refining in\·esttnent unattr:-1Cti\·e, especially for 

national oil cotnpanies 'i:vith upstream priorities that arc short of cash. ~1oreover, technical prohlctns 

and poor maintenance tnean that tnany existing refineries operate far belo"\v capacity.' There is also a 

gro\\-ing mismatch between the hcayicr oiltnany countries produce and ""That their rctlnerics can 

process, forcing thetn to import light oil and other diluents. Sotne of l.atin .'\tnerica's largest l'..OCs, 

on the other hand, have made substantialtnYestments in US refineries. Venezuela's PD\·TS.\ OY\~ns 

6 EIA, "Exporls by Destination," EIA Pc!mlmm and fJ!her Liqmds, Apr 28,2017, 

https:/ /•;\T\V\F.eia.gnv/dnav/pet/pet_mnve_expc_a_EPPO_RFX_mbblpd_a.htm. 

r; l.isa V1scidi, "1-<'d\ing the c;~tp: Hrrw the lJS hnergy l)oom is Shaping l.atin 1\meric~m Refining i\llrrrkets," lnterAmcric:m Dialogue, I\:larch 2015, p.S-6, http:/ /\"-'Ww.thcdialoguc.org/wp-contcnt/uploads/2015/06/Filling-Lhc-Gap-

\Veh-T .isa-Viscidi-i\Luch-2CJ IS.pdf. 

3 
25


25455c-4.eps

C:itgo in the US with 749,000 b/d of rct!ning cavlClty," and Pcmcx owns h,llf of the Deer Park 

refinery (in a joint venture (JV) with Shell) \v~th 340,000 b/d of capacity.' 

Figure 2. LS Rct!ned Product Exports to Latin c\merica (million barrels per day) 

J.O 

3.0 

2.5 

2.0 

1.5 

1.0 

05 

0.0 0 c '~ ~j ~ 8 <D c~ ~ m 0 '~ :'! 0 C> 0 u 0 ~ 0 ~ 0 u i<:i 0 0 C.l 0 0 ~~ '" N N "' ('-! "~ N 0' '" ''" " 

~ 

~~ 

111 Braz:i! 1rn Chile lN ColoMbia ::; Ecuador l£'l OtherS Am:::rica /l,rTierica and Car:Jiobean ,,> fv1exico 

Source: r: I <\ 

<D 

0 

N 

In effect, our complex refineries in the Gulf Coast :Tnd Califon1i:-1 take crude 01l frotn Latin _,_\rnerietl, 

refine it mto v:Jluable petroleum products (such as gasoline and diesel) at a fairly high prot-It, Jnd sell 

it b:Kk to consun1crs across South ~t\..tncricr1, where refining capacity falls frlr short of locr1l dcrnand. 

US Gulf Coast refineries arc much better-positioned to supply the South c\mcrican market with 

products than cotnpetitors oyerseas because L:S refiners benefit frmn lo\v~er fuel costs (thanks to 

cheap shale and because of their physical proximity to the region. Exports to Latin ;\merica, in 

turn, play a role in the proftt,Lbility of L:S Gulf Coast refiners. 1

"' 

After the CS lifted its oil export hru1, Lr1tin Arnericr1 hecan1e a destination for US light crude exports. 

In 2016, about 12 percent of total US crude exports \\'etlt to this tegJ.CHl. G1ven that tnuch of South 

~t\.tnerican production in countries like \·""cnc:.::uch and Colornhia is of hcl\:y crude, this light oil fron1 

the US may well t!nd its way back to '\merica after being blended with heavy oil to make South 

s Cordon Meghan, "l;S Congress calls for cr·1 lJS re,-ie\v of Rosneft's potential stake in C1tgo.'' Sri''P Clabal J>latfl~ i\pr 7, 

20 l 7, h ltpti: // v-,'W\\• .platls.com/lalcs t -m·wti /oil/ washington/ us-con,b'TCtis-calb-for-dim-rC\ ic\v-of-rotincfts-21395865. 9 ".'\bout Deer Park," ~balff Ux Shell m f~.s., Shell, 1 Oct. 20 I C, http:ll"\\"\"'--.shell.usl ahout-uslprx>jects-andlocation s I deer-park-m mmfa.cturing-site I ~tbout -she 11-deer-park.htm I. 

Carr, "Livin' La Vida Local- U.S. Distillate Ell.porb From Gulf Coast To Latin.l'uneri.ca On The Ritie," RB~ 

I 0, 2017, https:ll rhnenergy.comllivin-h-vida-local-us-distillate-exports-to-latin-americn-on-the-rise. 

4 
26


25455c-5.eps

~Junericru1 grades suitable for processmg in ( iulf Cor1st refineries. 

\s b'igure 3 sho\vs, l.atin ,'\tnerica has also emerged as a market of choice for US 1.\JG cargoes since 

the first L'\IG export terminal at Sabine Pass started operations in l'ebruary 2016. ·rhrough "\pril 

2017, about a quarter of the 100-odd that \vere lifted from Sabine Pass \\'ent to South 

..\_me rica, or nearly half if \:VE' 111clude This ts quite a departure from the expectation a fe\\i 

yer1rs ago that rnost CS LKG exports \vould find their way to the Asim1rnarket, given the h1gh price 

of ~\sir1n LNG at the titne. The ability for LTS LKG to shift frotn one destitution to r1nother, based 

on conunercial considerations, is a key feature of US LKG exports that is nuking the global natur-,11 

gas market tnorc cmnpctitivc, secure, and cfficicnt.11 

Figure 3: Destinations of LS LJ'-G Export Cargoes to Date (February 2016 d1rough ;\pril2017) 

Source: Bloomberg 

The region's potential as a destination for CS L'lG cargoes is set to increase oyer time. As 

production ramps up at US Ll'\G export terminals, i\merica will soon eclipse Qatar as the biggest 

source of t1exiblc L'lG supply that can go anvwherc in d1e world, depending on the price. 12 "\s I 

have argued previously, US J .\JG will make the global gas m,Lrket more flexible, more liquid and 

more integrated, thanks to the unique structure of US T .NG contracts. 1

" Jllo::tting storage and 

1·1 5 
27


25455c-6.eps

regasit!cltion (FSRL) technology has recently emerged as the quickest, cheapest and most tlcxible 

\vay to take adyantagc of this nC\vfound supply, enabling emerging economics to itnport gas at a 

fraction of the titne and cost than \Vcmld be the case \\-ith traditional onshore 1.1'-G import terminals. 

South America is already the biggest regional market in tenns of floating L'\IG rcgasification 

cap,Lcity, and this \Vill further expand \Vith the addition of at least t\vo ne\v l ,SRU terminals (in Rr,L7.il 

Jnd Cruguay) over the next fe\v years. 14 Colombta has recently joined the ranks of LNG importing 

countries, w1th the addition of ·(1 nc\v t1oating tcrrninr1l cr1rlicr this ycr1r. 15 

Oil and Gas Opportunities in South America 

South America has the potential to be an important source of futcre energy supply, yet oil 

production has been stctgnant or falling in many countries in the region (Jiib:rure 4). h1lling output, 

cotnbined \vith the recent ml price colhpse, lus se\'erely strained rnany South An1erican countries, 

providing ·,1 c1t·,1lyst to undertake much-needed reforrns to aHr·,1ct foreign investment. As FigureS 

shows, perceptions of pohcy risk retnain a hr1rrier to investn1ent in tnuch of South _'\tnerica. 

FiglJre --1-. Oil Production in Selected Latin --:\merican Countries (million barrels per day) 

4.50 

4.00 

3.50 

3.1J:J 

2.00 

1.GO 

1.00 

G.OJ 0 ,..~ 

N 

~ ~ ~ w ,_ 0 0 '"' 0 0 0 u c:::. C;! 0 

·~ '" "' "' ,,, 

--Ecuador """'="'"V&nezuela 

Source: BP St<1tistical Re,·iew of\\"orld Energy, IK\ 

1-l- \\·nod \hcl<.,_en?:ie, "C;lnb~t! I ,NC; - rSRl; n'i-en~ew 2017," 

~ Intcmational Gas T_-nion, "2017 \\'odd LNG Report",'"'""'"''"'",;""' 

http:/ /v;:v;:\.v.-igu.nrg/ne\.vs/igu-rele:lses-2017-wnrld-lng-repnrt 

5, 2017, p.S, 

6 
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25455c-7.eps

Figure 5: Fraser Institute Global Petroleum Survey 2015- Policy Perception index 

Venezuela 

Ecuador 

Argentina - Mendoza 

Argentina- Tierra del Fuego 

Argentina- Santa Cruz 

Argentina - Salta 

Bolivia 

Argentina- Neuquen 

Argentina- Chubut 

Brazil - Onshore 

Peru 

Mexico 

Brazil- Offshore Pre-salt 

Colombia 

lli!liJ!!!!Il!!!l!!!!!!!!lfl!!ll!ll!!!!l!ll!!l!ll!llll!.rf.,;i;f~;~f!f;!J:1Hitf·,:;~;;s:~·:{£i~~~~:;!J;~t;"jJ 

·t,"~C:;i,"{[t~~4fi;.;£~t:~~~:;;;&~:%f£;::'7~~FZ~~h,~ 

Brazil- Offshore Other !11 __ 1!11 __ !!!t!ll_!!!!!!!ll!!!!!!!!!!l!ll!!ll!!!!ll!!!R•--0(i;;"J1 

Uruguay 

Trinidad and Tobago 

10 20 30 40 50 60 70 80 90 100 

11 Mild deterrent to investment '"Strong deterrent to investment "Would not pursue investment due to this factor 

Source: Jlraser Institute 

Bru:;jl 

For oil supply, Brazil's dccp\vatcr "pre-salt" oil resources arc atnong the most attractive oil assets in 

the \vorld, and economical to develop even ilt todJly's relatively lo\v oil price lcvcls. 16 The 

International Energy c\gency projects Brazilian production to grow by more than 1 million b/d by 

2022. But '\Vith recent n:'t:,:rulatory changes, others ::Lre even more bullish. 17 

\Xl1ile impressiYt'. even this outlook is a far cry from \vhat many had forecasted a fe\v years ago. ~ Tn 

a special section of the \'V'orld Energy Outlook (WED) in 2013, the IEA projected Bra"il's oil output 

\vould reach +_1 million h/d in 2020 and G million h/d in 203'i 19 The most recent WEO nmv 

projects production of 3.1 and ..t-A million b/d in those years, respectively. 20 1\Ioreover, Brazil's 

ml-to-brazll. 

17 Cit1 Research, for example, is projecting a roughly 2 million h/d rise thr()ug;h 2022. See Cit1 Commodities Research, 

2022: Return of the Unconvcntwnals," February 1, 2017, p.-l-9. 

2011 Eusmess Plan projected Era7ili:m nil pmduction to re:1ch 4.9 mill! on barrels per day by 2020. See 

http://v;.--v;.""'>v.in\Testidm1letr()bms.cnm.br/dnwnload/1575, p.l R. 

19 IEA, "IE~'\ \\.'orld Energy Outlook 2013," IE.rl., p...J.Sl. 

y, TE.'\, "'TI .. '\ \\.'orld l.nergy Outlook 2016," Tr;;A, p.l36. 

7 
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legacy fields have sotne of the steepest decline rates in the world, further hrunpering efforts to grow 

the nation's output. 

Brazil's energy sector has been hampered for several years by the moves toward resource 

nationalism undertaken by the Rouseff administration, forcing Petrobr;:Ls to be the operator and 

have 30 percent equity in all pre-salt projects, subsidi/.ing the domestic market, imposing stringent 

locr1l content requ1ren1ents (often subject to corruption), and swapping reser\'es for equity in 

Petro bras. The market capitali"ation of the t!m1 dropped from a pevk of more than $300 billion in 

2008 to less than $20 billion in early-2016, bcl(xc recovering to around $67 billion today.21 

More recently, Bra?;il's energy sector has suffered from the controversy preceding the tmpeachment 

of fonner President Dilma Roussefflast year and the epic corn1ption scandal at Petrobras. Petro bras 

is financully crippled by the largest debt burden in the global oil industry, and plans to sell off assets 

and reduce costs to brmg thr1t debt burden dc)\\111. It hr1s nude some progress in doing so, r1s 

e\'idenccd by the cornpany's latest quarterly e1n1ings report. Petro bras is ahe·,1d of schedule to meet 

its target of reducing net debt to 2.5 titnes earnings before interest, tr1x r1nd depreciation (EBITD~\), 

from 3.2 at the end of March 2017 and 5.1 in 2015. 22 Asset sales amounted to $13.6 billion in 2016, 

somewhat short of the company's $15 billion target," and Petro bras is planning divestments totaling 

$21 billion in 2017 and 2018. 24 

Tn the afterm::tth of the corn1ption scandal ensrulfing Petro bras and much of the country's oil and gas 

sector, Petrobrr1s's new CEO, Pedro Parente, has de\- eloped r1 strategic plan to restructure the 

company and reform its policies to deliver more accountability and transparency. The Brazilian 

go\'enunent has introduced \vide-rr1nging regulatory refonns to attract rnore foreign investtnent in 

the country's energy sector, "\vhich it YiC\vs as key to boosting oil output and supporting an econotnic 

recovery. 'l'he reforms '\\'ere aimed at changing the goyernment's preYiously tight control oyer 

deep\vater developments. International oil comp::tnies can no'\v be the operators of deepvlJter 

projects-a role that"\vas previously reserYed for Petrobr<Is in the most prolific areas. Local content 

requirernents, which previously held back field deYeloptnent, haYe been eased, and the goven1n1ent 

phns as rnany as 10 bid rounds for new exploration blocks over the next three years. 25 \X,.hile the 

refonns have been pr01nising, obstacles remain, including atnbiguity about local content ndes and 

different treatment of new Yersus current licenses. 

Reform efforts hold promise to not only help boost Bra?;il's output, but <.Llso open up ne>.v 

opportunities in BraL:il's deepwater province for foreign oil cornpr1nies, inYestment funds and service 

companies. ror example, Statml p~ud $2.5 btllion for a 66 percent stake in the Caracara pre-salt fteld. 

and Total paid S2.2 billion for ;v package of ;vssets that included a 22.S percent st;vke m the lam t!elds 

::1 "Pctrohms l'vhrkct Cap," Y C:hartr, 16. 2017. https://ych:lrts.com/cnmpan-ics/PRR/m:lrkct_cap 

221\tarta Nogueira :mel Rodrigo \'iga "Record Petrobras Operating Profit Speeds Debt Reduction," R.l'!tftr~(, May 

11, 2017, htlp://w\\·\\·.rcuk:r::;.com/ arllclc/ut>-pclrobra::;-rc::;ultt>-lllUSKBN187352. 

I ;uciano da C:osta,and Tatiana lhut7.er, "Bra7il's Peh-x>bras s:rys Missed 2015-201 (J i\sset Sale Target," R.eufn:( "1Jftca, 

Dec 28, 2016, http:// af.rcuk:rt>.com/ articlc/commodllic::;Nc\"::;/icL\FE6K14~'\03Y. 

2-J. Investor Relations Press Release, "'\e\v Divestment Portfolio," JnJJe.dor RelcJiwH.f PetroT3ra.f, i\-hy 10, 2017, 

8 
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and r1n operating 35 percent stake in the Lapa proJects. The reforn1s present new opportunities for 

US tlrms to invest as \vcll, perhaps through joint ventures ''Tith other foreign oil cotnpanies actiye in 

Brazil. 

'l'he oil price collapse h1s undermined Rr,1zil's outlook as '"-ell, although Petro bras estimates its presalt break evens at around S45 per barrel (and others put it eH·n lo\ver). These are among the most 

attrr1cti\-e deepwater prospects in the world, although the brea.k.even prices r1nd risks in Brazil renuin 

high compared \vith the rest of the region, including shr1le. l'vlexico's deepwater prospects could r1lso 

be ·,1 fonnidablc con1pctitor. :\Jonethclcss, Brazil stands out in the region (along with ~fcxico) for the 

credibility of its nC\v institutional fratneyv-ork and for attracting so much nC\\T foreign investtnent. 

Looking fonvard, the lnternationall:inergy -''\gency and others have \Varned that sharp cutbacks in 

capital investments in the oil sector during the price collapse of the bst t\vo years me.ms that ne\v 

supply mr1y not be developed to rneet r1sing dernand. Non.vithstanding the likely r{1pid r1se of shale, 

oilrnarkets could be tight by the end of the decade. If den1and growth ren1ains C\'en n1oderatcly 

strong, LTS shale oil alone likely will not be sutEcient to tneet it., and higher prices could trigger even 

more investtnent in unconventional resources like Brazil's pre-salt fields. 

\X'l1ile Rrazil had been self-sufftcient in natural gas through the end of the 1990s, it has since 

imported gnJ\ving volumes of Rolivian pipeline gas <Lnd, more recently, 1.1'-.G. Development of the 

pre-s<tlt ml resel\.-es \viii also yield large volumes of assocuted gas, and developing the necessary 

infrastructure to accomrnodate that gas rernains a challenge. ~'1.. mr1jor expans1on of deep\vater 

production \vill require some combination of offshore evacuation infrastructure, onshore gas 

processing, greater don1estic dernand, r1nd LKG export hcilities. \\rhether dornestic politics rnay 

lin1it export opportunities in the face of rising domestic itnport needs, as seen in other countries, is 

another political risk for international firms. 

AtJ!llliiJZa 

The success of Argentina's slulc oil and g,Ts devcloprncnts ·(Uso crucially depends on foreign capit;Tl 

and technology. The country's Vaca 'vlucrta shale play is one of the most promising shale resources 

in the world. 27 The area has seen increased activity in recent years, not least thJlnks to the active 

participation of international oil maJors, such as Chenon, Exxon'\lobil and Shell, as well as the 

major US-Lused mlfield serYice companies, such as Halliburton, R<Lker Hughes <llld Schlumberger. 

~"'-fter sever<1l years of shale drillmg, the perform<1nce of the most recently drilled wells riv<1ls th<1t of 

the Eagle fiord sh<Lle formation in the US, accordmg to \,forgan Stanley, and honzontal drilling is 

econornically viable at today's prices and drilling costs. Ilor1zontr1l well costs h:n-e fr1llen by half 

since 201S-although significant infrastructure, tnanagemcnt, and cost issues rctnain. 29 

2G Ju~tin Jacob~. "'Trying to right the Petrnhms ship," Petmif'IIHJ F.aJIJ()f'NHf, i\farch R, 2017. 

27 Philippe A. Charla, "Geopolitic~ of Unconventional Resources Oubide North lllnerica," Society of Pelroleum 

Engineer~, 2016, p.1-5, https://'>V'iV\v.onepetro.mg/conference-paper/SPI.-1 RI405-\·1S. 

i'vfmgan Shnley Research, "'.YPf''s Yaca \'fuert>t: -\li;,"e and Kicking!," ."forgan Stan!~)', \·hrch 29, 2017, pA. 

Goldman Sachs Research, "\'PF Socicdad ~'\m;mma (\"PF): Asscssmg productivity/ efficiencies in Yaca .\lucrla; 

IQ2017 preview," Sa,·hr, i\'fay 9, 2017. 

9 
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Four years after the tirst pilot project, shale production reached 62,000 barrels of oil equivalent per 

day, representing around 5 percent of 1\rgentina's output. 30 This growth was achieved in the face of 

a challenging political, regulatory and oil tnarket environtnent, \vhich is improving. rvioreover, just as 

US shale output was consistently underestimated, it is reasonable to expect that technologv and 

productiYity improYements yv-ill bring do\vn costs <Uld increase the production potential in i\rgentin,L 

JS well. re\\:t'f than l()() hori/.OlltaJ \VC'lJS have been drilled in the \Taca J\fuerta, compared \Vith nearly 

20,000 in the Eagle Ford. 

Nevertheless, rarnping up production at Yaetl _i\.'[ucrta will require a sharp increase in drilling ·,uu_l 

foreign im.rcstmcnt. DcYcloping Vaca ~lucrta's shale resources requires capital expenditures of 

bet\veen Sl 0-15 billion annually, <Lccording to tndustry estimates. l :oretgn investment also brings 

much-needed technology and expertise. (Shell's CEO Den nn Deurden recently spoke at the 

Cl ·:RA \\/eek industry conference in Houston about the company's first remotely-drilled \veil in 

~\rgentina's v-aca _i\'Iuerta play, which Wt1S controlled by Shell engineers Sltting in Calgary. This well 

was also Shell's cheapest hori:t:ont-,11 well in Argentina at the tirne).31 

Attracting foreign investment'i.vill require continued imprmTment in the political and regulatory 

landscape--especially given the cotnpetition for capital investinents frotn other regions \\l.th 

<Ittractive ml Jnd gas resources. Political risk has long loomed <IS ::1 major risk in Argentina, as seen 

,.,.,-ith the prior administr<Ition's ren::Ltion::Lliz<Ition of }"PI: from Repsol in 2012. 'J"he country has one 

of the worst historical records for respect111g oil contracts in the industry and is notorious for tts 

political vohtility. One adyantr1ge of shale is tlut sunk costs are smr1ller and capitr1l recovery is Elster 

tl1an in conventional oil production, so the expropriation risks arc comparably 10\ver. 

'\rgentina's legislative elections in October 2017 represent key milestone tor the continuity of tl1e 

Macri administration's reform progr::Lm. Rigid bbor contracts h::Lve been seen as a driver of lo\v 

productivity. but unions recently ::~greed to make ch::mges in ne\v contracts for unconventtonal ml 

Jnd gas activities aimed at boosting productivity and lo\vering drilling costs. More broadly, 

~\rgentina's politKal r1nd econornic challenges over the last sever;1l ye1rs, including the lack of rKcess 

to tlnancial markets, have ad\'erscly irnpacted the business <Uld investrnent clirnate. The current 

go>.rcn11nent is undertaking much-needed tnacro and fiscal adjustments, but econmnic challenges at 

hotne retnilin iln obstacle. The governtncnt has also tnaintained ilrtificially high cn1de oil and putnp 

prices witl1 the goal of stimulating production and employment, but history, including in the LS, 

sho"\VS that price controls do more harm th,m good over time, and m<Irkets \viii need to be 

hberali"ed." 

Uncotnentional gas in Argentina 1s still in e1rly stages, but the go\'enltnent is trymg to protnote 

foreign investment'i.vith il pricing incentive schctne. Boosting Argentina's gas output is key to reduce 

Shnley Resea_rch, "'l'Pf"'s Y:1.c:1. \-fuerh: ·\li;,"e a_nd J..:icking!," .1-forgan Stanl~y. \-hrch 29. 2017, p.4. 

lo .Enler lhe Dit-,>iLJ Age," Fhe bcmwmi.:;l, ~'\pril 6, 2017, 

hllp: I I v.:v.:w .econom1sl.com/ news/business/ 21 720338-lalk -dit-,rilal-oil-ng-ma y-be-hil-prema lure-oil-slruJSJ~le s-enlerdigihl-:1ge 

~ Jason "~'\J.nerica's Energy Policy- bro1n lndependence to lnterdependence," Hori:";_Oil.J':Jottnw! of 

/Jn·elo,0ment. Autumn 201 (), Is~ue l',o. 9, 

hllp: I I v.:v.:w .cirsd .org/ en/hori.L:ont-lhoriL:ons-a ulumn -2016--issue-no -8/ americas-energy-policy-from -imlependence-lointerdependence. 

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a growing dependence on in1ported g(1s-quite a turnaround frotn its position as r1net gas exporter 

prior to 200-l. As one example, the 1\rgentina-Chilc pipeline \Yas built 20 years ago to supply 

Chile's gas needs from /\rgentinian production, but no\v used to transport gas imported by Chile 

as LI'\G, to •\rgentina. Given a decade-long decline in domestic gas production, ,\rgentina relics on 

costly l.l'..G and imported gas from Bolivia for more than one-fifth of its gas use. This is not only a 

drag on the economy, but also presents energy security concerns. Roosting shale oll and gas output 

hr1s the potenti·(1l to clirninate Argentim1's si:t:eablc energy trade ddicit~ which has gone frorn a $6 

billion surplus to r1 $6 b1llion deficit over the last decade;"·" The go\'erntnent incenti\·e progratn that 

pays $7.~0 per million 13TC production has been extended through 2018 at the current rate, 

and will be gradually reduced to per million 13'1'L by 2021 before market prices take effect from 

2022." 

..\_nother key to reducing this enerb'Y trade deftcit is curbing domestic demand in Argentina. The 

l'vhcri r1dtninistrat1on is :1iming to do that through increases of gas and electricity tariffs towr1rds 

intcrnationallc\'cls. Libcrali.zation of gas and power prices has been at the heart of the country's 

nucroeconotnic r1djustrnent. ~ Elitninating fossil fuel energy consumption subsidies is a welcotne 

dn-cloptnent, as it not only cases strain on goycn11ncnt coffers (gas subsidies cost the goYcrmnent 

$5.7 billion in 2015),36 but also reduces energy use and greenhouse gas etnissions. 3

' _Although the 

Macri administratton has sloyv-ed the pace of price adjustments, it is still aiming for full liberalization 

by the end of the administration's first term in office. 

As this cmnrnittee kno\\'S well,\;' enc..::ueh is on the brink. The situ·(1tion in Venezuela is tragic, as the 

nation descends further into crisis, and it could completely unravel into even tnore Yiolcnce and 

chaos at any moment. The consequences matter enormously for the health ,md safety of the 

\Tene?:llelan people, for the stability and economies of neighboring countries, and for globJl oil 

markets and US dependence on VenezueLm he::L'\7 oil. 

\T ene..::ucla lus the largest oil reserves in the world,J 8 but the oil price collapse, hlling production, 

and chronic tnismanagCtnent ofPD\-;-S_A and the wider econmny has contributed to seYere 

cconotnic crisis, rJlpid int1Jltion, Jlnd shortages of food, tncdicine Jlnd other hasic goods. The 

Research, ''\TF's Yaca _\fuerta: _AJiye and Kicking!, _\·larch 29,2017, p.2l. 

'',-\rgentin:l't' Tecpetml Phn 150-\vell V:1m \·1uert:l C>tt' "Sc'.,...·r Clobal Piatt>, \·hrch 23, 

20 I 7, https: //\\.'\V\v.pl>tttt'.cnm/btet't -news/ n>ttural-g..J$/huennt'>Lires/ a_rgentinas-tecpetrc)l-p l>tnt'-1 SO-v.-ell-vac>t-muerta212499(15. 

~~Benedict \hnder. "Argentina R>Lises T'lectt;nty T :lt;ffs by up to 148°;, to flight Deficit," Pinancial Timex,J:lnu:lry 11, 

2017, https:/ /w\\'\v.ft.com/ content/ fa0718c 7 -a223-3af5-alc3--k3f885697 a3. 

31 ' "~'\rgcntma Proposes 203 peL Ihkc 111 Natural Gas Pm.ct:. at Pubhc IIcanng," IIqJ- The San Du;go T.._Tnwn Trib11!e, 

September l (J, 201 (J, http:/ /v.'\"\'\V.sandJegnumontnbune .com /hoy -t'an-diegc) / t'dhoy-argentina-prc)poses-203-pct -hike-inna lural-gas-20 16scp 16-story .html. 

37 Tosh1yuki Shimi, "C:ommenta_ry: Putting the Right Pnce on Fnergy". Trdernaftmw! F.nugv A~ttt:T, -\pnl 27, 2017, 

https:/ /\\'\V\F.le:Lnrg/ newt' room/ ne"\Vt' /201 7/ april/ commen tary-puttin g-the-righ t -pnce-on -energy.htm 1. 

OH Note that many experts believe Venezuela's oil rcscncs arc\ astly O\T:rstatcd >md 1nostly consist of extra-hutvy oila_lthough even if adjustmentt' are m:1de, Vene?:ueh still has mme of the hrgest ret'erYes in the world. 

II 
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accutnult1ted dechne in GDP is estirnr1ted at 26 percent since 2013.,'9 In what \vas once Latin 

~'\..tnerica's richest country, people arc no\v starYing and dying of easily treatable illncsses.40 \;'"cnczucla 

depends on oil for tnore than 90 percent of export revenues. 

Vene;;;uela already poses a major risk to '\\'orld oil m,1rkets, \Vith production slipping from ,Lround 2.+ 

mill ton b/d last year to around 2 million b/d today. A cnppling electricity crists last year thre:Jtened 

PDVSA operations, r1nd se\-erc cash constraints nletUl th(1t PDVSA struggles to rnaintr1111 its oil 

export tertniruls, retlneries and other infrastructure. Although it hr1s tried lurd to r1ttract fore1gn 

investn1ent, the outlook is bleak. 

The strain oflo\v oil prices on PDVSi\'s ftn<lllces threaten an eyen more crippl111g impact on the 

company's production tnoving fonvard.-+1 PDVS_A is already in arrears \vith suppliers and JV 

partners, preventing much needed investment to maintcLin supply. Jll)VS,\ may \veil default later this 

ye1r. If it does, oil production could be expected to decline even more steeply, r1s it would struggle 

to irnport diluent to rnix with Venezuelan heavy crude, or pay for essential oiltlcld ser\'icc 

opera11cms. 

'\t the heart of PDVSA's financial strains are high bond debt service pav"nents which the company 

has pnoriti7.ed against payment to other creditors and suppliers. PDVSA fears that a default could 

le,Ld to disn1ption of its tankers or receivables from disgruntled bondholders \Vanting to sei7.e 

\Tene;;;uelan assets abroad. But in<tbility to continue f111ancing itself forced PDVS,\ into <1 debt s\vap 

last year, and the cornpr1ny had to put up 1ts refinery assets in the LTS as colhteral for the trr1nsr1etion. 

The Russian oil companv Rosneft also received a minority share of Citgo, owned by V enezucla, as 

colhteral t(x its $1.S billion loan to PDVS/i last year. A. potential consequence of defllllt may be 

that Rosneft takes control of Cit:go, a major rcllner in the US-" ;\s this Committee has emphasized 

in the p,Lst, the potential energy security implic1tions of such a development \Varrant immedi,Lte 

scrutiny by the Tnmtp Admintstration. 

T\vo tnonths into street protests, there is rnuch n1ore talk of regitne clunge. The gcn·ernn1ent's 

SC\Tre financial strainrnak_es it more diHicult to buy the support of the rnilit·(1ry. The opposition 

appears more united than ever, and President Madura's decisions, like calling a constitutional 

assetnhly, have fueled protests even further. 

\!though oil markets today are buffered by high inventory levels, further disn1ptions in Vene;;;uela's 

oil output pose risks of potenti;.Tl oil price sp1kes 111 the years ahead, wh1ch \vould thus irnp;.Kt LTS 

l'orcm. ''Vcnc:zuch is .'lt>lrvlng". Tht' lf7llfl Street Joumal, i''vfrly 5, 

starving-1493995317. 

11 llllsa Palauos (2016). ''Vcm::.-:ucla's Growmg fusk to the Oil ).Iarh.ct." Ccnlcr on Global Energy Pohcy, August 2016. 

p .. ), 

htlp:/ / cncrgypolicy.columbia.cdu/ Sllcs/ default/ flies/ energy/ CGEP _ YEKEZUELA'S.-'·o20GRO\X'I::.JG'>020RISK.-' o20 

T0°·n20THR0 /n200TT ,

01n20i\{,'\RKFT _,'\ugust0

1.-,20201 G. pdf. 

+2 JV!egh:m Cordon, <'lJS Calls fc)\· Cl-<'llJS Re.,-ie-,.v of Rosneft's PotentiaJ Stake m C:itg<.>," SC.'l'J> (7fobal Platt.\~, 

April 7, 2017, 

2l.J95R65. 

12 
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consutncrs at the pump-yet another reason why the US Strr1tegic Petroleun1 Rcscnc rcn1t1ms a v1tr1l 

national securitv asset despite the recent decline in US oil imports resulting from the shale boom." 

Colomb; a 

Colombi<-1 h<1S enjoyed <l ret'1::1rka1Jle transformation in its oil r1nd gas sector su1ce reforms 

ia 2003 turned around These mcluded Ecnpctn11':1 :ransition :1 stlrcCl\\tnecl to ,ln .1nd int-egrr1ted entity, the crer1tion of an independent 

;.tgcncy, shifr rfmn production sb;u-ing ccmtr:lCts to cnncesslnn-hascd regime 

t;Lxes and royalties. ln response, oil prodt:ccion nearly doubled from 2005 to 2013. 

I3ut sector faces declining 

suffered cil prices, oil field upex tn has L!lle:1 Jt an especi:Jlly rapid 

rai-e. \\,'ith project1ons for continued production declines, the governtnent is acti\'ely seeking \\iays to 

;.tttract rnore investrnent with new fiscal incentives offshore. The historic pe;.tce agreernent with 

F~'\RC r1lso paves the way to a new errl of security r1nd prosperity tlut c1n attract further investtnent 

into Colombia's energy sector. At the same citnc, ho\vever, the incorporation into the political 

process of fonner rebel groups (namelv Fc\RC and ELN), which are opposed to foreign investment, 

may present a l_urner to continued intlo\vs of outside capital. As ne\v governance arrangements take 

hold, it \vill be important to balance the need for consultation \Vith local communities \vith the need 

for industry to h::tve a clear understandmg of the ret,ll..tlatory and licensing process moving forw::~rd so 

they cu1 phn r1nd itnest. 

Colornbia also has suhstm1tial unconventional oil and gr1s resource potential with current cxplorr1tion 

activities concentrated in the Middle Magdalena Basin. Yet the development of uncmwcntional 

resources faces intense opposition from environment,1l, indigenous <llld other groups ..... Colombia's 

Fnvironment \1inister recently S<tid the country may not be ready for sh::~le development. although 

he \Vas reportedly rebuked by President Santos, sending conflictmg signals about the government's 

posit.ion. ·~ If Colornbir1 is to develop its slule resources, the governrnent will need to tnaint11in 11 

strong regulatory regirne ·(Urncd at s·(1fc ·(1nd responsible production and engr1gc with local 

comtnunities to address their important concerns. ~'\t the same titne, to encourage private sector 

investment, it should also implctnent regulations consistently, provide a stable regulatory regime, and 

enforce existing lmvs. 

In er1rly 1\-Iay, Ecopetrol r1nnounced r1 nujor offshore g.1s in Colotnbia's Canbbeu1 Se1-

the largest fmd in Colombia's oil and gas sector in three decades. President Santos tn1mpeted the 

13 Jason Congressional'leslimony Before the Commiltee on l:inergy ~md Natural Resources, Lnited 

.'ltfltcs Senate, 1st I 14th Congress. October 6, 2015. 

https:/ / \"\'"\V\v.energy.senate .go"\-/ public/ index. din/ files/ serve? .bile _id :::(1ffcObd 9-49b 8--l-85d -b961-4 39ac(Jb38bd2. 

11 ~'\hanza Colombtana Ltbn: de f<rackmg, "To: Prcstdcnt Juan l'vlanud Santos Calderon," l'vfarch 27, 2017, 

https:/ /redjusticia:nnbientalcolombia.files:wordpress.com/20 17/03/2017 -03-14-carta-pres!dentes<mto~_finalconlogos.pdf. 

+3 "Colombia No Est a Prepamda p:1ra el Fmc king, Dice \finAmhiente," RO\-;- Radm, i\hrch 22, 2017, 

http:/ /\\'"\\'"W. rcn md!n.cnm/ medin:unh iente /colombia-nn-e sta-prepamda-p :u-:t-e 1-fracking-dice-minam biente/. 

1r, Chris Kraul, "ColombHm President Announces Largest Gas Find in Decades," SC.':"P Global Plath, I\hy 3, 2017, 

https:/ /-....v\V\V. phtts.cnm /1 :1test -ne-....vs/ n :ltuml-gas/hngot:l/ co lnm hi:1n -president -:1n nounces-hrgest -g:ls-find-21625--1-SO. 

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find in a telcYised press conference and sr1id it would enable Colombia to be sclf-suHicient in gr1S in 

the coming years-" Colombia's production has declined in recent years, and it is projected to be 

a net itnporter in the near fuh1re. l'-B\T sources of gas supply, frotn shale or offshore, haYe the 

potential to meet Colmnbia's rising detnand \vith dmnestic resources. 

Other 

It is beyond the scope of th1s testin10ny to go into det.ail into the outlook for eyery South ~\rnericru1 

country. Other countries to note include Ciuyaru19 and Surinarnc,50 with the offshore areas of these 

countries emerging as one of the region's top deepwater frontiers-although the dispute "~th 

Vene;;;uela over claims to the offshore territory will need to be reso\yed. Chile also holds much 

promise as a ne-.;v- shale gas pruvince.51 

Renewable Energy Opportunities 

South "'unerica is not only important for fossil fuel production and trade, but it is also an important 

gro\vth region for rene\vable energy. The reg-ion already generates tnore th~m 60 percent of its power 

from rene\vable sources, the highest in the \vorld, according to the ll·~A. 'fhe vast majority of this 

comes from large hydropo\ver plants. In 2015, Rra7.il gener,Lted 60 percent of its electricity from 

hydropo\ver :Jlone. The s:Jme share \Vas as high :JS 7+ percent in l~n.lt,'llay and Costa Rica in 2015. 

Ilowe\'er, further large-scale hydropower developments are increasingly constrained by reliability 

issues, 53 as was demonstrated during Brazil's multi-vear drought between 201cl and 2016.54 

In South .:\merica tnore than in any other region in the ·world, the reliability of large atnounts of 

;;;ero-cLrbon energy is being negatively affected by the unfolding imp,Lcts of climate ch,mge. 

Droughts h:Jve become increJsingly frequent and severe, so \V:Jter is not :Jhvays ;_rvaiL!ble \Vhen 

needed. Moreover, hydropo'\ver is challenged by grmving public opposition against hydro projects in 

17 "Late:,l Piml off Colombia Could Delineate Ke\\· Gas Pro\im.e," "1\TeJJ.·Jb(/Je, Ed. Ryan SlcTenson, \\-'eeh. 18, hsue. 662, 

i'vhy 9, 2017, http:/ /ne'i.v~ba.~e.com/topstories/hte~t-find-colrnnbirr-could-deline~tte-ne\v-ga$-prrn~nce. 

~ ~'\nouk IIonorc: (2016), "South ..c"uneman Gas I'vlarkels and the role of LNG," Oxford Imtllutc for Energy Studies, 

October 201 (J, 

mobile-hess.html. 

'>·~· l.d Crooks and Andres Schiprrn-i, "(-;uyanrr o-il prospects stir friction hchvccn Ycncmch rrnd lxxon \'fohilc," The 

_\larch 2D, 2ll17, https:/ /'>\\'i."i.v.ft.com/content/013bfd26-Da8e-lle7-ac5a-903b21%lb+3. 

'>1 "Conoco Phtlhps eye:, Chile ;md Colomb1a," UpS!rl!am, 

http:/ /'.'i.'"'i.'i.'"'i.\T.up~treamonl!ne.com/h:lrdcopy/ 119221 ()/ conocophillips-eyes-chile-and-colombia. 

'>2 IEA, "~fcdium-Tenn Renewable Energy I\:larkct Report 2016", IE.rl, p.80. 

53 Slade Jolmmn and Kirstin Eemdt, "Hydrc)elech·ic Plants :\ccount for more than 7()0/o of Era.7il'~ Electric Generation," 

Today m hf~. ,-\ugu~t 1 L 201(J, http~:/ /'.'i.>.\'V.'.ei~L_g<.l'i.T/todayinenergy/detail.php?!d=27-1-72. 

'> 1 Caroline "Drought ends in BraL:il's Sao Paulo but future still uncertain," Rntfen·, February 18,2016, 

http:/ /'.'i.'"'i.'i.W. reuters.com/ a.rticle/u~-hra.z-il-wa.ter-idl ~SF.::CKO\:-r..ll:J. 

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environn1entallv sensitive arer1s. BraLil r1nd Chile hrwe recently had to c1nccl nujor dan1 proJects on 

environmental grounds. 55 

Non-hydro rcncwablcs currently represent a small portion (less tlmn 10 percent) of the region's 

electricity mix. But soLLr and \vind capacity have seen healthy gn)\Vth in recent years and are set to 

expand further at a rapid pace in the medium-term, not least thanks to the region's excellent wind 

and sohr resources.56 The lEA predicts that wind capacity willmcrer1se 2.4-fold bet\veen 201S and 

2021 across the region, while solar P\)' et1p;Kity is expected to gtO\\i rnore than 6-fold over the s~m1e 

period. 5

7 Renewable developers in the region face a host of challenges, including high interest rates, 

financing difficulties and tnacroeconmnic risks (in the aftennath of recessions in Brazil and 

\rgentina in 2016) as \\'ell as <Llack of grid interconnectiYity in many parts of the region. The lack of 

gas-tired generation capacity and pipeline infrastructure-\vhich could be an itnportant means to 

balance the intermittent enert:,'Y supply from solar or \vind-can also hinder the deployment of \vind 

and sohr power :Kross the regJ.cm."~ If these issues c1n be resolved then the lEA reckons tlut the 

region, as a whole, could sec 20 percent rnore renewable G1{ncity additions through 2021 than in the 

agency's br1se case. 

Countries such as Chile, Brazil, 1\'lexico and _Argentina have recently adopted regulatory refonns to 

encourage rene\vable eners'y\vithout subsidies. Chile, for example, h<Is encouraged rene\vable 

investment by auctionint; smaller contrcLcts, and has a framt'\\'ork trusted by investors. It 

hc1s set <1 t:ctrget of producing 20 percent of its electricity non-hydro rene\·vable sources by 2025. 

In Argentina, the .i\L1eri adtnimstrr1tion h~1s r1lso placed its bets on renewable energy. Congress last 

year passed a bill aitncd at increasing the share of rene\vablcs in Argentina's energy tnix to 20 

percent by 2025. The results of r1 bidding process hunched last yer1r for new renewable irn-estlnents 

was promising, and a new round is scheduled for J\!ay 2017, 

Rene\V<tble enert,ry in South ,\merica is beneficial not only for environment<Jl reasons, but also 

importcmtly for energy security and economic gn)\\"th in the region. Despite the region's rich fossil 

fuel resources, tnany South Arnericu1 countnes r1re large energy in1porters. Chile is one of these 

countries. _As a result of its latest auction of energy contractc:;, in 202S should he a third lower 

than they arc no\v, according to tny Colutnbia colleague \-;-clasco, a former tlnance tninister.30 

Large opportunities exist to reduce energy dctnand growth in South America through energy pricing 

refonns, energy efticiency standards, and itnproved mass transit systems, atnong other tneasures. 

55 Felipe Ilurrieta and }Jexandra Ulmer, "Chile Rejecb HidroAysen, Hydropower Projecl can ~""-ppeal," lliN!en·,June 10, 

2014, http://v.tw\v.reuter~.com/ :lrtJcle/u~-chile-hJdma_y~en-Jdl~SKRKOEJ, I \\"R2014061 0; 

John VidaL "i\hjor ,'\mv:on dam oppo~ed by h·ihes fa_ils to get etn"irnnmentrlllicence," The c;uardum, i\ugust \ 20HJ, 

htlps:/ / \VWW .lhegwmlian. com/ en vironmenl/ 2U 16/ aug/ US/ major-amaL:on -dam -bmill-opposed -by -Lribes-fails-ge lcnvJronmcnt:ll-liccnsc. 

56 "Latin ~,Unerica is set to become a leader in alten1ati'"e energy," The b,xnmmi.d, December 10, 201(1, 

htlp: // www .cl onom1sl.com/news / amencat:. /21711307 -power-anlkan -t:.un -lalm -arm:nl a-set -b ecomc-lcader-allcrnall veenergy. 

'> 7 IEA, "~fu.lium-Tcnn Renewable Energy IVlarkct Report 2016", IE.rl., p.8+. 

58 i\hcqua_rie Research, "I. a tin i\tnerica po\ver ma_rket: Should J should T go?," OctoberS, 201 (J, p.21. 

"I ,a_tin _,\merica is set to become fl leader in :lltemati"\"e energy," h,YJnomi.d, l )ecember I 0, 20 I (J, 

htlp:/ /www.cconomlsl.com/ news/ amcricas/21711307 -powcr-andcan-sun-lalin-mncrica-sct-bccomc-kadcr-allcrnalivcenergy. 

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Brazil wr1s tUl c-(1rly pioneer of biofucl production, r1nd ren1t1ins the world's hrgest sugr1rcr1ne ethanol 

producer and second largest bioli.Jcl producer (after the US) to this dav-" l3razil's current ethanol 

mandate stands at 27 percent (and its biofuel mandate for diesel fuel at 7 percent), but thanks to the 

country's nationwide ethanol infrastructure, biofucl usc is eYcntnorc \videspread in the passenger 

car segment. !\-lore th,m 70 percent of Brazil's passenger car tleet is equipped \Vith ethanol-po\vered 

or flex fuel engines/' 1 "\vhich can run on gasoline, bioethanol, or combination of the hvo.0::: Tn 

2013, as n1t1ny as 94 percent of new passenger vehicle sales \VTre fuel vebicles.63 Biofucls in 

Brazil accounted for 17 percent of the trr1nsport sector's final energy consutnption in 2014, 

cornpared with 2.8 percent globally.61 

\X"ith the right policies and financing arrangements, South '\merican countnes have the potenti;:Ll to 

lead the clean energy transition and detnonstrate that deep decarbonization is not only possible, but 

<Ilso highly compatible \Vith rapid economic development. Cost:1 Rica h<Is ::il1 enerb'Y policy target to 

become entirely carbon-neutr;.Tl by 2021. 65 The country alre1dy produces 98 percent of its electricity 

from renewable sourccs,66 and it is drawing up plans to electrify n1uch of the country's 

transportation sector in the next few years. Cruguay plans to achieve c1rbon neutrality by 2030/'~ 

and it comes close to Costa Rica in generating more than 90 percent of its electricity from renewable 

sources today.6

" 

Realizing a Clean, Secure and Prosperous Energy Future 

As discussed aboYc, South _Aunerica is rich in energy resources and opportunities-from oil and gas 

to rcncwables. \\.'hile e\'ery country fr1ees unique circurnstm1ces r1nd cbr1llenges, bror1dly spcr1king, 

there arc a fc\v comtnon priorities on \vhich South .:\mcrican countries should focus-and on \vhich 

the US can partner\vith South American nations to proYide support and ,Lssistance. 

r..c, TE.'\, "'TI .. '\ Oil 2017", TT?rl, p.l-1-3-1-1--1-. 

61 USDA Sen'ice, "13razil-13iofuels Annual: ~-\.nnual Report 2Ul6,'" C~Al~ Report ~o.l3RlGOU9, 

a_nd p.622. 

r..3 "Cosh Riol pledges ca_rbon neuh·ality by [}:\T, Jrmuary 20, 2017 

htlp: I I v.:v.:w .clima teactionprogramme.orgl 1ww~ / co~ta_rica_pledge~ _carbon_neutralit y _by_2U21. 

(,(, Kch-in Ross. "Costa Rica Plans to become carbon ncutml by 2021 ." PmJ-Y'r /o.ngineering 

"Co~ta went 250 day~ 1n 2016 \Hthout Lurnmg any fo~stl fuels," 

http: I /v.:v • .-...\T. sciencealert. com/ costa-ric a-'i.vent -2.1( )-da_ys-in-20 l CJ-'i.vithout -buming-any -fossil-fue 1s. 

6 H Ycronica Finne, "Uruguay pub high pnority on rcnc\\-ablcs," Bttenw·_rl_ireJ" Hemld, ::\"ovcmbcr 21, 2015, 

http:/ /buenosaireshemld.com/article/203404/umgu:ly-puts-high-priority-on-renewables; 

Cole \!elmo, "lJrugua_y pov.-ers ne:trly 1 00°1o of r:lech·1c1ty from \{enewables," hcv U "a!Ji, December -1-, 2015, 

http: I/ v.:v.:w .ccowatch.com/ uruguay -powcrs-ncarl y-1 00-of -eke tricity-from -n..:nnvabks-188212850 l.h tml. 09 TE.'\, "'\fedium-Term Renewahle l.nergy i\hrket Report 2016", Tr?.A, p.RO. 

17,2017, 

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btmW»Jic dil'etYificutirm 

\X·hile countries like Brazil, Colombia, i\rgentina and others have the potential to ratnp up their 

hydrocarbon production sharply, bringing in much needed imTstment and reYenue, they should not 

forget the economic strain of the most recent oil price collapse. '1 he oil industry has long kncn:v-n 

cycles of boom and bust,'' . .'and there are good reasons to expect that oil prices, tno\'ing fot\vard, may 

he rnore volatile than in the Even as these countries increase production, they nlllst prioriti£e 

efforts tO\\'ard econotmc diversitlcation to reduce the gcn·enunent's dependence on ml and gas 

revenue and better insulate then1sehTs frorn inevitable price fluctuations in the future. ::..Iany Gulf 

~'\rab countries, for example, arc no\v undertaking econmnic refonn progratns to do JUSt that, 

catalyzed by the fiscal pressures of the recent oil price colL1pse. 

In addition to drversification, countnes also must pLm for a rctiny lLiy by building up fiscal reserves 

during bootn tin1es. Cnfortunately, resource nat1otulisrn and tnislundhng of resource we1lth has a 

long history in nuny countries across Latin _A.rnerica. The plight ofYene.zucla should remind current 

and prospective pettostr1tes of the dr1ngers of the resource curse. Ciuy;-uu, r1s just one exatnple, }us 

recently discovered Yast hydrocarbon resenTs that can transform the country's economy-for better 

or for "\\Torse-and should take note to avoid such pitfalls. The potential for another resource 

'i.vindfall should not induce Argentina to ease off on economic reforms,~::: and Colombia could make 

its economy more resilient to f11ling oil reYenues 'i.vith tax reforms, spending cuts ,md further 

incenttves for foreign investments. 

There is a long history of countries "\vith large resource endo"\vtnents setting onerous and aggrcssiyc 

n1les for foreign investment, in an effort to capture the bulk of the rents for themselves. \X1

hile these 

should understamL!bly be treated as nationJl resources that benefit the nation's people, it ts also 

importcillt for countries not to forget that there is an exception::Llly competitiYe global market to 

attrr1et c1pital, technology r1nd investment-;1nd an r1bundance of opportunities. In order to attn1ct 

rnuch-nccded in\'esttncnt, countries should nuke their regulatory rcgirnes cornpetitive, transparent, 

stable and predictable. Brazil's recent efforts to allow foreign ownership and reduce local content 

requirements arc a good ex:atnple. 

rinJmillJ!, rt:j/)(Jl!Jib!e derdopmel!! 

Fnsuring responstble development of the region's Yast hydrocarbon resources through strong, costeffective environtnental and safety reguLltions hr1s to be a top priority for go\'enllnents in South 

~1unerica. This is itnportant not only to protect air ilnd \Vater, public health, and the enYirontnent, hut 

also to provide industry witl1 a "social license" to operate and build public trust and confidence that 

oil and gas production \Yill be done safely. '\.nd trom the perspectiYe of responsible companies, tl1ey 

Hu.rt Oil Pri,·e.l~ (:olumbi:l lJni\Tersity Press. 

on Energy and Natural Resources, Cnitcd 

hundred-ye;1_ro;-;1_go-argentina-\vas-future-what-\vent-wmng-century-dedine. 

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protect against r1 "race to the hottotn," in which cotnpctitors profit by cng,-1gmg in risky or 

irresponsible practices. That is why, if regulations arc well-crafted, "~th benctlts that exceed costs, 

they are in the industry's best interest. 

Nonetheless, energy production remains ,Ls controversial in South i\merica, as here at home, 

especially shale resources in countries like Colombia and Argentina. Specifically, governments across 

the region need to ensure they hm-e put in place snurt rcguhtions so that dc\'eloprncnt is done 

according to the highest str1ndards of safety and ernironrnental protection. They r1lso need to engage 

in productiYc consultations with local conununities so that irnportant and real concerns can be 

addressed. '\t the same time, thcv need to enforce existing laws and create a transparent and stable 

permitting and licensing regime to fact!itcLte industry investment tn long-term projects. 

Climale adwn 

South -'-~rncrica is especially vulner,1blc to global dirnate change, gi\-cn the region's susceptibility to 

extrerne \veather events r1nd natural disasters. Earlier this year, Bolivir1 experienced the longest and 

deepest drought in the country's history, triggering a state of emergency,~::, protests and rationing of 

drinking \Vater across major cities for tnonths. 74 Recent floods and destructive tnudslides across 

J>enl, l (cuador and Colombia have been attributed to climate change by politicalle::Lders in these 

countries.~5 ,'\ccording to a 2015 study by the Pe\v Rese,Lrch Center, l.atin /\mericms are the most 

concerned in the \vorld :Jbout climate change. 76 

To address these Yulnerabilities, countries across the reg-ion need to tnake sure to build a robust, 

resilient energy infrastructure that can not t1Ccotnnwdatc r1 \'cry high share of intcmllttent 

renewable capacity, but is also resilient to the impacts of climate change. The region should 

also continue to address the problems of deforestation and land use ch,1nge-rehted emissions, 

\vhich, together, account for t\vo-thirds ofLatlll America's total greenhouse g<~s emissions. t\vice as 

much as energy consumption.'-;" 

~'1.nd South _A..rncrica should continue to engage actively in gloh(1l climate negotiations. Clirnatc 

cooperation between d1c US and Latin ;\merica cannot onlv help make the region more resilient and 

sustainable, hut it ct1n also help us succeed in energy t1nd clitnate diplotnacy. The bilateral clitnate 

~3 J:m Rocha, '"Shrinking ghciers cause state-of-emergency drought in Doh'ITia/' The (;twrdzcm, Nrn--emher 2R. 201 (J, 

https:/ / \VWW. Lhegwmlian. com/ environment/ 2016/ nm /28/ shrinkmg-glaciers-s tate-of-emer.br-ency -drought -boli \ia. 

~-l- John V-idal, '",'\o; 'iV>tter o;carcity deepens acrose; J.atin ,'\met;ca, pol-ihcal instab-ility gro\vs," The G11ardian, i\farch I, 2017, 

https:/ /v.l\1/\\'. thegwm:lian. com/ glohal-de'iTelopm ent -prnfeo;sionab-network /20 I 7/ mar/ 01 /'i.vater-scarn ty -htin -americapolihcal-instabllity. 

~~Nicholas Casey a_nd Andrea 7amte, "\'fud erased a_ Y'111agc in Peru, a_ s-ign of larger pet;ls -in South Amet;ca," Thf /\Tew 

}'ork "l'i/Jit~f, April 6, 2017. https:/ /"'-'"'>'i'\v.nytimes.com/2017 /04/0(J/'ivorld/ americas/pem-floods-mudshdes-southamcn<.a.hlrnl 

~G Bn1ce Stokes, Richard \X'ike. and )t\1 Carle. "(;lobal concerns about climate change, Broad support for limiting 

emission~," PeJJI Raean!J CI!!J!er, ::.:lovcmbcr 5, 2015, hltp:/ /v.:ww.pcv .. global.org/2015/ 11/05/global-conccm-aboutclim ate-ch:mge-hrn:td-support-for-I imiting-emission s /. 

~~I ,is a Viscindi and Rebecca O'Connor, "HrN.' can J .a tin -\meric:l move to low-carbon energy~" 'fJ1e 1\'en· Yor/._; 

Kovcmbcr 24, 2016, https:/ /www.ny timcs.com/2016/ 11/24/ opimon/how-can-latin -amcrica-mo\ c-to-low-c~u:bonenergy.html. 

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agreement het\veen the CS and Brazil in 2015, for exr1mple, was instrun1ent.al to the successful 

negotiation of the Paris .:\greemcnt later that year. 78 

R~forJJJ!Jl/!, mbJtdies and redudt{f!, demaNd 

Fnergy subsidies have been an important dri\'er of ftscal deficits in many Latin American countries 

in recent yer1rs. 79 As noted above, sorne, like Argentim1, have taken steps recently to refonn those 

subsidies. The oil price collapse has provided an especially good opportunity for price refortns, as 

subsidies can be cased with less of a concornitant increase on consurner fuel spending.80 Energy 

subsidies arc not only a strain on goYcrmnent finances, but also encourage inefficient consumption, 

thus reducing resources aYtulable for export or increasing imports, ,Ls \veil as tncreasing greenhouse 

gas etnissions . .burther efforts to refonn fuel prices can help tis cal balances as \vell as the 

environment. \\,'hile policies are needed to help loYv-income consumers deal \Vith higher enert,ry 

prices, :--1 wide body of research and evidence shows that subsidies :--1re regressive r1nd largely benetlt 

wealthier consurners. 

J\forcovcr, energy subsidy refonn is just one tncasure to reduce dmnestic energy demand and 

greenhouse gas etnissions. Policies that boost energy efficiency or encourage tnass transit use, for 

example, could present further economic, enert,'T security and environmental opportuntties for 

South ,\merican countries. 

Conclusion 

South -'-~rneriet1 presents enorrnous opportunities in energy. But it also faces acute risks that can 

affect regional stability, global energy markets, and the em-ironment. The CS has strong national 

interest in helping South ,'\merica meet its energy development goals safely and responsibly, \Vhile 

together taking more rapid action to Jddress the urgent threats of climJte change and the transition 

to a lo\v-carbon economy. 

Continued diplonutic and progranmutic cngr1gement hct\vcen the CS governrnent and South 

'\merican countries is important, through initiatives like the Energy and Climate Partnership of the 

~1uncricas (EPCA), to help promote opentnarkcts, responsible energy dc-;.rcloptnent., and action on 

climate change. Ministers from d1e ECPA countries-namely all of d1e countries in d1e ,\mericas-

\vlll gather in Chile on September 7-8, an opportuntty for the US to reconftrm its continuing 

cornmitn1ent to regio1ul collabort1t.ion. This c1n help ensure that the Atneric1s renuins r1n arer1 of 

strong and constructiYe engagement on energy policy, technology. and environment::~ I protection.*~ 1 

78 01Tice of the Pres~ Secrelary, Press Release: "U.S.- Erazil.Jo:int SULlement on Climate Chomt-,re," 'lhe \X'hite House, 

June 1n, 2015, https:/ / ohnma.\vhitchousc.archivcs.gov/thc-prcss-officc/2t) 15/06/1t)/us-hm7il-joint-sta.tcmcnt-climatcchange. 

-·" Gabm:la ch Bella, cl al. "Energy Subt:.Hhcs m Lalln ~A.mcnca and the Canbbcan: Stocktakmg and 

fntemationa!Monetan! I 'tmd, 1-<'ebruary 12, 20 IS, 

li•'KClth Benes cl al. (2015), "Low Oil Priccb: }\.n Uooo,ccmntv 

October 201 S, 

http:// energ:1lnlicy.co lumbia.edu/ s1 tes/ default/ files/ energy/ r·ue\U/o20~ubsidy ;;-,20J{efnnn _ ( ktober01n2( )20 1 S. pdf. 

l\l For more infonnahon on the Energy ~md Climate Partnership of the Americas (ECPA), sec: 

http:/ /v;.'\\'\,V.ecpamericas.org. 

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41

Mr. DUNCAN. I thank the gentleman. I am going to go out of 

order here. The ranking member has a T&I hearing going on he 

would like to get over to, so I am going to yield to him right out 

of the chute and come back to me. So ranking member. 

Mr. SIRES. Thank you, Chairman, for your courtesy. Last year, 

we took a trip to South America and we were in Chile. We saw 

what they are doing with solar energy which was pretty incredible 

what we saw. Then we took a trip over to Paraguay and we saw 

the dam. 

What bothers me is that for years we have known that there has 

been a lot of resources in South America. For example, a couple of 

years ago we took a trip to Petrobras. How is the scandal that has 

been going on in Brazil going to impact going forward with this energy giant? And obviously, what is going on in Venezuela is also 

very troubling. And most troubling for me is that you have Russia 

and China waiting in the wings to see how we approach our energy 

situation in South America. 

So can anybody talk about that? Especially with the security of 

China and Russia? 

Mr. Pinon? 

Mr. PINON. The challenge, I think, like all of us, all three of us 

here with you, is not in the resource base. In fact, I will even venture to say that the challenge sometimes is not in the fiscal and 

contractual terms that the host countries put before the international oil companies. 

The problem is the lack of continuity and stability in the region. 

The oil industry sector is an industry in which the capital investment goes up front. I mean when the industry develops a big water 

project, we are talking about hundreds of millions, if not billions 

of dollars that are going to be invested in that development period 

that could be between 5 and 7 years. That is why the industry then 

needs a return of 25 to 30 years to recover that capital investment. 

So it is just like if you go to Vegas and all of a sudden you are 

sitting at a poker table and the dealer in the middle of your hand 

with a pot decides to change the rules of the game. That is the biggest challenge. That is the challenge in Brazil. That is the challenge in Venezuela. That is the challenge in many of the countries 

that we, or the industry risks is capital. It is that maturity and political stability and continuity that we need in order to run our 

business. 

By the way, Brazil might very well have a very good end result 

because I think the situation in Brazil at one time I have gone to 

the head of the Brazilians and thinking that they were ahead and 

they were able to do everything themselves. And now they find 

themselves in a situation that they need outside help, not only 

from capital investment, but even technology; which, by the way, 

they are probably one of the best in the world. 

The issue of China, for example, one of the things that many people have missed is that in the December concessionary rounds in 

deep waters of our own Gulf of Mexico or in the Gulf of Mexico by 

Mexico, the largest winner in the deep waters was China. CNOOC 

won two blocks right off of south of the U.S. maritime border in the 

Perdido Fault. So you are going to have China drilling just a few 

42

miles from our own maritime border in the U.S. deep water Gulf 

of Mexico here in the next 2 or 3 years. 

So but again, to yield to the rest of the panel, I think the challenge is political continuity and stability that we need in order to 

run our business. 

Ms. VISCIDI. Well, I think in response to the question about Venezuela, it is definitely true that China and Russia are both increasing their stakes. China has been a big investor in Venezuela for 

many years. Russia has been more recent. They recently—Rosneft 

recently acquired a bigger stake in an oil project from PDVSA. 

There is discussion about acquiring other assets from other companies in the country. 

The issue is that there is some shortage of cash flow. So I think 

that both those countries are looking to increase their access to the 

resources, but they are also pulling back a little bit on the Russian 

side because of lack of cash, and on the Chinese side, because of 

concern about throwing more money toward loans that they can’t 

recover, because Venezuela is not able to produce the oil it needs 

and it is not even meeting the terms of its oil for loan deal with 

China. 

But I think that there is certainly a geopolitical motivation there 

and it is something that remains, they remain very big players in 

that country. 

I think in terms of Brazil—corruption is a huge problem in all 

of Latin America. It is becoming clearer and 

clearer. I think that from the industry’s point of view, the corruption scandal is really not, just speaking in kind of technical terms, 

is not the biggest issue. The real problem for Brazil is that 

Petrobras has massive debts, limited managerial capability, and 

had too much responsibility just to manage so many projects and 

it really needs investment from the private sector. 

Mr. SIRES. The two other you would think that they were ahead 

of everybody else in managing a project. 

Ms. VISCIDI. In Brazil? 

Mr. SIRES. In Brazil. Can you just talk a little bit before my time 

is up. 

Mr. BORDOFF. Yes, I don’t have too much to add. I agree with 

what has been said. So it certainly is true that Brazil has had onerous regulatory rules like local content requirements and other 

things and Petrobras is finally crippled by the largest debt burden 

in the global oil industry. 

It is worth nothing that Petrobras’ new CEO has developed a 

strategic plan to restructure the company and reform its policies, 

deliver more accountability and transparency. And the government 

has introduced wide-ranging regulatory reforms to attract more foreign investment. So these are promising and they are helping to increase investment, but more certainly needs to be done. I think the 

U.S. can help with that. And this is important not only for economic development and for the financial stability. 

Mr. SIRES. My time is up and I don’t want to abuse the privilege 

that the chairman gave by letting me go first. 

Mr. BORDOFF. Okay. 

Mr. SIRES. I thank you. 

43

Mr. DUNCAN. I want to thank the ranking member and now recognize myself for 5 minutes. 

We talk a lot about quality of life and opportunity for improving 

the quality of life that electricity brings. And I think we missed 

that as a talking point, especially on the Republican side, but how 

electricity can improve the quality of life of so many people—

whether that is through just being able to heat and cool their 

homes, being able to have screens on the windows and windows in 

the windows that aren’t open at night to keep the mosquitos out 

and cooking food that is fresh from a refrigerator and not worried 

about spoilage. I mean there is all kinds of things. 

So I am not saying that is a huge issue in Latin America, but 

it is in some areas. I like what I am seeing in Latin America with 

regard to energy production, energy research, energy exploration. 

We have seen some tremendous projects such as the solar project 

I mentioned and the ranking member mentioned in Chile, also the 

hydroelectric dam that was pretty impressive there. But I also understand the environmentalists don’t want to see more hydro in 

Patagonia and tremendous resource of hydro in Latin America. But 

then you have got this ecological balance on what you do in pristine 

areas like Patagonia with energy production. So they are facing 

their own challenges for energy as well. There is the anti-fracking 

movement in South America, as well as we see here. So they have 

some challenges. 

Let me ask all of you just a simple question. Is hemispheric wide 

energy security and independence achievable in your opinion? And 

I say hemispheric. We have got to think from the Arctic to Antarctic, Canada, Mexico included in this, working with the United 

States and all of our Latin American friends and neighbors here, 

is that achievable? Because if it is, to preface the question, if hemispheric energy security and independence is achievable, that 

changes the dynamics in the Middle East with regard to our dependence on those sources of energy. So is it achievable or not? 

Mr. PINON. Yes, it is and the way that we looked at it at the UT 

is that we divide the Western Hemisphere in five regions. The challenge that we have sometimes is we think that the whole Western 

Hemisphere can all of a sudden hold hands and sing Kumbaya and 

that is highly unlikely that it will happen. 

What we have done is that we looked at five producing and consuming regions that we think that then there can be a sub-regional 

cooperation in the Western Hemisphere. The Southern Cone, Argentina, and Chile; Brazil, by itself; the Andean group, Peru, Bolivia, Colombia and Ecuador; what we call the greater Caribbean 

which is the whole Caribbean region including northern South 

America; and then North America. 

So we from the strategic point of view when you do your longterm strategic work and scenario planning, you have to do it from 

a regional point of view. But yes, I don’t think—it is highly unlikely that the region, the Western Hemisphere as a whole could 

ever accomplish some sort of strategy in energy. Regionally, yes, we 

can. 

Mr. DUNCAN. Ms. Viscidi. 

Ms. VISCIDI. I think that energy security for the region is achievable. I think oil and gas and electricity face very different issues. 

44

Oil and gas is really, particularly oil, but more and more gas or 

LNG, it is really a global market. It is very fluid. So I think the 

most important thing is to have open market policies, exports and 

imports with limited restrictions, so that you can really send oil 

and gas to the places where it is most needed. 

I think in electricity, it is more local. It is harder to transport. 

So it is more of the issues that you were talking about in terms 

of opposition to large hydroelectric dams. And I think the solution 

there is by diversity—portfolio diversity that provides the best energy security and it is more about what reforms need to be made 

in those countries. But I also think there is an opportunity for electricity integration in some places cross border transmission lines, 

especially in places like Central America. That can really help a lot 

to contribute to energy security. 

Mr. DUNCAN. Mr. Bordoff. 

Mr. BORDOFF. Yes. I agree with that. I think it is possible to 

have hemispheric security in the sense that the hemisphere produces as much energy as it consumes. I don’t know that that necessarily means that we have achieved security and independence 

because these are globally integrated markets and if there is a 

problem in the Strait of Hormuz or somewhere else, we are going 

to see prices at the pump go up because global oil prices will respond regardless of where we get our energy from. And the risks 

to supply, as we heard with regard to Venezuela, are not only from 

Middle East or other suppliers, they can be from hemispheric suppliers as well. 

So I think security comes from being more open, being more integrated through global markets. If we have a problem with Venezuela and sources of oil supply, we can import crude from somewhere else. If there is a problem with our refineries because of a 

hurricane or something else, we can bring in product and gasoline 

and diesel when we need it and that is true for LNG, too. If it 

makes sense for markets to bring LNG to South America, that is 

great; but, I think if prices rise again in Asia, and it makes sense 

for U.S. LNG to head to Asian markets or Eastern European countries to help them diversify away from Russian natural gas, then 

that makes sense, too. 

Achieving energy security is not only about where you get your 

energy from, but about having a diversity of sources of supply and 

also reducing your dependence on any one source, so energy demand reduction measures are important, too. 

Mr. DUNCAN. I think you are all correct. I look at it like this. You 

have got in the U.S. and Canada, you have got a lot of oil, like the 

oil sands or the Bakken, and we have got refinery capacity to handle that type of oil. In Mr. Castro’s area in Texas, you have got natural gas, you have got gas pipelines going to Mexico. Those gas 

pipelines continue to extend down through the isthmus in Central 

America. You have got Panama’s great hub for LNG distribution 

across Central America and South America. You have got Yoho’s 

district in Florida that wants to be an LNG export terminal hub 

for the Caribbean and the Caribbean nations and lessen their dependence on PDVSA and Venezuela, in general. But if you take it 

on a broader sense, Venezuela oil comes back on line, you have a 

45

stable government there, their oil and natural gas reserves come 

on line. That is a game changer for the hemisphere as well. 

And some of the things we have talked about—electricity generation of a hydro and solar and other things in Latin America that 

we are seeing; but also the coal, the natural gas, the oil that is 

abundant there, whether it is through Petrobras, you know, assuming they get their act together and that comes back around without 

all the graft and corruption and everything that they are dealing 

with there: Good public policy with regard to the market solutions 

that President Macri is bringing in Argentina. 

So attracting foreign investment I guess is what I am saying in 

that regard. I just think that there is a tremendous opportunity for 

us, if we think hemispherically working together. Then the things 

in the Middle East, the things that OPEC want to do with the spigot aren’t quite as important. 

I get what Mr. Bordoff is saying is global supply. Energy, whether it is gas or whether it is oil, is traded globally and demand and 

supply is dictated by global demands. I get all that. But just trying 

to think outside of the box, hemispherically, and what we can do 

to change some paradigms and change some dynamics with regard 

to the Middle East is important. 

We touched on Petrobras. That was another question I had, but 

I do want to ask about Colombia real quick. So Colombia has in 

the north, I guess northeast, good oil reserves, but the FARC has 

been an issue with regard to transporting that oil across the country so that it can either be shipped or refined. They have blown up 

the pipeline, the major pipeline there a number of times. FARC is 

not an issue any more, according to the peace agreement. 

Is that pipeline still a target for other terrorist organizations 

within Colombia and does the peace agreement in Colombia play 

a positive role in energy development in the country of Colombia? 

And I ask you that because we plan on visiting Colombia and I 

would love to talk with them about this as well. And in fact, I am 

seeing the President, President Santos tonight. I would love to 

have this conversation. 

So the FARC agreement, how that may play into energy if one 

of you want to answer that now. I will just open it to all three of 

you. 

Ms. VISCIDI. I could answer that. Well, I think the peace agreement should help to reduce security problems with the FARC, but 

the ELN is still—they haven’t started negotiations with the ELN. 

So there is no peace agreement. And the ELN is actually the guerrilla group that is more active in pipeline attacks. So that problem 

has not gone away as a result of the peace agreement. 

I think that the peace agreement isn’t just about——

Mr. DUNCAN. It is problematic for Colombia. 

Ms. VISCIDI. Yes. So I mean there are many problems. The peace 

agreement is not going to solve everything overnight, so an issue 

like that, not to mention the issue of the potential for former guerrillas to go back to illegal activity has happened with prior demobilization. There are a number of continuing challenges. But I think 

that the vision of the peace agreement isn’t just have the FARC return their arms. It is about a broader rural development. It is 

about getting the state to places in the country that it didn’t have 

46

a presence before and integrating poor people into the system of 

the country. And it is not just the direct combatants. There is also 

a large number of people, militias affiliated that are not necessarily 

taking up arms. And all those people need to be integrated into society. 

And I think some of the issues with energy development are 

about kind of integrating people into society, getting the social license to operate. The anti-fracking movement, I think, if Colombia 

tries to develop its shale reserves to a point—it hasn’t really done 

that yet; but, if it does try to, that is going to be a non-starter with 

the kind of opposition that you have on the ground. 

So I think the peace process could help to sort of resolve some 

of these local conflict issues and play a role. 

Mr. DUNCAN. That is a great answer. We will just leave it right 

there. 

Gentlemen, if you want to chime in later, that is fine. I got out 

of order. I am going to go Mr. DeSantis from Florida next. 

Mr. DESANTIS. Well, thank you, Mr. Chairman, and thanks to 

the witnesses. 

Venezuela, it has just been a terrible situation there, we have 

been concerned about on this committee for a long time. They have 

the world’s largest proven oil reserves, second largest natural gas 

reserves, and yet, their national oil company is generating negative 

cash flows, deep in debt. Clearly, there is civil unrest in the country and major crackdown, violation of human rights by the Maduro 

government. 

In order for Venezuela to become a functioning player in the regional and global energy market, do you think that that is possible 

as long as Maduro’s regime is in charge? 

Mr. PINON. No. There would have to be a change in the political 

and economic way that the country has been run for the last 10 

years. PDVSA is no longer the state oil company that many of us, 

by the way, were very proud to say that they were a state oil company, just like Petrobras today. 

The challenge with PDVSA, for example, is that it is going to 

take them anywhere between 3 to 5 years to bring their full potential back again. By the way, we think that Venezuela could probably again bring on stream another 2 million barrels a day, if not 

3 million barrels per day in a period of between 3 to 5 years. The 

bottleneck is not necessarily geology. The bottleneck is the upgrade 

and capacity to turn that heavy oil of the Orinoco into syn. crude 

that can then be commercialized. 

But Venezuela has a huge potential. I mean you talk about lower 

oil prices. I mean I think between Brazil and Venezuela, there is 

probably anywhere between 3 million to 4 million barrels a day of 

production that could come on stream, again, not overnight, but 

certainly once you get the right investments and the technology in 

place. But no, it is going to take a long time for Venezuela to again 

recover the oil business that we were all very proud of and to have. 

Ms. VISCIDI. I would just add, I think that there are things that 

could be done under the current government. There were a series 

of concessions made under Maduro a couple of years ago to some 

of the oil companies and they did help companies like Chevron to 

make sure that they were actually making money in the company 

47

and other oil companies have asked for some of those sort of concessions to be extended to them, lowering royalties rates, giving 

more operational control to the joint venture partners, because one 

of the issues is that PDVSA is just not capable of managing the 

project. And there are a series of other things. So technically——

Mr. DESANTIS. So let me, Mr. Pinon, you were shaking your head 

about that. You disagree? 

Mr. PINON. No. The experience that this administration has had, 

the Chavez administration for the last 20 years is very clear that 

their partnership is just based on a one-way solution. 

Mr. DESANTIS. Right. 

Mr. PINON. When they need you, they will come to you. But as 

soon as circumstances change, they are not there, not paying their 

bills. They can certainly go to a Chevron or a Schlumberger or a 

Halliburton and say yes, please, help us out. But guess what, when 

the time comes to send a check and pay the bills, the check is not 

there. So no. My position is that within this administration and 

this regime and this political astronomic model, the oil industry in 

Venezuela cannot grow to its full potential. 

Mr. DESANTIS. And I agree with that. I mean I think you are exactly right about the potential and you wonder. You almost have 

to try to mess this up and I think it is just this socialist model is 

just so flawed that here we are. 

Let me ask you about this. There have been reports that the 

state oil company gave a Russian company a lien on almost 50 percent of Citgo which is the U.S.-based subsidiary in exchange for I 

think it was a $11⁄2 billion loan. So Citgo has three U.S. refineries, 

the sixth largest refinery in the U.S. 

Now if Venezuela were to default on its debt payments to the 

Russian outfit, the Russian Government could potentially become 

the second largest foreign owner of U.S. domestic refinery capacity. 

And one, is that true; and two, what could the U.S. do to prevent 

that from happening? 

Mr. PINON. I am going to stay out of the legal and financial risk. 

I will let my partners handle that. But the 700,000 barrels a day 

that Venezuela imports today of crude oil to the U.S., 27 percent 

of that goes to Citgo. The rest, by the way, only goes to four other 

refiners. In fact, of the 700,000 barrels a day that Venezuela imports today, 90 percent is imported by only 5 U.S. refiners. So the 

risk of losing that supply it can be manageable. 

The issue also with Citgo you have to remember, is that we have 

to keep those refineries running. From a strategic and national security point of view, Citgo has to continue on running. Also remember, that all of Citgo dealers all throughout Florida and everywhere 

else are individual owners of those service stations. So in other 

words, those service stations in Florida and the Carolinas and in 

Georgia that have the Citgo brand do not belong to Venezuela. 

They belong to individual businessmen out there. So what will 

their situation be if all of a sudden Citgo disappears? But for the 

legal and financial ramifications of that, I will——

Mr. DESANTIS. Mr. Bordoff, do you want to——

Mr. BORDOFF. I would just say I think there are risks in terms 

of physical supply, but like with all foreign investments, we have 

processes, including CFIUS and others, to review potential cyber 

48

issues, surveillance risks, and other things. And I think even what 

is going on today would make sense for the U.S. Government to 

look very carefully before ownership of major refining assets in the 

U.S. was transferred to a Russian state-owned company. 

Mr. DESANTIS. Do you think the tools that are available now are 

sufficient to do that? 

Mr. BORDOFF. I don’t necessarily know the answer to that and 

I suspect they are. I think they are strong tools and we have used 

them in the past, but I can’t say that with certainty. 

Mr. DESANTIS. Great. I am out of time. I yield back. 

Ms. VISCIDI. Can I just say for the record that I was going to 

agree with Jorge that I don’t see those changes happening under 

the administration. 

Mr. DUNCAN. Go to Ms. Norma Torres from California for 5 minutes. 

Ms. TORRES. Thank you, Mr. Chairman, and thank you to our 

witnesses that are here today or I should say guests. I want to once 

again voice my concern that there isn’t anyone here formally representing the administration and it is unfortunate that they are 

not able to address our concerns or even learn from what we are 

talking about here. 

As you all know, many South American countries have a large 

indigenous population whose territories can experience environmental impacts from energy development, whether that is oil, coal, 

palm oil, solar or hydro. Given that indigenous communities in 

South America are often marginalized and have a very limited political power, many of them don’t even speak the language, how can 

we ensure that these communities have a voice in this process? 

Ms. VISCIDI. Well, I think that there are processes in various 

countries. A lot of them have signed ILO 169 Convention on prior 

consultation. So there are legal processes in place to discuss energy 

projects and other types of infrastructure projects with indigenous 

communities. 

I think in many countries, the issue is kind of legal clarity the 

implementation having enough government resources and staff to 

actually make sure that they are there doing the dialogue that they 

need to do in every country, clarifying. The ILO Convention doesn’t 

give indigenous communities the right to veto projects. These are 

national issues as well as local issues. And so there is a lot of confusion about who really has the right to make the decision. And I 

think that more could be done to really clarify the process, put 

more resources toward making sure the process that is on the 

books legally is actually implemented correctly. 

Ms. TORRES. The original people of those communities or of those 

countries are often relocated, rivers are blocked or they are 

dammed. So they suffer quite a great deal and they are not being 

paid for the loss of the resources in many cases. That is a concern 

that I think that moving forward from our perspective, we need to 

be more careful on how we are impacting communities for the sake 

of helping these countries make a little bit of money. 

As you know, Venezuela is blessed with vast oil reserves. It 

should be one of the richest countries in the Western Hemisphere. 

Instead, it has become one of the poorest countries in the Western 

Hemisphere. People are dying in Venezuela. They are dying in the 

49

streets because of lack of access to medicine and food or simply 

from voicing their concerns and appealing to their government. 

I would like to ask all of you why do you think Venezuela has 

been so unsuccessful in turning its oil reserves into prosperity for 

its people? And what can other countries in the region learn from 

Venezuela’s experience. If we are going to invest in a particular region, how can we ensure that the money that we are investing is 

being used properly and that there is transparency in this process? 

Ms. VISCIDI. I think there are lots of reasons why Venezuela—

why the industry has done so poorly. I mean most of it has to do 

with lack of investment, misusing funds, a lot of corruption by people working for PDVSA, basic upkeep like fixing pipelines, fixing 

refineries. Their refinery utilization is down to 39 percent of its capacity. 

A lot of it has to do with misuse of funds, I would say, also, diverting funds to things that have nothing to do with the oil business. You can only do that to such an extent. But I think it is really kind of the political and management issues of the country that 

led to that and so I guess that is the lesson for other countries is 

you know, you have to have a sound system of institutions and 

transparency, a stable government. 

Mr. PINON. There is an English word that is called stewardship. 

And it is one of my favorite English words because it means just 

that, the management of your patrimony. And what Venezuela has 

done or the Government of Venezuela has done is that they have 

thrown that patrimony away. I mean today the risk of PDVSA and 

the reason they are below 2 million barrels a day is because they 

decided to basically go after that petty cash box and take all that 

money out for projects that have never materialized in benefit for 

the people. 

I don’t have a problem in building hospitals and schools and 

roads, but the national oil company which is your petty cash box 

built that up so you could have more money and more resources 

for future generations. And they did not. They basically stole and 

raided that cash flow box, basically to benefit short term just for 

political gains. That is where their problem is. 

Ms. TORRES. Mr. Bordoff, I am sorry, I am out of time. 

Mr. BORDOFF. In 10 seconds I would just note that while this is 

one of the worst examples, it is by no means the only and in energy 

studies the issue of a resource curse is well documented and well 

known, resource nationalism’s handling of resource wealth. You 

can go to Nigeria and lots of other places. So it is a really hard and 

challenging issue to address and I wish there were more exceptions 

to that rule. There are a couple, but not many. And it is an important lesson for countries like Ghana and others that are going to 

have new oil resource wealth coming to try to avoid some of those 

pitfalls. 

Mr. DUNCAN. I want to thank the gentlelady for her question 

about indigenous populations and hope to take a delegation to 

Peru. When I was down there with Ed Royce, Chairman Royce in 

2013, one of the big issues is property rights, especially in the indigenous villages where the chief determines who lives where and 

who owns the property, but they don’t have any property records. 

Having good property records of deed of ownership and fee simple 

50

and what that bundle of rights is, who owns those minerals, those 

sort of things, play into that. I think that would be, you are traveling with us, I believe, I think that would be a good topic of discussion and I will try to make that happen because it is very informative. 

I am going to go now to the gentleman from Florida, Mr. Rooney. 

Mr. ROONEY. Thank you, Chairman Duncan. I would like to just 

make one comment about the question about Venezuela’s refineries 

in relationship with Citgo. As you know, the heavy oil refineries 

are very limited in what they can do which reduces the risks that 

we have by Rosneft having the lien on the asset. Fortunately, it 

would be a whole lot worse than with Baytown Refinery or Exxon 

or Bayonne, New Jersey instead of Corpus Christi, Lake Charles, 

but neither here nor there. 

With some personal experience in the area, I would take a little 

issue with Ms. Viscidi’s comment that FARC has not been a problem with pipelines, having had them blow up several of mine in 

Putumayo. And I would like to comment here, I would like to 

ask——

Mr. DUNCAN. Mr. Rooney, could you pull that mic over a little 

bit? Thank you. 

Mr. ROONEY. I would like to ask Mr. Bordoff, he made a couple 

of very good comments in his statement about both the unconventional resources in Upper Magdalena, Mono Arana Field, and then 

the business about the FARC, to continue the chairman’s question 

as to the pros and cons of the FARC deal and how it might affect 

production, particularly in the area I am familiar with down in 

Putumayo where we have to take our oil over to Ecuador to get it 

out of there nowadays. 

Mr. BORDOFF. So that was for me? 

Mr. ROONEY. Yes, the question about the Middle Magdalena unconventional and about the FARC and Putumayo. 

Mr. BORDOFF. Enormous resource potential in Colombia and Colombia’s gas production has been declining and its import dependence has been rising. So if it can take advantage of those domestic 

resources, that would make economic and energy security sense. 

I think the peace agreement, the widely held, rightly held, has 

been beneficial to attract foreign investment to make the country 

more attractive for companies to come in; but, I think I noted in 

my testimony that FARC and ELN have opposed foreign investment and now will be incorporated into the political process. So one 

question is sort of how that plays out and whether it has any impact. 

Just a week or two ago, President Santos announced one of the 

largest offshore gas finds in years so that has huge potential and 

then there are enormous shale resources in Colombia. I have been 

in Colombia three times in the last 2 years, intense environmental 

opposition and indigenous people opposition. Shale is very—

fracking is very controversial here in the U.S. It is intensely controversial there. 

So if they are going to develop that resource, it is going to be difficult, but very important that government and industry work collaboratively to engage with local communities, address their concerns, have a very collaborative process, make sure that they have 

51

strong rules for safe and responsible development in place to build 

public trust and confidence that you can develop shale the right 

way. And I think we can provide help and technical assistance in 

that and we can show evidence and historical experience in the 

U.S. Not that there is zero risk. Of course there is risk when you 

develop any hydrocarbon resources, but with the right level of government regulation——

Mr. ROONEY. But you know the first two horizontal wells in Colombia, Mono Arana, were done with no environmental damage 

and no problems at all. 

Mr. BORDOFF. I think that was the point I was making, that I 

think we can demonstrate a long experience now in the U.S., as I 

was saying not that the risk zero, but with the right regulations, 

the right practices, if you operate the right way, you can develop 

shale resources responsibly. 

Mr. ROONEY. Can I ask one more question or is my time up? One 

more. I would like to ask Mr. Pinon about Mexico, because he mentioned it obliquely in your testimony. You know, we have the lifting 

contracts in Burgos and Perinello and some of them down south in 

Cantaralls is about empty as a basin. So how do you feel about the 

potential reforms that President Pena Nieto has been put and the 

opportunities for private capital to work with Pemex? 

Mr. PINON. The results of the first week of December, December 

4th concessions were very transparent. When you have BHP paying 

excess of $600 million for the farm out of Trion, when you have 

Chevron joint venturing with Pemex in one of the Perdido faults, 

and when you have companies like China’s CNOOC also going 

after two of the major blocks around Perdido will tell you that the 

geological potential of Mexico’s Gulf of Mexico is huge. We have 

known that at UT by the way for a long time because of the geological work that we have done in the region. 

The issue is going to be what is going to happen with possibly 

a Lopez Obrador administration coming in 2018. We think that he 

is probably going to be another Lula, an individual that when he 

comes into office, we are wondering what is going to happen and 

he is really going to surprise some of us. Maybe—I am hoping for 

that to happen because of the potential that Mexico has. 

Mr. ROONEY. Yes, we were pretty scared last time when he almost won. Yes, I couldn’t agree more. 

Ms. VISCIDI. Could I respond to the Colombia question? 

Mr. ROONEY. Yes, sure. 

Ms. VISCIDI. I think to clarify, the ELN has traditionally been 

the group more active in pipeline bombings and they are not a signatory to the peace process. 

Mr. ROONEY. Right, they haven’t been in yet. 

Ms. VISCIDI. So they continue to be a threat. That was just my 

point. And I think also you bring up a really important point about 

opening up new areas of the country that were off limits because 

of security reasons, Putumayo, also Arauca on the eastern coast. 

This is another way that the peace process brings opportunities for 

energy, developing energy resources. 

Mr. ROONEY. Perversely enough, the peace process worked adversely to the producers working down at Putumayo because as 

they need to show that they were a tough negotiating partner in 

52

Cuba, they doubled down on the poor folks trying to exploit oil in 

Putumayo. Thank you. 

Mr. DUNCAN. I think the gentleman. We will go now to Mr. 

Espaillat for 5 minutes. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. Certainly, I concur 

with the witnesses and I thank you for your testimony, that the political instability in Latin America and the Caribbean has been a 

major hurdle for economic development, in general, particularly energy independence, interdependence, and the advancement of even 

renewable energy in the region. Not since perhaps the Kennedy administration and its Alliance for Progress have we engaged in real 

proactive work with the region. We sort of like turned our heads, 

we fell asleep at the wheel. We have this attitude of benign neglect 

for the region that has allowed for these new scenarios to develop 

which have contributed to adverse relationships with the United 

States. 

And so for many years we have not engaged that region substantially in practical terms and as a result we saw the development 

of very adversarial relationships in the region vis-a-vis the United 

States. And in fact, we saw the Chinese and the Russians, Iran, 

and even radical groups like Hezbollah establish themselves right 

in the region because of our benign neglect. 

So my question is how do you see the Trump administration’s divestment from the State Department and foreign affairs and sort 

of like a continuation of this very benign neglect attitude contributing to the continual instability of the region as it pertains to energy? 

Mr. PINON. In fact, I think all three of us mention it. I think the 

best test case that we are going to have in the near term is Guyana. And there is a place that we ought to focus on, both diplomatically and with all of the other resources that we have, it is going 

to be Guyana. Guyana is about to find a major, major offshore discovery. They are going about to monetize it and that country is not 

ready for it. And if we want to begin from a root position to help 

other countries survive this curse that they might very well have 

of finding oil, it is going to be Guyana. 

And the role of the State Department is important and the role 

of the Department of Energy is also very important. So I would encourage this committee really that if you want to have a test case, 

if you want to have a poster child program for the next 5 to 10 

years, I think Guyana would be it. But yes, the involvement with 

the State Department, the involvement with the Department of Energy and other U.S. Government agencies in development capacity 

for a lot of these countries is very important. 

Ms. VISCIDI. Well, as I said in my opening remarks I think that 

the energy engagement is extremely important and I think it 

should be continued. And it is not just the benefits of these specific 

initiatives such as technical initiatives that might help countries in 

South America to develop resources or help Central American, Caribbean countries to improve their regulatory frameworks and find 

diverse supply sources. I think it is part of the bilateral relationship. It is an agenda item with different countries, among several 

agenda items; and, as long as these countries are interested, which 

they are, they are asking to work with the U.S., Mexico, in parVerDate 0ct 09 2002 13:27 Jun 06, 2017 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 F:\WORK\_WH\051717\25455 SHIRL
53

ticular, I think that we should continue this area of cooperation. I 

think it is very important. 

Mr. BORDOFF. I would just quickly add, I think everything we 

have talked about this morning should be a reminder that very 

sharp cuts to the State Department budget will be self-defeating 

for U.S. national interests. It is in our interest to collaborate and 

cooperate with countries in South America and everywhere else 

and to have energy production, safe and responsible production, 

stability, political stability, and opportunities for U.S. companies to 

operate there. 

So as one example, the Bureau of Energy and Natural Resources 

of the State Department I think has done very, very useful work 

to help countries technically and to partner. When Mexico was 

opening up its energy sector, and in other ways, both on hydrocarbons and on clean energy sources, it is important to have robust 

organizations like that within the State Department. 

Mr. ESPAILLAT. Just for the record, I think I can say safely, Mr. 

Chairman, that this committee has a bipartisan position in support 

of full funding for the State Department and we continue to provide the tools for diplomacy and other efforts to continue to move 

forward. 

One final question, real quickly, these South American partners, 

these countries have signed on to the Paris Agreement. And there 

are very deep concerns for the environment in these countries. 

Brazil continues to be sort of like the lung of the hemisphere. And 

hydrofracking continues to be a challenge in many of these countries. 

How do you see our potential to withdraw or at least distance 

ourselves from the Paris Agreement to impact the relationships 

that we have with these 12 independent nations of the region that 

have signed on to the Paris Agreement? 

Mr. BORDOFF. I am glad you raised that. I mentioned climate 

change a few times in my oral testimony. And I think South America is especially vulnerable to the impacts of global climate change. 

Public opinion surveys shows it is the region of the world where 

the public cares most intensely about the problem of climate 

change and I think that is partly because they are seeing the real 

world effects of it. Bolivia experienced the longest and deepest 

drought in history, triggering a state of emergency. We have seen 

hydropower affected in other places. 

I think it is most likely that U.S. domestic policy action to address climate change will proceed at a slower pace with this administration than may have otherwise been the case. But having a seat 

at the table, I think as Secretary Tillerson put it, as part of the 

Paris Agreement, I think makes good sense for the U.S., both so 

we continue to be part of this. This process is going to go on a long 

time and political parties may shift in the future, but also because 

it does provide continued confidence to other countries to move forward with their own efforts. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. 

Mr. DUNCAN. I owe you some extra time from a previous committee hearing, so I am always going to be lenient. I want to thank 

the witnesses. You all have been fabulous. This has been a great 

topic for us to discuss. It is something that we are going to conVerDate 0ct 09 2002 13:27 Jun 06, 2017 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 F:\WORK\_WH\051717\25455 SHIRL
54

tinue talking about because I think about the United States and 

Colombia with Plan Colombia and how our countries really became 

closer over a certain aspect and then led to free trade agreements 

and so I think energy is a segue to a much stronger relationship 

with the United States and other Latin American countries, but 

also all across the hemisphere as a segue to closeness here in this 

neighborhood, so to speak. So I look forward to discussing these 

type issues with leaders of the South American, Latin American 

countries. 

And so with that, I will just say that pursuant to Committee 

Rule 7, members of the subcommittee will be permitted to submit 

written statements to be included in the official hearing record and 

without objection, the hearing record will remain open for 5 business days to allow statements, questions, extraneous materials for 

the record, subject to the length limitation of the rules. There may 

be additional questions that members may have. They may submit 

those in writing. I would ask the witnesses to just try to answer 

those if you can. That is rare, but just due to other hearings 

around the Hill today, some members may not have been able to 

make it. 

I want to thank you again. I want to thank the committee members for their input and activity here today and with that we will 

stand adjourned. 

[Whereupon, at 11:18 a.m., the subcommittee was adjourned.] 

(55)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE RECORD

56

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25455n.eps

SUBCOMMITTEE HEARING NOTICE 

COMMITTEE ON FOREIGN AFFAIRS 

U.S HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515-6128 

Subcommittee on the Western Hemisphere 

Jeff Duncan (R-SC), Chairman 

TO: MEMBERS OF THE COMMITTEE ON FOREIGN AFFAIRS 

You are respectfully requested to attend an OPEN hearing of the Committee on Foreign 

Affairs, to be held by the Subcommittee on the Western Hemisphere in Room 2172 of the Rayburn 

House Office Building (and available live on the Committee website at 

http· I /;vww.F orei gnAffai ··s house. gov): 

DATE: 

TIME: 

SUBJECT: 

WITNESSES: 

Wednesday, May 17,2017 

10 00 a.m. 

Energy Opportunities in South America 

Mr. Jorge R Pinon 

Director 

Latin America and Caribbean Program 

Jackson School of Geosciences 

The University of Texas at Austin 

Ms. Lisa Viscidi 

Director 

Energy, Climate Change, and Extractive Industries Program 

Inter-American Dialogue 

Mr. Jason Bordoti 

Professor and Director 

Center on Global Energy Policy 

School of International and Public Affairs 

Columbia University 

By Direction of the Chairman 
57

Æ


25455m.eps

COMMITTEE ON FOREIGN AFFAIRS 

MINUTES OF SUFlCOMMITTEE ON _______ t_h_e_11_'e._,,e_r_n_Il_e_m_isp_l_re_re _______ HEARING 

Day Wednesday nate __ :c_M.::«::,Jc_' :_17cc,.c:2c:Oc:cl.:_7 __ Room ___ =2.,_1'-'72=------

StartingTime JO:OOAM EndingTimc ll:18AM 

Recesses In/a I ( __ to __ ) (_to __ )( __ to __ )( __ to __ )( __ to __ )(_to __ ) 

Presiding Member(s) 

Chairmau Jeff Duncan 

Check all o[thefol/mving that apply: 

Open Session I:ZJ 

Executive ~sed) Session D 

Televised [ZJ 

TITLE OF HEARING: 

Energy Opportunities in South America 

Electronically Record£l!jtaped) I:ZJ 

Stenographic Record LLJ 

SUBCOMMITTEE MEMBERS PRESENT: 

Chairman .Jeff Duncan, Ranldng Member Albio Sires, Rep. Mo Brooks, Rep. Ron DeSantis, Rep. Francis 

Rooney, Rep. Joaquin Castro, Rep. Nonna Torres, Rep. Adriano Espaillat 

NON-SUBCOMMITTEE MEMBERS PRESENT: (Mark with an *if they are not members offal/ committee) 

nla 

HEARING WITNESSES: Same as meeting notice attached? Yes r:::J NoD 

(If "no", please list below and li1clude title, agency, department, or organization.) 

STATEMENTS FOR TilE RECORD: (J.ist any statements submitted for the record) 

nla 

TfiWESCHEDULEDTOilliCONVENE _____ _ 

,.sr"~;.::;'fi':-:7 

//"' Subcommittee Staff Associate 

or 

TIME ADJOURNED __ 1_1_:1_8_A_M~-