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80–365PDF 2013

ENERGY OPPORTUNITIES IN LATIN AMERICA AND

THE CARIBBEAN

HEARING

BEFORE THE

SUBCOMMITTEE ON 

THE WESTERN HEMISPHERE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS

FIRST SESSION

APRIL 11, 2013

Serial No. 113–20

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 

MATT SALMON, Arizona 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ADAM KINZINGER, Illinois 

MO BROOKS, Alabama 

TOM COTTON, Arkansas 

PAUL COOK, California 

GEORGE HOLDING, North Carolina 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

STEVE STOCKMAN, Texas 

RON DESANTIS, Florida 

TREY RADEL, Florida 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

LUKE MESSER, Indiana 

ELIOT L. ENGEL, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

JUAN VARGAS, California 

BRADLEY S. SCHNEIDER, Illinois 

JOSEPH P. KENNEDY III, Massachusetts 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON THE WESTERN HEMISPHERE

MATT SALMON, Arizona, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

MICHAEL T. MCCAUL, Texas 

JEFF DUNCAN, South Carolina 

RON DESANTIS, Florida 

TREY RADEL, Florida 

ALBIO SIRES, New Jersey 

GREGORY W. MEEKS, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

THEODORE E. DEUTCH, Florida 

ALAN GRAYSON, Florida 

(III)

C O N T E N T S 

Page

WITNESSES 

The Honorable Carlos Pascual, Special Envoy and Coordinator for International Energy Affairs, U.S. Department of State .......................................... 4

Mr. Matthew M. Rooney, Deputy Assistant Secretary, Bureau of Western 

Hemisphere Affairs, U.S. Department of State ................................................. 14

Mr. Jorge R. Pin ̃ on, associate director, Latin America and the Caribbean 

Program, Center for International Energy and Environmental Policy ........... 31

Mr. Eric Farnsworth, vice president, Council of the Americas and Americas 

Society ................................................................................................................... 42

The Honorable David L. Goldwyn, president and founder, Goldwyn Global 

Strategies .............................................................................................................. 50

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Carlos Pascual: Prepared statement ............................................ 7

Mr. Matthew M. Rooney: Prepared statement ...................................................... 16

Mr. Jorge R. Pin ̃ on: Prepared statement ............................................................... 34

Mr. Eric Farnsworth: Prepared statement ............................................................ 45

The Honorable David L. Goldwyn: Prepared statement ...................................... 53

APPENDIX 

Hearing notice .......................................................................................................... 84

Hearing minutes ...................................................................................................... 85

The Honorable Matt Salmon, a Representative in Congress from the State 

of Arizona, and chairman, Subcommittee on the Western Hemisphere: Material submitted for the record ............................................................................ 86

(1)

ENERGY OPPORTUNITIES IN LATIN AMERICA 

AND THE CARIBBEAN 

THURSDAY, APRIL 11, 2013

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE WESTERN HEMISPHERE,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 3:04 p.m., in room 

2200, Rayburn House Office Building, Hon. Matt Salmon (chairman of the subcommittee) presiding. 

Mr. SALMON. Thank you so much for being here. I am usually 

overly concerned about time, so I apologize for keeping you waiting. 

The quorum is present, and the subcommittee will come to order. 

I am going to start by recognizing myself and the ranking member 

to present our opening statements. And without objection, the 

members of the subcommittee can submit their opening remarks 

for the record. 

Now I yield myself as much time as I may consume for my opening statement. 

Good afternoon, and welcome to what is really part II of our subcommittee’s look at energy security and prosperity in the Western 

Hemisphere. Our last hearing focused on Canada and Mexico specifically. We had the opportunity to discuss the Obama administration’s unfortunate pattern of obstructing and delaying some of 

these energy-related projects, such as the Keystone XL Pipeline 

that will stand to benefit job creation and increased energy security. 

We also talked about the real possibility of structural reforms to 

the Mexican state-owned oil company Pemex, and hope that these 

reforms will lead to increased production and increased prosperity 

for Mexico as well as the United States. 

We also lamented the administration’s failure to send the transboundary Hydrocarbons Agreement with Mexico to Congress for approval, putting in question our Nation’s commitment to partnering 

with Mexico to improve its production and exploration in pursuit 

of energy security and mutual prosperity. 

But I will say that at some of the recent meetings that we have 

had with the administration, I have been very pleased that language has been submitted that is acceptable to the administration. 

And I want you to know we are now doing everything we can to 

work with Members of Congress to move this forward as quickly 

as possible, because I think it’s a win/win. 

2

Today we are going to take a look at the rest of the region and 

hear from administration officials, industry, and regional experts 

on what the energy matrix looks like in Latin America. I wanted 

this subcommittee to lead the discussion on how to focus on energy 

production in the Western Hemisphere, and how this focus should 

be centered on leveraging vast energy resources to help the region 

as a whole achieve energy security and prosperity through true 

market reforms to the sector and beyond. 

The United States needs to be a constructive and willing partner 

in the region and truly become a shining example about how opening up energy regimes can help resource-rich nations create jobs, 

stimulate growth, and generate prosperity. Unfortunately, as we 

review the opportunities available, again we find some examples of 

the administration standing in the way of some of the initiatives 

that will benefit our Nation’s energy security and job creation. 

Similar to delays in the Keystone XL Pipeline approvals, the administration has been delaying approving of the LNG export licenses to the Caribbean, Europe, and Asia. And I hope to hear 

more about this from our witnesses. In my view, the delays are just 

more of the same, and I would like to—I believe it is important for 

this subcommittee to make clear we want to see the U.S. move forward with energy-related efforts and end some of the perceived 

stall tactics. 

There is so much promise in the region, from pre-salt discoveries 

off the coast of Brazil to the successes brought on by Colombia’s energy sector reforms, and, most importantly, from the oil and gas 

renaissance we have enjoyed right here in the United States. We 

are now in the great position to truly help our region achieve greater prosperity, job creation, and energy security. 

This subcommittee will be a loud voice in favor of exporting our 

values of free enterprise and open markets to the betterment of the 

region’s growth and energy security. I truly believe we have a real 

opportunity to achieve energy independence right here in this 

Western Hemisphere if we unlock our true potential. 

I want to thank Ambassador Pascual, State Department’s Energy 

Envoy and Coordinator for International Energy Affairs; and Mr. 

Matthew Rooney, Deputy Assistant Secretary of State for Western 

Hemisphere Affairs. 

I want to welcome our second panel of witnesses also: Jorge 

Pin ̃ on of the University of Texas at Austin; Mr. Eric Farnsworth, 

the Council of the Americas; and Mr. David Goldwyn of Goldwyn 

Global Strategies. I look forward to their testimony and hearing 

their perspectives on how we can achieve our goals of a more prosperous and energy-independent hemisphere. 

Thank you. Thank you all very, very much for taking the time 

to be with us today to discuss this important and timely topic. 

I would like to now recognize Ranking Member Sires for his remarks. 

Mr. SIRES. Thank you, Mr. Chairman. 

Good afternoon, and thank you to our witnesses for being here 

today. 

Today’s discussion is an effort to address what has long been an 

oversight in our foreign policy: Integrating energy policy with our 

national security interest. Oil production has increased in the 

3

United States, but it has not increased enough to overcome our 

need to import oil. The United States imported four times the 

amount of—it exported in 2011 alone. This is a worrisome—this is 

worrisome, giving our energy dependence to nations residing in unstable regions of the world and to nations whose governments are 

at times hostile to our national interest. As a result, it is imperative that our energy security policy be not knee-jerk reactionor an 

afterthought in our foreign policy considerations. 

The resurgence of oil and gas productions in the U.S. will change 

both the global landscape and geopolitics of energy. The United 

States is predicted to overtake Saudi Arabia as the largest the 

global oil producer by 2020. And a significant expansion of U.S. oil 

production could push oil prices down enough to devastate oil-producing nations. Regardless, I am realistic in regards to the nature 

of our energy independence. 

Inasmuch as the United States remains integrated with global 

energy markets, no amount of oil or gas will completely insulate 

the United States from global events and price disruption. The 

more likely scenario is that the future in the U.S. production will 

simply have a shock-absorber effect to sudden spikes in energy 

prices. So in light of these predictions and in spite of our energy 

renaissance, I believe it is dangerous to allow ourselves a false sentence of security. 

We get about half of our oil petroleum from the Western Hemisphere, half of which is from Canada. And after Saudi Arabia, Mexico is the United States’ third largest supplier of petroleum. Venezuela has up to 88 percent of the region’s proven oil reserve and 

accounts for roughly one-third of our oil imports from the region. 

And Brazil is the world’s second-largest producer of ethanol in the 

world after United States. 

On the other hand, in countries like Venezuela, Bolivia, Ecuador, 

and Argentina, expropriations and the nationalization of private industries have become the norm rather than the exception. Many of 

the beneficiaries of Venezuela’s Petrocaribe program have few energy resources and are heavily dependent on oil imports. And with 

oil accounting for nearly 70 percent of the energy need of smaller 

countries, economic growth has been a difficult achievement. Meanwhile, in Mexico, we will not—we will have to wait and see if President Pena Nieto’s energy reform will be realized. 

It is for these reasons that the Western Hemisphere must play 

a critical role in our energy security policy, and why I believe committed engagement on energy cooperation throughout the hemisphere, it is in the national interest of the United States. Our national security requires energy policy be a central component of our 

foreign policy. We should build upon and expand our energy diplomacy effort, mitigate the Caribbean’s 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. 

And I thank you, Chairman, for holding this meeting. 

Mr. SALMON. Before I introduce the witnesses, I do want to say 

something else for the record. What an honor and pleasure it has 

been to serve with the ranking member. You know, we talk a lot 

in this country about the need for bipartisanship, and I have never 

4

seen a gentleman more willing to reach across the aisle on policy 

in the Western Hemisphere than Mr. Sires. 

It is just a real pleasure to work with you. And I am really excited. I think that maybe we can show the rest of this place how 

bipartisanship can really work. 

Mr. SIRES. I feel the same way about you. Must be my Cuban 

genes. 

Mr. SALMON. All right. Pursuant to committee rule 7, the members of the subcommittee will be permitted to submit written statements to be included in the official hearing record. Without objection, the hearing record will remain open for 7 days to allow statements, questions, and extraneous materials for the record, subject 

to the limitation of the rules. 

I would like to introduce the first panel. Honorable Carlos 

Pascual. Ambassador Pascual is the State Department’s Special 

Envoy and Coordinator for the International Energy Affairs. In this 

capacity he advises the Secretary on energy issues, ensuring that 

the energy security is advanced at all levels of U.S. foreign policy. 

Prior to his appointment, Ambassador Pascual served as the 

United States Ambassador to Mexico and was vice president/director of the Foreign Policies Studies Program at the Brookings Institution. Ambassador Pascual received his M.P.P. from the Kennedy 

School of Government at Harvard University and his B.A. from 

Stanford University. 

Matthew M. Rooney is the Deputy Assistant Secretary of the Bureau of Western Hemisphere Affairs. He led interagency and international negotiations that produced the Secretary’s Pathways to 

Prosperity in the Americas initiative and the President’s Energy 

and Climate Partnership of the Americas. 

Mr. Rooney has served in the Ivory Coast, Germany, Gabon, and 

El Salvador, focusing on macroeconomic policy, energy exploration, 

and trade issues. 

Mr. Rooney studied economics, German, and French at the University of Texas at Austin, and received his master’s degree in 

international management at the University of Texas at Dallas. 

Before I recognize you, I have done this before, and I apologize, 

it is just one of those things, but I am going to explain the lighting 

system in front of you. You each will have 5 minutes to present 

your oral statement. When you begin, the light will turn green; 

when you have 1 minute left, the light will turn yellow; when your 

time has expired, the light will turn red. I ask you to conclude your 

testimony once the red light comes on. I am not going to have a 

heavy gavel today, though; we want to hear what you have to say. 

After our witnesses testify, all members will have 5 minutes to 

ask questions. And I urge my colleagues—looks like me and you—

to stick to the 5-minute rule to ensure that the members get an opportunity to ask questions. 

Let us begin, Ambassador Pascual. You are recognized. 

STATEMENT OF THE HONORABLE CARLOS PASCUAL, SPECIAL 

ENVOY AND COORDINATOR FOR INTERNATIONAL ENERGY 

AFFAIRS, U.S. DEPARTMENT OF STATE 

Ambassador PASCUAL. Thanks so much, Chairman Salmon, 

Ranking Member Sires. It is a great pleasure to be with you here 

5

today and to have this opportunity to have a discussion of the 

Western Hemisphere to look at the energy potential in the region 

and to be able to learn from one another on how we can develop 

this great potential that you have been mentioning already. 

The United States is undergoing an energy revolution. Innovative technology, entrepreneurship and strong commodity prices 

have spurred the production of shale gas, shale oil, and offshore oil. 

Combined with vehicle-efficiency measures, the United States has 

decreased fossil fuel import dependence. Our experience in unconventional oil and gas opens commercial and technological opportunities for U.S. businesses. We are on the verge of comparable 

breakthroughs in renewable energy, which could provide similar 

benefits for U.S. industry and job creation. U.S. leadership on these 

opportunities will have an important implication for continuing and 

long-term energy security in North America and the rest of the 

Western Hemisphere. 

The U.S. Energy Information Administration estimates that the 

United States has 24 billion barrels of shale oil resources. The 

State of North Dakota produces more oil than Ecuador, an OPEC 

member. We have gone from importing more than 60 percent of the 

oil we consumed in 2005 to less than 40 percent last year. Canada 

and Mexico alone accounted for 38 percent of our oil imports in 

2012. The potential for North America can multiply this type of 

transformation that we are seeing today. 

While Canadian and U.S. oil production have been rising, Mexican production has dropped since 2004. Mexican President Enrique 

Pena Nieto, as Congressman Sires has noted, has now made energy 

reform a priority. If it is successful, imagine these possibilities: If 

Mexican production could regain the level it had in 2004, by 2035 

North American production can rise from 18 million barrels a day 

to over 23 million barrels a day. That jump alone in volume approaches the current combined production of Iraq and Venezuela, 

to give you the scale of possibility that exists in our hemisphere. 

A similar story is playing out in global natural gas markets. In 

the last 5 years, U.S. gas production has increased 24 percent. Natural gas once intended for the United States is meeting demands 

in markets around the world. New supplies for Mozambique, Norway, Russia, and Australia are revolutionizing the world’s gas markets. The potential in Mexico has only started to be explored. 

These revolutions in oil and gas build a picture in which North 

America can be a hub not only for U.S. energy security, but global 

energy security. We have to keep seeing the hemisphere in that 

context that is the foundation for stability and security for the entire world, and this can come with benefits for stabilizing markets 

and contributing to our economic growth at home. 

There are also opportunities in Argentina, Brazil, Colombia, 

Peru, Trinidad and Tobago. Their challenge, the challenge of these 

countries, will be to attract the commercial investment needed to 

enable development, and each country is approaching this challenge differently. 

Venezuela, with one of the largest oil reserves in the world, faces 

a critical moment. Since a peak in 1997, production has declined 

by about 1 million barrels per day. With the upcoming elections 

Venezuela’s new leadership will have the chance to create an enviVerDate 0ct 09 2002 11:32 Jun 06, 2013 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\WORK\_WH\041113\80365 HFA PsN: SHIRL
6

ronment that attracts investments and technologies that are revolutionizing global markets elsewhere and potentially could benefit 

Venezuela’s people, its economy, and world markets as well. That 

choice is one they have to make regarding the kind of policy environment they set for international investment. 

Throughout the Americas, the exciting prospects for commercial 

opportunities and economic growth are just as great in the power 

sector. The International Energy Agency estimates that the Americas, excluding the United States, will require $1.4 trillion in power 

sector investments by 2035 to meet electricity demand. 

Our companies are already associated with 4.5 gigawatts of 

lower-carbon-energy development in the region. For example, a 

U.S. company, Sempra, plans to build a 1.2-gigawatt wind farm in 

Mexico, where the first phase will generate 156 megawatts with a 

U.S. $300 million investment. OPEC and Ex-Im are considering an 

additional $650 million in clean-energy projects in Mesoamerica in 

2014. The Brazilian Government has announced plans to spend 

more than U.S. $330 billion in power generation and transmission 

through 2021. These are all opportunities for American business for 

trade and investment. 

As we work to expand the potential for energy revolution in the 

region, we cannot forget the Caribbean. The islands of the Caribbean have been saddled with some of the highest electricity prices 

in the world, as much as four to five times what we pay here in 

Washington, due to their dependence on imported diesel fuels. 

Technology and good business practices can give them an alternative. 

For example, Ex-Im Bank has provided a $6.4 million loan guarantee to finance the export of the SolarWorld Americas solar modules to Barbados. OPEC is going to provide $50 million to support 

the Caribbean Idea Marketplace, a business competition designed 

to foster collaboration among Caribbean diaspora entrepreneurs. 

Just in the past few days, we heard from colleagues in the Dominican Republic, new projects that are being considered to tap the vast 

gas potential that could exist in the United States and could allow 

creative power-generation projects in the Dominican Republic. 

Entrepreneurship and innovation rooted here in the United 

States has given us a remarkable opportunity for this hemisphere 

with global significance. Innovation and resources are allowing us 

to grow economically and to protect our national security. We can 

do this in ways that protect the planet, and as we expand these opportunities regionally and globally, we will create jobs at home. It 

is a moment of opportunity that we cannot waste. 

Thank you for the opportunity to discuss these important issues 

with you today. And I appreciate your willingness to add our witness statement to the record as well. 

Mr. SALMON. Thank you, Ambassador. 

[The prepared statement of Ambassador Pascual follows:]

7


80365a-1.eps

Written Testimony of 

Special Envoy and Coordinator for International Energy Affairs 

Carlos Pascual 

U.S. Department of State 

Before the 

House Committee on Foreign Affairs 

Subcommittee on the Western Hemisphere 

United States House of Representatives 

Energy and the Western Hemisphere 

April 11, 2013 

Thank you Chairman Salmon, Ranking Member Sires, and members of the subConmlittee. I appreciate the opportunity to be here today to discuss our 

perspectives on the importance of energy in the Westem Hemisphere. This is a 

story that integrates geopolitics with the extraordinary technology boom in our 

energy sector today, and it sees tremendous opportunities for U.S. energy security, 

commercial interests, and regional development and stability. 

The United States is undergoing a revolution in our energy sector. A combination 

oftechnology innovation, entrepreneurship, and strong commodity prices has 

spurred a revolution in the production of shale gas, shale oil, and o±Ishore oil. 

Production, combined with vehicle efficiency measures has decreased U.S. import 

dependence on fossil fuels. A decade ago, most experts predicted that the United 

States would become the world's largest importer ofliquefied natural gas - today, 

we're seen as potentially one ofthe world's more significant exporters. Our 

experience in unconventional oil and gas opens an array of commercial and 

technological opportunities for U.S. companies. We are on the verge of a similar 

revolution in renewable energy, which, if developed well, can provide similar 

benefits for U. S. industry. At this crucial moment, U.S. leadership on these 

opportunities will have important implications for continuing and long-teml energy 

security in North America and the rest ofthe Westem Hemisphere. 

North American Energy Development 

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80365a-2.eps

The energy trading relationship with Canada is a cornerstone of North American 

energy security. The U.S. Energy Infornmtion Administration (EIA) estimates that 

the U.S. has 24 billion barrels of shale oil resources, and the state of North Dakota 

now produces more oil than Ecuador, an OPEC nation. Proven Canadian oil 

reserves are estimated at 175 billion barrels. As essentially all Canadian enerh'Y 

(oil, gas, and electricity) exports are to the United States, our countries have an 

unparalleled energy trading relationship, but it is also experiencing a phase of 

adjustment as U.S. production of oil and gas soars. 

As the United States and Canada experience an increase in production, trade, and 

interconnectedness, the trend has been quite different with Mexico. Mexico has 

10.2 billion barrels in proven reserves, but its production fell by 23 percent from 

2004 to 2011, and nearly all projections forecast Mexican production will continue 

to decline in the short-tenll. This significant trend is often attributed to the 

maturation of major fields and the challenges for the national oil company, 

PEMEX, to maintain the necessary levels of investment in the sector. Newly 

elected Mexican President Pena Nieto has made energy refonn a priority, and ifit 

is successful, Mexico could attract international investment to develop its 

hydrocarbon resources. This would strengthen both North American energy 

security, and Mexico's fiscal position. 

Despite the challenges facing Mexico in the near tenn, the exciting story here is 

that North America as a whole could boost national and global energy security. 

Global oil prices are increasingly driven by the demand ofnon-OECD countries, 

mainly China and India. For this reason, increased North American production 

could be critical to world supplies, and provide greater consumers and economic 

growth. 

Natural Gas Market Development 

A similar story is playing out with global natural gas markets. As U.S. natural gas 

production, largely from unconventional sources, has increased from 18 to 23 

trillion cubic feet (tcf) since 2005, there has been a boom in manufacturing and 

other industries, and reductions in green house gas emissions. Canada is exploring 

opportlmities to export Liquefied Natural Gas (LNG), and has attracted significant 

American, Malaysian, Chinese and UK investment in the sector. Mexico's shale 

gas potential is enornlOUS as its northe11l border contains portions of the Eagleford 

Shale play that is producing gas and gas liquids in Texas, and Argentina has great 

potential as well. In this f011lmtive stage of unconventional gas development, the 

United States has a critical role: as the pioneer of shale gas technologies and with 

significant industry talent and capability, we can share lessons learned and best 

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80365a-3.eps

practices with other countries that choose to explore their own shale gas resources, 

and help them do it in a sound and sustainable way. For example, preventing 

fugitive methane emissions not only preserves a valuable product, but also avoids 

emitting one ofthe most dangerous green house gasses. In addition to helping 

other countries prevent avoidable mistakes, this outreach brings more confidence 

and stability to gas markets, which are still in the fonnative stages of development. 

While gas is not yet a global commodity, we may witness, in the coming years, 

vast increases in gas production from an increasing number of cOlmtries. With 

respect to markets, this will tend to create an environment of greater competition, 

which can drive down costs and bring benefits to consumers. But it will also have 

extensive geopolitical consequences. 

Just 20 years ago, most gas importers, particularly those in Europe, relied on 

pipeline monopolies for gas supply. The countries that supplied these point-topoint pipelines had significant leverage over those that depended on them. 

However, gas markets are now evolving towards Liquetied Natural Gas (LNG) 

trade, which can be shipped in tankers to any place in the world with LNG import 

terminals. The United States' own decision on whether to allow the export of LNG 

will be completed by the Department of Energy. Beyond the United States, gas 

markets are changing globally. Currently, the second largest gas reserves in the 

world are in iran. Whether those resources are used to compete in a global 

marketplace, or are used to gain excess leverage, is a concern tor the United States. 

Therefore, it is in our interests to see strong, competitive gas markets that preclude 

suppliers from using gas as a geopolitical point ofleverage with its neighbors. It is 

also one more reason why the ability to produce more gas resources in the Western 

Hemisphere is also in our own national interest to support. 

The Power Sector 

This global revol uti on in gas markets is also leading to a transformation in the 

power sector. How the world generates and uses energy, especially electricity, is 

changing quickly. The availability of natural gas has led to imlOvations in the 

power sector, resulting in cleaner, more efficient generation and a reduction in 

green-house gas emissions. Looking forward, it has the potential to be the 

foundation of the U.S. power sector, both as a cleaner thermal fuel and as a fuel 

that can complement intennittent renewable technologies. How this is managed 

will have massive global implications for carbon dioxide emissions and climate 

change. 

But let us look practically and pragmatically at the near term, and what this power 

sector transtorn1ation could mean tor our industries in natural gas, renewable 

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80365a-4.eps

energy, and transmission and distribution infrastructure. The size of the power 

market is enonnous: the lEA estimates that the power sector in the Westem 

Hemisphere, excluding the United States, will need US$ 1.4 trillion in investment 

by 2035 to keep up with demand. It is in the interest of the United States to playa 

part in this market, and take advantage of this development to grow our own 

economy. A number of U.S. companies are already active in these markets: tor 

example, U.S.-based AES has operations in the Dominican Republic, EI Salvador, 

and Panama, where it operates 3.5 GW of installed capacity. The Ex-1m Bank has 

recently helped create 200 jobs in six states, when it approved a $28.6 million 

direct loan to a Honduran power company, which will purchase high-tech U.S. 

wind turbines for the Cerro de Hula wind faml in Santa Ana, Honduras. 

One Initiative provides an example where benefits tor U. S. cOlU111ercial interests, 

U.S. and regional energy security, and greater regional growth and stability can all 

be achieved. The "Connecting the Americas 2022" Initiative (Connect 2022), 

unveiled by President Obama and Colombian President Santos at the Sixth Summit 

ofthe Americas one year ago, is a hemispheric Initiative that works to assist 

countries to achieve their renewable energy goals and promotes regional 

intercOlmection of power markets, from Canada to Chile. The United States 

already has extensive interconnections with Canada; last year our countries traded 

over 62 billion kilowatt hours (kWh) of electricity. Mexico and the United States 

trade much less, with 11 intercOlmections and about 1.5 billion kWh of trade in 

2011. We continue to build on these opportunities, as do our businesses. For 

example, Sempra Energy, a San Diego-based energy company, has plans to build a 

wind faml in a region of world-class wind resources in Baja Califomia, using U.S. 

wind technology components, and exporting the power back across the border to 

serve the San Diego market. 

Interconnection can bring different kinds of benefits to different regions. For 

example, in Central America, markets are very small -- all together they account 

tor less electricity demand than the state of South Carolina -- which makes it 

difficult to attract large-scale investment. They have a strong dependence on 

heavy fuel oil for electricity production, which is dirty, expensive, and almost 

entirely imported. The cost ofthis energy dependence is large, and links their 

economies to volatile oil prices, undemlining their ability to grow and develop 

economically. Interconnection within Central America, and also with Colombia 

and Mexico, would promote greater energy security through the creation of more 

competitive, standardized, resilient, and larger markets. It is also an important step 

toward regional integration and prosperity. 

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80365a-5.eps

Connect 2022 is also working in the Andes region, where the markets are larger 

but experience severe weather effects. Colombia derives approximately 70 percent 

of its electricity from hydropower, and most years it has excess capacity. But it is 

also hypersensitive to the El Nifio effect, which causes droughts every two-toseven years, requiring them to maintain a large munber of inefficient thermal 

plants to cover shortages. Ecuador and Peru also have hydropower resources, but 

experience their FJ Nino effects during different months than Colombia, such that 

"wheeling" power north and south between these cOlmtries will allow their systems 

to complement one another during shortages. Interconnection among these 

countries would enable a more efficient use of existing resources, eliminating the 

need to build redundant large-scale dams, which increasingly raise concems for 

environmental and indigenous rights groups. Governments in the region with large 

hydro-dependence are already exploring additional ways to provide their 

population centers with affordable power, such as through solar, wind, geothennal 

technologies, as well as natural gas and smaller-scale run-of-river hydro projects. 

In order to take advantage ofthose resources, countries must develop their power 

sector infrastructure, including smartgrid teclmologies. All ofthis spells 

tremendous commercial and development opportlmities, and companies arOlmd the 

world are taking notice. 

Geopolitics 

In addition to the technical and investment challenges that must be overcome by 

the region, there are also significant geopolitical challenges. The Caribbean region 

suffers some ofthe highest electricity prices and lowest investment rates in the 

world. The energy security of many in the region, including the Dominican 

Republic, Jamaica, Haiti, and Cuba, relies upon Venezuela's Petrocaribe 

agreement, which supplies below-market financing for Venezuelan oil, and has left 

a number ofthem in serious debt to the Venezuelan parastatal oil company, 

Petroleos de Venezuela S.A., or PDVSA. Venezuela's oil policies going forward 

will continue to have important implications for the region, as well as the 

Venezuelan people. For countries in the region, a step toward greater energy 

diversification gives them the opportunity to lessen their dependence on imported 

oil, to build greater resilience in their markets and economy, and to enable those 

reforms that could bring dmvn their electricity prices and give them the 

opportlll1ity to compete. 

Venezuela itselffaces questions about its energy future. Despite extensive heavy 

oil resources, PDVSA's oil production has been generally falling since 1997, due 

to a lack of capital investment and maintenance of its facilities, as well as the 

politicization of its workforce. The EIA estimates Venezuela currently produces 

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2.5 million barrels per day, versus 3.5 million barrels per day in 1997. While the 

United States continued to import approximately 900 thousand barrels per day 

from Venezuela in 2012, the ascendance of North American production may affect 

this amount. But the greatest etlects of Venezuela's energy policy will be for 

Venezuela itself. In the last few years, ordinary citizens in Venezuela have been 

subject to longer and more frequent power shortages, which hurt businesses and 

affect everyday life. Many ofthese challenges could be tackled by addressing the 

commercial viability of the sector. Ultimately, this is a question for the 

Venezuelan people to decide for themselves. 

Brazil is another place where political decisions will have a strong impact on 

energy security and international opportunities. Brazil has vast potential in the 

hydrocarbons sector, with pre-salt recoverable resources estimated at 50 billion 

barrels of oil equivalent, one of the largest and most advanced biofuels industries 

in the world, and extensive wind and hydro resources. Brazil has also begtm to 

explore its potential in shale gas development. Brazil's oil parastatal Petrobras, 

which has been given the lead in pre-salt development, faces significant technical, 

human and manufacturing capacity challenges to exploit these resources. Due to 

its economic growth over the last 10 years, Brazil is estimated to need to double its 

energy capacity in the next 10-15 years. Its power sector, like Colombia's, is 85 

percent reliant on hydropower. This mix, while it makes important contributions 

in tenns of Brazil's greenhouse emissions, has also led to severe power outages 

due to shortfalls in hydroelectric power plant capacity during peak demand 

periods. As Brazil faces these challenges and choses a strategy including local 

content requirements, its ability to draw on intemational skills and resources to 

ensure the safe and efficient development of its oil, gas, and renewables sectors 

will have major consequences for global opportunities in these sectors. 

Another example is Argentina, which may have the third-largest shale gas reserves 

in the world. One potential challenge is the effect that last year's YPF 

expropriation had on the overall investment climate in Argentina's energy sector. 

We hope that YPF's recent agreement with Dow Argentina is a sign of a more 

productive attitude toward supporting a transparent and open investment 

environment. Argentina has great potential to help supply world energy markets 

and contribute to global energy security. Attracting private investment and 

creating confidence in Argentina's business climate over the long tenn are 

elements of meeting their potential. 

There are also some issues that are tmiversal for all energy-producing cOlmtries, 

such as the need to develop new resources responsibly and transparently. The 

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"resource curse" thesis was first used in describing the situation in several Latin 

American countries, and countries in the region continue to face governance 

challenges today in managing these resources. A number have taken steps to 

address them, including by joining the Extractive Industries Transparency 

Initiative, and we will continue to make this a priority in our bilateral relationships 

with resource-rich countries in the region. The Energy Resources Bureau at the 

State Department also supports programs such as the Unconventional Gas 

Technical Engagement Program, the Energy Governance Capacity Initiative, and 

the Power Sector Program, which work to help cOlmtries throughout the 

hemisphere to explore conventional, unconventional, offshore resource 

development, and power sector development through technical assistance and 

sharing of best practices. 

Fundamentally, the energy picture in the Western Hemisphere is deeply complex 

and interconnected, with spectacular opportlmities for U.S. jobs, commercial 

interests, economic development, and energy security linked to the political 

perspectives in Canada, Mexico, Venezuela, the Caribbean, and beyond. As world 

energy markets transform, reflecting our own energy revolution, the United States 

has much to share and much to gain from being a fonnative part ofthe picture. 

This is especially true in the Western Hemisphere. From building North American 

energy security and shaping natural gas markets to paving the road for tomorrow's 

commercial and innovative transfom1ation, the United States must continue to 

lead, to share our best practices and lessons learned, to support transparency and an 

even playing field, and to give our companies and im10vators access to tomorrow's 

energy markets. All these activities are critical to achieve our own energy security, 

as well as to deliver greater economic development, energy access, and stability for 

a stronger, safer, and more prosperous future for the Americas. Thank you for the 

opportunity to discuss these important issues with you today. 

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14

Mr. SALMON. Mr. Rooney. 

STATEMENT OF MR. MATTHEW M. ROONEY, DEPUTY ASSISTANT SECRETARY, BUREAU OF WESTERN HEMISPHERE AFFAIRS, U.S. DEPARTMENT OF STATE 

Mr. ROONEY. Thank you, very much, Mr. Chairman, Mr. Ranking 

Member. Thanks for this opportunity to be here with you today to 

discuss these issues. We are grateful for this committee’s attention 

to this set of issues, and we look forward to working closely with 

you to advance U.S. energy security in the Western Hemisphere. 

As Ambassador Pascual has already noted, the Americas hold 

tremendous strategic importance for the United States in terms of 

energy. As energy demand continues to grow, both globally and in 

the region, all countries in the hemisphere have a vested interest 

in developing energy resources and the capacity to fuel sustainable 

economic growth. That is why the Bureau of Western Hemisphere 

Affairs has made it a central component of its economic strategy 

for the region for the last several years to conduct a dialogue with 

our partners throughout the region on energy, energy security, and 

renewable energy. 

Through both bilateral and multilateral efforts, we have supported renewable—we have supported regional energy security by 

promoting the safe, sustainable development of energy resources. 

We have promoted increased access to affordable, reliable energy 

services, and the development of transparent, effective market 

structures that incentivize private-sector investment and provide 

opportunities for U.S. businesses in the region. 

In the coming years, we expect our energy interdependence with 

the region to increase, as oil producers such as Canada, Brazil, and 

Colombia ramp up output, and as Mexico considers important reforms to increase its production. But while countries like Canada, 

Mexico, Brazil, and Venezuela have significant hydrocarbon resources, others in Central America and the Caribbean remain dependent on imported energy. This is one of the many reason it 

makes sense to focus on the Western Hemisphere’s large potential 

for renewable energy. 

In many Latin American countries, hydropower has traditionally 

played an important part in the energy matrix. Most countries also 

possess significant wind, solar, geothermal and bioenergy potential, 

and a number are setting targets to integrate renewables in their 

energy grids. 

Through the Energy and Climate Partnership of the Americans, 

which was launched by President Obama at the 2009 Summit of 

the Americans in Trinidad, the United States is working with governments, the private sector, and NGOs in the region to promote 

development and deployment of renewable resources and technologies. 

It is important to acknowledge that energy development projects 

even with conventional or renewable resources are not without controversy. In recent years large-scale hydropower projects have 

begun to attract more concern among human rights and environmental and indigenous groups. The construction of new transmission lines can improve the stability of power markets and lower 

prices for consumers, but their construction can also have adverse 

15

environmental and community impacts. We have used diplomatic 

engagements through out the region to urge governments to take 

full account of these impacts. 

From the point of view of the United States, our work on promoting renewables, access and reliability under ECPA and the 

Connect 2022 initiative supports not just regional market development, but, equally importantly, more importantly, significant trade 

and investment opportunities for U.S. companies. Increased electrical interconnection in the region will open opportunities for investment in electrical generation and transmission, as well as good 

management technologies, all areas where U.S. businesses are 

highly competitive and where we work very closely with the Department of Commerce, the Export-Import Bank, and the Overseas 

Private Investment Corporation to ensure that the U.S. private sector has up-to-the-minute information on opportunities that exist. 

We still face major challenges in the Americas. Countries that 

have pursued statist, nontransparent energy policies have seen 

their production decline, despite the high energy prices of the past 

several years. These countries have found it difficult to attract the 

necessary investments, both foreign and domestic, to help their energy production and economies grow. We continue nonetheless to 

advocate open and transparent energy markets free from corruption and reinforced by strong protections for investment to help 

countries enhance output and promote long-term economic growth. 

As our closest neighbors and strongest trading partners, the energy and economic security of the Western Hemisphere is critically 

linked to our own. We have maintained a sharp focus on furthering 

our national energy security, promoting alternative and renewable 

sources of energy, fostering energy efficiency, promoting environmentally sound production and use of energy, and ensuring the stability and security of international energy supply. Continued 

progress will require patience, continued commitment and robust 

engagement, which our bureau, in partnership with Ambassador 

Pascual, are prepared to provide. 

Thank you very much, Mr. Chairman, Mr. Ranking Member, 

other members of the committee, for your interest. I appreciate 

your willingness to enter the larger statement into the record and 

to present this shorter summary to you today. I appreciate very 

much your continued interest in this issue, and look forward to answering any specific questions or concerns that you might have. 

Mr. SALMON. Thank you very much. 

[The prepared statement of Mr. Rooney follows:]

16


80365b-1.eps

Testimony of Deputy Assistant Secretary of State Matthew M. Rooney 

Before the House Foreign Affairs Committee 

Subcommittee on Western Hemisphere 

United States House of Representatives 

"Energy and the Western Hemisphere" 

April 11, 2013 

Chairman, Ranking Member, honorable Committee members, it is a pleasure to be here today 

to testify on energy issues in the Western Hemisphere. We welcome the Committee's 

attention to this issue and appreciate its support of our efforts to advance U.S. a nd regional 

energy security throughout the hemisphere. 

The Americas hold tremendous strategic importance to the United States in terms of energy. 

Latin America is home to the second largest reserves of oil outside the Middle East. Currently, 

over 50 percent of the United State's oil imports come from countries in the Western 

Hemisphere. As energy demand continues to grow - both globally and in the region - all 

countries in the hemisphere have a vested interest in developing energy resources and capacity 

to fuel sustainable economic growth. But we should also take a broader view of the central role 

that energy plays in the lives of our citizen. Energy touches everything, and is at the crux of 

some ofthe most pressing social, financial, and environmental issues we deal with in the 

region. 

This is why our engagement on energy continues to be a central part of our broader economic 

policies and engagement strategy in the region. While our efforts are wide-ranging, our 

strategy is focused. Through both bilateral and multilateral efforts, we are supporting regional 

energy security by promoting the safe, sustainable development of energy resources; increased 

access to affordable, reliable energy services; and the development of transparent, effective 

market structures that incentivize private sector investment and provide opportunities for U.S. 

businesses in the region. 

A Safe, Sustainable Energy Future 

In coming years, our energy interdependence with the region will only increase, as oil 

producers such as Canada, Brazil, and Colombia ramp up output, and Mexico, already a major 

energy producer, considers important reforms to increase its production. This is why we're 

focused on working with our hemispheric partners to ensure that hydrocarbon resources - both 

conventional and unconventional- are developed safely, efficiently, and sustainably. The 

United States has extensive experience and has developed significant expertise in permitting, 

regulatory oversight, and incident response planning for conventional and unconventional 

resource exploration and extraction. The Administration is sharing these environmental, 
17


80365b-2.eps

regulatory, legal, and commercial best practices with other countries in the region to ensure 

that resources are developed in a responsible and environmentally-sustainable manner. 

But while countries like Canada, Mexico, Brazil, and Venezuela have significant hydrocarbon 

resources, others in Central America and the Caribbean are fully dependent on importing 

energy, and do so at a high price. In the Caribbean, over 90 percent of commercial energy 

consumption is petroleum-based, and over 95 percent of all electricity is generated by fossil 

fuels.; This over-reliance on one resource is incredibly expensive, rendering these countries less 

competitive and unduly vulnerable to price shocks and geopolitics. 

This is one of the many reasons it makes sense to focus on the Western Hemisphere's large 

potential for renewable energy. In many Latin American countries, hydropower already plays 

an important part in their energy mix; most countries also possess significant wind, solar, 

geothermal, and bioenergy potential. In Latin America and the Caribbean, where electricity 

prices are high, renewable energy technologies, such as solar and wind, can be quite costcompetitive with respect to thermal generation. Despite these advantages, countries in the 

region have historically been slow to adopt the use of renewable energy, with the exception of 

hydropower and traditional biomass, due to the small scale of individual markets, lack of 

awareness, inadequate regulatory policies, and a shortage of private investment or other forms 

of project financing. 

In recent years, however, interest in exploiting the region's renewable energy potential has 

been increasing steadily. Through the Energy and Climate Partnership ofthe Americas (ECPA), 

which was launched by President Obama at the 2009 Summit ofthe Americas, the United 

States is working with governments, the private sector, and NGOs in the region to promote 

development and deployment of renewable resources and technologies in places where those 

technologies can make a difference. For example, through a pilot-project grant to the 

Organization of American States, we supported the installation of solar panels at the National 

Energy Commission headquarters in the Dominican Republic, the country with the highest rate 

of power outages in the region. The Government of the Dominican Republic is now seeking to 

install solar panels on other government buildings, and has highlighted this project as a best 

practice to be replicated country-wide. 

In South America, governments are taking note of the benefits that renewable technologies can 

offer, and are integrating them into their grids and establishing renewable energy targets. 

Coupled with a decrease in technology costs and government incentives for investment, this 

has spurred growth in renewables, particularly in wind and solar. Industry experts predict that 

more than 450 megawatts will be generated by grid-connected photovoltaic solar panels 

installed in Latin America and the Caribbean this year, up from just 100 megawatts in 2012.;; 

Brazil, Chile, and Mexico are expected to be the drivers of the majority of the growth. 

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It is important to acknowledge that energy development projects, either with conventional or 

renewable resources, are not without controversy. In recent years, large-scale hydropower 

projects have begun to attract more concern among human rights and environmental groups. 

Such projects can require land acquisitions and resettlement of people, lead to soil erosion of 

surrounding land and adversely affect animal and plant life ofthe region. The construction of 

new transmission lines can improve the stability of power markets, lower prices for consumers, 

and increase access to electricity, but their construction can also have adverse environmental 

impacts. Communities are often caught in the middle. Our engagement, however, can help 

bridge these issues. In Panama, for example, an indigenous community in the Embera region 

was opposing proposed transmission lines that would run through its territory. Our embassy in 

Panama invited the community's leaders to visit the United States and meet with U.S. 

government representatives and indigenous groups in the Pacific Northwest to learn how to 

negotiate with power companies. During their visit, they told us: "We know this is a business 

proposition, and we know that no one will benefit if the line is not built. But we also want 

development, and we also need energy." Since their visit, the Interconnection Colombia 

Panama consortium has been working with the community, which has now approved the initial 

stages of environmental assessments for the transmission lines, and the government is taking 

steps to address their energy needs through the Government of Panama's Department of rural 

electrification. 

Access to Affordable, Reliable Energy Services 

Despite the region's role in global energy production and the wealth of energy resources it 

possesses, more than 31 million citizens in the hemisphere still lack access to electricity. This 

impacts the development of communities, the health offamilies and children, and overall 

economic prosperity. In rural communities not connected to the grid, it is common practice to 

harvest wood for cooking in a traditional but unsustainable way. Wood used for in-home or 

open fire cook stoves causes air pollution and deforestation, and can have serious negative 

impacts on health. In communities across the hemisphere - from Mexico to Paraguaythousands of people die each year because of injuries and illness associated with traditional 

and open-fire cookstoves. The use of cleaner cookstoves and cleaner burning fuels can solve 

multiple problems at once. Through the ECPA, the Department of State is supporting programs 

that provide clean cookstoves and increase access to sustainable, reliable, and affordable 

electricity services. In Central America, the U.S.-based non-profit Trees, Water, and Peaple is 

using a grant from the Bureau of Western Hemisphere Affairs to partner with local 

organizations to provide training for in-home, off-grid solar technologies and fuel-efficient 

cookstoves to rural residents. We also support Peace Corps volunteers in eleven countries in 

3 
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80365b-4.eps

the region working with rural communities to build awareness of renewable, off-grid energy 

technologies that educate citizens on energy conservation, support small-scale, community-led 

renewable energy projects, and improve quality of life by generating income while reducing 

carbon emissions. These projects, and others like them, are critical to alleviate poverty and 

support low-emissions economic development in the region. 

But access to electricity is not our only goal. Electricity must also be reliable and available at an 

affordable price. In the Caribbean and Central America, electricity costs are three-to-four times 

more expensive than the United States. In the past 12 months we have seen high prices and 

the threat of wide-spread blackouts spur social unrest in countries across the region, including 

the Dominican Republic and Guatemala. 

To mitigate the hardships imposed by such high-costs, many governments in the region provide 

significant energy subsidies to consumers. Throughout the world, market-distorting energy 

subsidies have proven an inefficient mechanism for protecting the poor since they allow 

leakages into wealthier social groups and result in higher demand volumes and energy 

shortages. According to the International Energy Agency, energy subsidies cost Ecuador 

approximately $5 billion U.S. dollars per year, Mexico $10 billion per year, and Venezuela up to 

$20 billion a year.iii Additionally, subsidies place an increasing burden on governments' 

accounts and divert scarce resources away from issues such as education spending, healthcare, 

and citizen security. 

We are addressing the issues of access, affordability, and reliability through Connecting the 

Americas 2022 (Connect 2022), the newest hemispheric initiative under the ECPA. Connect 

2022 was launched by the Government of Colombia at the 2012 Summit of the Americas with 

the vision of providing universal access to affordable, reliable electricity within the next decade. 

For smaller economies and energy markets, electrical interconnection can decrease the cost to 

consumers through greater market efficiency and lower generation costs. Interconnection can 

also minimize shortages and supply disruptions, especially in a region that is highly dependent 

on hydropower and imported oil and vulnerable to severe climate events. Realizing the vision 

of hemisphere-wide electrical interconnection and increased access to electricity over the next 

decade will require strong government action and vigorous private sector investment - and 

work is already underway. 

Transparent, Effective Market Structures 

Within the Americas there is broad support for democratic values, market-based economies, 

and regional integration. These shared values provide a base for robust engagement on energy 

4 
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sector development. Our geographic proximity, technological expertise, and industry 

leadership make u.s. energy companies highly competitive in the region's expanding markets. 

Our work under ECPA and Connect 2022 supports regional market development and business 

opportunities. Increased electrical interconnection in the region will open broad opportunities 

for investment in electrical generation and transmission, as well as in grid management 

technology - all areas where u.s. businesses are highly competitive. It will also help create a 

business climate that accelerates development of renewable energy as countries swap power 

with one another to more effectively utilize clean energy resources. 

Additionally, we are working with the Department of Commerce, the Export-Import Bank, and 

the Overseas Private Investment Corporation to provide better and more readily available 

information on investment opportunities throughout the hemisphere that may be attractive to 

U.S. businesses. 

We still face major challenges in the Americas. Countries that have pursued statist, nontransparent energy policies have seen their production decline despite high energy prices over 

the past couple of years. These countries have found it difficult to attract the necessary 

investments, both foreign and domestic, to help their energy production and economies grow. 

But our balanced approach of focused technical cooperation and broad policy discussions has 

provided an avenue for engagement with most countries in the region - even some with which 

we have significant differences. We continue to advocate open and transparent energy 

markets, free from corruption and reinforced by strong protections for investments, to help 

countries enhance output and promote long-term economic growth. 

The Future of Energy in Western Hemisphere 

As our closest neighbors and strongest trading partners, the energy and economic security of 

the hemisphere is critically linked to our own. Increased production, diversification of 

resources, and economic growth have increased regional energy security. We have maintained 

a sharp focus on furthering our national energy security, promoting alternative and renewable 

sources of energy, fostering energy efficiency, promoting environmentally sound production 

and use of energy, and ensuring the stability and security of the international energy supply. 

Continued progress toward a cleaner, more diversified energy future will require patience, 

continued commitment, and robust engagement. 

Thank you Mr. Chairman, Mr. Ranking Member, and members of the Committee for your time. 

I appreciate your continued support and attention to this issue and the opportunity to testify. 

Thank you. 

5 
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80365b-6.eps

I lOB: Renewable Energy Best Practices in Promotion and Use for Latin America and the Caribbean, November 

201l. 

II Solar in Latin America & the Caribbean 2013, GTM Research. 

'" Source: lEA World Energy Outlook 2011. 

6 
22

Mr. SALMON. I would like to yield myself 5 minutes for questions, 

and I would like to start with you, Ambassador. Thanks for the testimony and the time that you have given to us to come before the 

subcommittee and talk about this extremely important topic. 

My question is about the LNG licenses that have yet to be resolved. And how the DOE continues to, in my view, stall on issuing 

those licenses despite its own commission’s study confirming that 

price increase concerns are not really the issue. I am wondering if 

you can tell me from the administration’s perspective why the 

delay? I have heard it described just as with the delay and approving the Keystone XL Pipeline of paralysis by analysis. And this 

continued paralysis, is it affecting job creation and prosperity that 

can result from moving ahead with LNG exports? We have such a 

low price right now with LNG and such a vast supply in the United 

States, and it seems to me that could be a win/win. Is this something that we can find some common ground on and move ahead? 

Ambassador PASCUAL. Mr. Chairman, thank you for the interest 

you have taken on the topic. And you really put your finger on an 

issue which has been critical in global markets, which is what has 

happened with the emergence of natural gas. And part of that has 

been here in the United States, but what we have also seen is a 

radically changing gas market throughout the world. 

We have had some—the biggest finds in the world that we have 

seen in Mozambique in the last 30 years, in Australia, in Israel, 

in Cypress, and in Norway. So we need to think about this from 

a broader global perspective and the United States fitting into that 

picture. 

I can assure you that our colleagues in the Department of Energy are serious about this issue. It is a topic that we talk about 

on a regular basis, and that they are proceeding with due diligence. 

They published a study, as required under the Natural Gas Act 

of 1926, in December. That study laid out the parameters for what 

the benefits would be from natural gas exports for the United 

States. In accordance with that law, they had two comment periods 

that have been completed. The first comment period is open to everybody; the second comment period is to accept rebuttals of any 

of the first comments. That closed on February 22nd. There has 

been a relatively short period of time since then to take into account all of those comments. 

What they now need to do is go back through the 16 applications 

that they have received and make final judgments. In making 

those judgments, they have to take into account both the initial 

study and the broad commentary that has been received. 

I know that they have an interest in being able to review that, 

and bring it to conclusion, and be able to come forward with recommendations that they think are going to be consistent with the 

national interests of the United States. It would be premature for 

me to suggest what those outcomes would be, but I think it is fair 

to say that with the urging that you have given, the urging and 

the interest that the industry has had, that they recognize the importance of trying to move this issue along as quickly as possible. 

Mr. SALMON. Okay. Thank you very much. I just would like to 

note that there is a lot of interest on both sides of the aisle in getting this issue revolved as quickly as possible so that we can get 

23

on with prosperity and energy independence, and I think that that 

achieves both objectives in due measure. 

I have one other question, Ambassador. It is just kind of a personal bone to pick, and it is not necessarily with the administration. I think it is our policy on ethanol here in our country, and 

it deals with Brazilian ethanol, because you mentioned that in 

some of your comments. 

I understand that we put a pretty heavy import fee on Brazilian 

ethanol, which is derived from sugarcane, as opposed to corn as it 

is here in the United States. And I am just wondering, it appears 

that the reason that we put such a—given the administration’s 

strong support for free trade and constructive engagement, especially within our hemisphere, it kind of appears that what we are 

trying to do is provide some kind of unfair protection for our own 

home-grown ethanol when it appears that the Brazilian opportunity might be a pretty good one. And I would just like your 

thoughts or comments, and if I am asking the wrong person, you 

just tell me. But I feel frustrated that it feels a little bit protectionist that we are importing—you know, we are putting these high 

tariffs on the importation of Brazilian ethanol, and I would like to 

maybe understand what the rationale might be. 

Ambassador PASCUAL. You are right, Chairman, to keep focused 

on this market and the potential that it has. 

Let me just mention a couple of things. Specifically the tariff that 

you mentioned expired last year. There is an ironic situation that 

the Brazilians face right now that international sugar prices have 

been so high that they have actually been exporting the sugarcane 

for sugar rather than using as much of it as they have in the past 

for the production of ethanol. So, ironically, we have been in a situation where the Brazilians have actually been importing ethanol 

from the United States. 

Together we have actually been working and identifying projects 

in Central America, the Caribbean, and even in some African 

states where we are trying to take some of the technologies, the 

commercially competitive technologies in the development of ethanol, and share them with others, as well as advice on the regulatory and pricing structure to make those markets more competitive and viable. 

So the competitive environment has improved, and the record of 

our cooperation with Brazil has indeed improved. Ranking member 

indicated that you might be going there. If you talk with them 

about the work that they are doing on ethanol, I would be interested in any feedback that you get on that. 

Mr. SALMON. Thank you very much. 

I would now like to recognize the ranking member Mr. Sires. 

Mr. SIRES. Thank you, Mr. Chairman. 

Yes, the chairman has planned a trip to Argentina, Brazil, and 

Colombia. So at the end of the month, and I guess we will give him 

some feedback on what we——

Mr. SALMON. Your big focus will be on energy issues. 

Mr. SIRES. You know, I sit through these hearings now a couple 

years, and I have to say I hear the same thing all the time, the 

opportunities that are available in the Western Hemisphere, how 

24

we can—you know, we should take advantage of it. You know, the 

growth, and, you know, power, electrical power, grids, everything. 

But, you know, I also get a lot of people in my office complaining 

about the corruption and how they can’t do business in the Western Hemisphere in some of these countries. So I was just wondering if you could comment, Assistant Secretary, on that, because 

I do get a number of people. And now we are looking at some of 

these countries. Argentina just nationalized the oil industry from 

Spain. You have going on in Ecuador. So can you just comment, because if I were a businessman, you know, I certainly don’t know 

if I want to invest in a country there is no stability. So, to me, it 

is going to be another situation where the countries in the Western 

Hemisphere are going to miss an opportunity to—you know, to 

move ahead. And can you just talk a little bit about that. 

Mr. ROONEY. Sure. Thank you very much, Mr. Ranking Member. 

There is certainly a range of experiences out there. And there are 

countries, you mentioned Argentina and Ecuador, where I think 

American companies and other foreign companies have found it 

very difficult to operate. In those cases, in Argentina, for example, 

we have made it very clear, I think, to the Government of Argentina repeatedly and at the highest levels of that government that 

we think that expropriating assets of foreign companies is not a 

very promising economic policy, that it is likely to scare investors 

away, and that private investment is important to growth in any 

sector. And certainly in the energy sector, private investment is indispensable to sustain long-term development of those assets. 

By the same token, in Ecuador we have been following very 

closely the disputes that have taken place there. We are very clearly aware of the many court cases and arbitrations that are unfolding with respect to Chevron—Texaco Chevron in Ecuador. I think 

the government there has no doubt about our view of that set of 

policies. 

There are other countries at the other end of the range that are 

actually pretty clean. Chile has a very clean investment environment, and very transparent system, and a very transparent 

way——

Mr. SIRES. Can you name a couple of those countries? 

Mr. SALMON. So we can recommend them. 

Mr. SIRES. So we can recommend them. 

Mr. ROONEY. So you can go there, right? 

And then there is a bunch in the middle, where admittedly I 

think even they would admit they struggle with lack of transparency, they struggle with conditions of corruption in public service and in the courts. I think in those cases we have tried now in 

general, not just with respect to energy, to use different tools to encourage those governments to clean up their acts. 

Our free trade agreements that we have with a number of countries, in particular Central America, provide a number of tools and 

protections that U.S. investors can use to protect their interests. 

And we have, I think, seen over time that those relationships have 

encouraged those countries to become more transparent as things 

go along. There is no question that in many of these countries you 

have to you have a strong stomach to do business. 

Mr. SIRES. Deep pocket, too. 

25

Mr. ROONEY. That being said, I think a number of American investors have proven to have pretty strong stomachs. And you have 

major U.S. corporations that have been engaged in many of these 

countries for years and years and years, have found ways to do 

business and thrive. 

So I think certainly when we talk to American companies that 

are doing business or considering doing business in these regions, 

we advise them to take great care in selecting their business partners, to take great care in the way they draft their contracts, to 

take great care in who they hire to represent them, and to stay in 

close touch with the political environment as things unfold, because 

things can shift under your feet quite quickly. 

Mr. SIRES. Thank you very much. 

I am sorry, I have just got one more question. Mr. Ambassador, 

can you talk a little about the new President of Mexico, his effort 

to modernize Pemex, and what it would mean if it was able to pass 

through their legislation—legislature? 

Ambassador PASCUAL. One of the things which President Pena 

Nieto has indicated is that his government and his party is very 

committed to pursuing comprehensive energy reform. It is a landmark step for Mexico. As you know, natural resources, hydrocarbon 

resources in Mexico were nationalized in the 1930s. It is a national 

day in Mexico celebrating the naturalization of those resources. 

But Mexico has also taken a very realistic perspective, understanding that they haven’t had the capacity to develop deepwater 

resources or the kind of shale gas and shale oil potential that exists 

here in the United States. And in order to do that, it is going to 

require significant private investment. 

The first step that President Pena Nieto has taken has been to 

work within his party to gain the endorsement of the party to actually move forward with comprehensive energy reform. They have 

been working across a triparty basis of three major parties to build 

support for that. They have indicated that they want to introduce 

that reform measure after they complete the telecommunications 

reform, which is currently in process of working itself through the 

political system. After going through the parliamentary process, it 

would have to pass through the states; 21 out of—23 out of 31 

states are actually controlled by the PRI. 

So there has been quite extensive effort that has been taken to 

build the coalition for the prospects of energy reform that would 

welcome the possibility of private investments in a way that protects Mexico’s resources, but allows them to be developed in participation with international actors. It is an issue which has very nationalistic resonance within Mexico. Mexico has to take the lead in 

it, because if they are not seen as leading, if it is seen as being opposed by the outside, that will become a constraint. But at the 

same time it is quite impressive that there has been a measure, a 

set of measures that are being developed that are quite as comprehensive and extensive as they are. 

I would say, Mr. Chairman, as well, thank you for your mention 

of the transboundary issues, because I think one of the important 

steps that can be taken on the part of the United States is to indicate that we can pass the authorizing legislation for the transboundary agreement that would suggest that the U.S. is committed 

26

to the agreement that we have already signed together with Mexico 

that would allow for exploitation and sound environmental management of those transboundary resources between our borders. 

Mr. SALMON. Thank you very much. 

The chair now recognizes the gentleman from Florida Mr. Radel. 

Mr. RADEL. Thank you, Mr. Chair. 

I go back to Colombia when we talk about some of these countries where people may be a little apprehensive in terms of investing in. We have seen that Colombia has done partial privatization 

of their state-owned oil company, and because it is now more of a 

market-oriented energy sector, it is booming there. 

Have we been able to—I guess I would even use the word ‘‘educate’’ or share the message of this kind of great example that we 

have had in working with Colombia to other countries in an effort 

to reach out and work with them? Has the administration or anyone from the Department? 

Mr. ROONEY. Thank you, Mr. Radel. I think the—the short answer is yes. We are, of course, not shy about pointing out that kind 

of experience to others in the region. In general, particularly over 

the last several years, we found it very useful. I think the chairman mentioned an initiative that I was involved in launching a 

couple of years ago, which was a trade-related initiative called 

Pathways to Prosperity. There, and in the energy area as well, we 

found it very useful to create platforms so that experiences like Colombia’s can be highlighted so that it is not us making those points 

to others about the desirability of this kind of privatization and restructuring of an important sector like that, but it is a Latin country outlining its own experience. We found that to be a very powerful—a very powerful way to carry that message. And the experience, as you say, is—pretty much speaks for itself. 

Mr. RADEL. With that said, I would actually transition into Mexico with you, Mr. Ambassador. I mean, I am a firm believer that 

we hear a lot of talk about illegal immigration and fingers point 

south of all these people who want to cross the border come here 

illegally. The best way to solve that problem is with a booming 

economy south of us, and it is imperative for us to work with these 

countries to foster this kind of growth through market-oriented 

ways of doing so. 

That said, the hydrocarbon agreement, what kind of a signal are 

we sending Mexico right now with the hold-up in this? And if you 

could give us some context of the hydrocarbon agreement, where 

we are at? 

Ambassador PASCUAL. Certainly. First of all, on the transboundary agreement, transboundary maritime agreement, the purpose of it was to look at the area which is 1.4 miles on north and 

south of the border between Mexico and the United States, the 

nautical border. What in effect we have had thus far is a moratorium in the western gap, but in reality a moratorium over that entire area, because any company that might be looking at any kind 

of hydrocarbon development is going to look at it with uncertainty 

because there is a lack of clarity over the ownership of resources. 

The discussions on this agreement began in September 2009 

when I was Ambassador to Mexico. We went through a negotiation 

process. There were extensive consultations with industry in the 

27

United States as well as a nongovernmental sector. The agreement 

was signed in February of last year. The Mexican Parliament has 

actually ratified that. It is now with the United States to actually 

pass the implementing legislation that is needed to be able to act 

on some of the key provisions to be able to implement it. 

The language for that agreement has been put forward to the 

Congress. The administration is fully supportive of moving forward 

with it as quickly as it possibly can. This is something which the 

industry feels is positive, because it provides a way of giving greater assurance to develop the resources that are on our side of the 

border when there are reservoirs that cut across the border; provides a mechanism between Mexico and the United States to create 

units and cooperation among those units, and where there is advance agreement where in that unit one company gets 60 percent 

and another one gets 30 percent, or whatever it is, and you know 

when the oil comes out, there is no argument about how to divide 

it up because you have already created the unit and reached an 

agreement ahead of time of how to separate it. And it provides 

great environmental benefits as well, because it creates a mechanism that allows us to support the Mexican Hydrocarbons Commission. It allows us to be able to, within the individual agreements, 

ensure that the standards comply with American standards on the 

environment. 

And so it really is a win/win. And so we are extraordinarily encouraged about the positive reception we have seen among various 

Members of Congress. 

What it really needs right now is a vehicle to be able to move 

it forward, and if any of you can be helpful in that and give some 

direction and guidance to how that might be able to be done, we 

would be extraordinarily appreciative. 

Mr. RADEL. I am sure that we all have the interest of doing that, 

working together, even if it is just symbolically to say—to reach out 

to all of Latin America to say that we are here to work with you. 

Ambassador PASCUAL. Thank you. 

Mr. SALMON. Thanks, Mr. Radel. 

I would just like to say for the record that I strongly support 

moving that language or some permutation of it that is acceptable 

to the administration as quickly as possible. I believe that is a big 

win/win. And we are really fortunate to have a member of our subcommittee who is actually on the committee of jurisdiction that will 

be looking at that legislation, I think, ultimately, and that is the 

Resources Committee. And I would like to yield to him. The chair 

yields to Mr. Duncan. 

Mr. DUNCAN. Thank you. 

First off, I will just mention that I am currently drafting legislation. Hope to have it ready for your cosponsorship on the transboundary agreement, to move that forward, and working with folks 

here on the Western Hemisphere Subcommittee, but also Natural 

Resources, I think, is vitally important. 

You know, when I approach American energy independence 

issues, often talking about, one, North American energy independence, but now I have expanded that on all American energy independence, where we work with our neighbors in this hemisphere, 

both in Latin America, Mexico, with Canada, I think it is an allVerDate 0ct 09 2002 11:32 Jun 06, 2013 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 F:\WORK\_WH\041113\80365 HFA PsN: SHIRL
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of-the-above approach to truly working with our neighbors. And it 

also helps foster those economies. 

And when the gentleman from Florida was talking about Colombia, I couldn’t help but recollect last year I was at the Summit of 

the Americas in Cartagena, and we met with the Colombian—Albio 

was there. We met with the Colombian Congress, and they said 

they keep spending-to-GDP ratio to about 4 percent. They have low 

taxes. And they just have enough government to support a free 

market. And the Colombian Government is really thriving. 

And so we heard some of the concerns they had that are concerns 

of mine dealing with energy, and that is a question I have for the 

gentleman. How are you approaching Venezuela? And that may 

have been answered already, but Venezuela, with the death of the 

leader, Hugo Chavez, there, are there efforts to move away from 

U.S. dependence on Venezuelan oil or natural gas? And, you know, 

how do we work with the other neighbors within the Latin American community and in this hemisphere to move them away from 

Venezuelan dependence and maybe more toward an American or 

North American or Western Hemisphere agreement? 

So I think the transboundary agreement helps with that with 

Mexico, but I would like to see how we approach Venezuela and 

those issues now. And I ask that of both of you gentlemen. 

Mr. ROONEY. Thank you, sir. 

I think as we look forward over the next couple of days to the 

Presidential election in Venezuela, we are all waiting to see what 

happens. Perhaps not terribly suspenseful, but we are waiting to 

see what happens nonetheless. 

On the subject of Venezuela’s energy trade with the United 

States, I think, as I recall, it is something in excess of 40 percent 

of Venezuela’s exports of oil come to the United States, which, in 

turn, represents something less than 10 percent of our imports of 

oil. So it has been our sense throughout, and I think it helps explain why Mr. Chavez never used oil as a weapon against us, that, 

in fact, the importance to Venezuela of the U.S. as a market and 

as a place to refine its oil is actually quite, quite significant, and 

perhaps in some ways more important than Venezuela as a supplier to the United States. Ten percent is nothing to sneeze at, but 

it is nonetheless less than 40 percent. 

We have a testy relationship with Venezuela. We have looked for 

opportunities to engage in areas of mutual interest. We think we 

have mutual interests with Venezuela, potentially, in counternarcotics, counterterrorism, and energy, and we have not found 

them terribly receptive in the past. 

We are hopeful that the future will bring an opportunity to have 

a more constructive relationship with Venezuela. Nonetheless, I 

think you are absolutely correct that the opportunities for energy 

integration and energy trade in the rest of region are significant 

and offer us enormous opportunities to shift our trade elsewhere 

and to work more closely with other partners. 

Mr. DUNCAN. And Ambassador? 

Ambassador PASCUAL. Let me focus on the Caribbean aspect of 

this question, because the subsidies that Venezuela has provided 

the Caribbean countries have perpetuated a dependence on imported fuels, particularly diesel fuels. 

29

I mentioned my in my testimony that right now in the Caribbean, countries are paying, people are paying, businesses are paying four to five times for electricity than what we pay, higher than 

what we pay here in the Washington, DC, area, about 35 cents a 

kilowatt hour. In the past countries have been hesitant to raise 

their concerns about that energy dependence because they have 

been concerned about the subsidies that they have been receiving 

from Petrocaribe. 

The United States has been deeply engaged in the region, and 

we have been working with them through a mechanism called the 

Caribbean Renewable Energy Forum. And increasingly what we 

have heard from country after country is that the demands that 

they are hearing from their people and their businesses is that 

they need to enter in a competitive global economy. And as many 

of you have said, you can’t be competitive if you are starting off already by paying four or five times more for the price of electricity 

than everybody else. 

So among the things that we have been working on are a range 

of possibilities that could look at possibilities of the use of gas, of 

wind, of solar energies, and ways that can reduce the cost of electricity generation. We have already seen some prospects, including 

within the United States and Puerto Rico, and not far away, in the 

Dominican Republic, to lower the cost of the generation. 

One of the things that these countries are finding is that to make 

it possible to attract the investment that is necessary, they have 

to create a better business climate, as you have indicated. But we 

have seen, for example, recently with the Dominican Republic efforts that they are trying to make to meters on their systems so 

that they can actually gauge who is using electricity and who is not 

and be able to collect from them. 

This whole effort of good business climate, real business opportunities, the reduced cost of alternative fuel mechanisms than what 

we have seen in the past, together can begin to create—is already 

creating an alternative environment for power generation, which 

offers a real prospect to the region that they haven’t in the past. 

And we are very much committed to be able to work together directly, with these countries directly, with the Inter-American Development Bank, with the World Bank, and most importantly with 

the private sector, because in the end one of the key things is going 

to be can you attract private investment to those kinds of projects 

in a way that is sustainable. Because these things can’t run on the 

basis of subsidies. They have to run on a sound commercial economic basis. 

Mr. DUNCAN. And I think I applaud the chairman. Earlier in his 

statement he talked about LNG exports. And I think one thing the 

administration can do is help expedite the permitting for LNG terminals so that we can export some of this gas. When you talk about 

quality-of-life issues, if we could export American gas to Latin 

American countries, if you travel to that area, the prevalent smell 

is charcoal because a lot of folks in that area cook and heat their 

homes with charcoal. If we could change that over to natural gas, 

refrigeration from propane, other things, there are just a world of 

opportunities to improve the quality of life of folks in Latin AmerVerDate 0ct 09 2002 11:32 Jun 06, 2013 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 F:\WORK\_WH\041113\80365 HFA PsN: SHIRL
30

ican through American and North American and Western Hemisphere energy sources. 

And with that I will yield back, Mr. Chairman. 

Mr. SALMON. Absolutely. 

The chair would like to yield one additional question from the 

ranking member. 

Mr. SIRES. You know, as the Congressman said, we spent a good 

deal of time with Members of the Congress in Colombia. It was 

very informative, the way they are moving forward. We also talk 

about their relationship with Chavez. 

I just think that this politics of Chavez to give oil to the Caribbean nations basically was just used to turn them against the 

United States. And I do hope that the new President, even though 

he talked to the little bird the other day, changes the policy, because I don’t think we can afford to have all these people that are 

dependent on Venezuela really day by day turn against us. 

So we somehow in the State Department and through our energy 

policies here, we have to find a way of—how can I say it—battle 

that, because really—you know what I am talking about. You 

know. They give money to the Dominican Republic. Excuse me. 

Great prices to the Dominican Republic. Some of the small islands. 

Obviously, Cuba is the biggest beneficiary of that policy. 

So I was just wondering, you know here is what they are doing. 

They having an election. How are we going to approach that? You 

know. 

Mr. ROONEY. Thank you, sir. 

I think you won’t hear us defending Mr. Chavez’s approach to 

this set of issues. We have certainly shared the concern about 

Petrocaribe—that is the program we are talking about here—over 

the last several years. I think the economic pressures on some of 

the recipient countries have been acute, especially 2 or 3 years ago 

when petroleum prices had spiked. Those countries are very, very 

dependent on imported fuel, both for electricity generation and for 

vehicle fuels. And so the pressures that they were under were simply irresistible, and I think they bought into Petrocaribe largely out 

of economic motives, not really for ideological reasons. 

I think the success—I am not sure if I would have considered it 

cost-effective if I were the Venezuelan Government in terms of political payoff, because I think some of those countries have, you 

know, indicated that they were not entirely comfortable with the 

political pressures they were being put under, and looked for ways 

for escape. 

When you look, I think, at the production of oil in Venezuela, the 

budget situation of Venezuela, price conditions there, you know, inflation is very high. I think you are looking at a potentially fragile 

financial situation. And sooner or later the budget realities are 

going to be such that any government is going to be under pressure 

to question that use of resources into the region. So I wouldn’t—

wouldn’t want to speculate how long that might be, but I think 

budget realities have a way of catching up with the government. 

Mr. SIRES. It is mind-boggling to me to see a country with, what, 

80 percent, 88 percent of the oil in the Western Hemisphere, and 

they are broke. 

Thank you, Mr. Chairman. 

31

Mr. SALMON. Well, thank you very much, gentlemen. I appreciate 

your testimony before the subcommittee, and we look forward to 

working with you on all these issues. Thank you. 

Mr. SIRES. Thank you very much. 

Mr. SALMON. I would like to seat the next panel if we could. 

Thank you very much. 

Okay. Thank you. 

Looks like we are ready to introduce the next panel. Thank you 

for taking time to testify. 

First we would like to introduce Jorge Pin ̃ on. Jorge Pin ̃ on is the 

director of the Latin American/Caribbean Program at the University of Texas as Austin. He was president and CEO of Transworld 

Oil USA prior to joining AMOCO Corporation as the president of 

AMOCO Corporate Development Company Latin America. In this 

position Mr. Pin ̃ on represented the business, development, and 

joint venture efforts in Latin America between AMOCO Corporation and state oil companies. He holds a degree in economics and 

a certificate in Latin American studies from the University of Florida. 

Now I would like to turn to Mr. Farnsworth. Eric Farnsworth is 

a vice president of the Council of the Americas and Americas Society. Mr. Farnsworth began his career in Washington with the U.S. 

Department of State. Also, he was a senior advisor to the White 

House Special Envoy for the Americas. Eric Farnsworth holds an 

M.P.A.—that is a great degree; I have the same one—in international relations from Princeton’s Woodrow Wilson School. 

Next up, Mr. Goldwyn, David L. Goldwyn, is president of 

Goldwyn Global Strategies. Under his supervision GGS has staged 

shale gas regulatory workshops for government regulators in Belgium, Poland, Rumania, Bulgaria, and Ukraine. Also, Mr. Goldwyn 

served as the U.S. State Department Special Envoy and Coordinator for International Energy Affairs. 

Mr. Goldwyn holds a B.A. in government from Georgetown University and a master’s in public affairs from the Woodrow Wilson 

School of Public and International Affairs at Princeton University, 

and a J.D. from New York University School of Law. 

Mr. Pin ̃ on, we would like to start with you. 

STATEMENT OF MR. JORGE R. PIN ̃ ON, ASSOCIATE DIRECTOR, 

LATIN AMERICA AND THE CARIBBEAN PROGRAM, CENTER 

FOR INTERNATIONAL ENERGY AND ENVIRONMENTAL POLICY 

Mr. PIN ̃ ON. Thank you, Mr. Chairman. I ask that my written testimony be included in the record. 

Geopolitical uncertainties such as political instability, resource 

nationalism, civil conflict, economic downturns, and natural disasters in oil-producing countries and exporting countries in all regions of the world threaten both rich and poor nations alike. 

Crude oil and natural gas, and now ethanol, have become true 

global fungible commodities with limited restrictions in their deliverability across oceans and borders. They respectively represent 34 

and 24 percent of the world’s primary energy consumption, making 

hydrocarbons the long-term principal fuel of economic growth 

around the world. 

32

The role played by emerging markets, many of them, such as 

China, net importers of oil on a grand scale, also adds a new complexity to the challenge of international energy security as these 

countries race toward resource control outside of their own borders. 

The energy sector has become to many countries in the world the 

Achilles heel to their economic survival and growth, making these 

challenges strategically important issues of geopolitical context. 

The Western Hemisphere represents approximately one-third of 

the world’s proven conventional and unconventional hydrocarbon 

reserves. And like it was mentioned here, Venezuela alone has approximately 300 billion barrels of proven conventional and unconventional reserves. Argentina and Mexico are the third and fourth 

largest holders respectively of technically recoverable shale gas reserves in the world. Mr. Chairman, nearly 50 percent of world’s 

total shale gas reserves are in the Western Hemisphere. 

Today Latin America energy potential is being undermined by a 

number of serious geopolitical uncertainties, along with economic, 

environmental, social, and regulatory issues that could impact the 

monetization of the region’s rich hydrocarbon resources. High political risk, onerous fiscal contractual terms and condition, populist 

rhetoric, and the nationalization of national oil companies’ assets 

have caused the declining exploration and production investment in 

Venezuela, Ecuador, Bolivia, Argentina, and Mexico, seriously 

threatening the monetization of the rich hydrocarbon resource in 

the region. 

Most recently Argentina’s confiscation without compensation of 

51 percent of YPA shares owned by Spanish oil company Repsol reenforces the challenge of resource nationalism in the region. If Argentina, a member of the G20, can carry on these policies without 

having to face the consequences, the rule of law could be seriously 

undermined, creating a domino effect in other Latin America countries, Bolivia, Colombia, and Brazil among them. 

If countries want to increase energy and resource development 

activities, they have to offer fiscal and contractual terms and conditions which offer an acceptable rate of return to investors commensurate with their potential and associated technical and commercial risks. 

We need to encourage the design of fiscal and investment models 

that create alignment between the objectives of the host government and foreign investors, while promoting good governance 

standards and behaviors by reinforcing through other regions the 

need for, as Congressman Sires raised, rule of law, accountability, 

transparency, and integrity. 

Even though the region, Mr. Chairman, is rich in crude oil and 

natural gas reserves, it has a considerable deficit in the refinery capacity needed to monetize liquids production into petroleum fuels. 

Crude-oil-exporting countries, such as Venezuela, Mexico, Colombia, Ecuador, Brazil, and Argentina, are also importers of refined 

products. 

For the first time, Mr. Chairman, since 1949, in 2011, the U.S. 

became a net exporter of petroleum products. Approximately 50 

percent, Mr. Chairman, of the total U.S. petroleum exports in 2012 

were destined to Latin America and Caribbean. 

33

A comment: Petrocaribe has delivered 96,000 barrels a day to the 

region; we have delivered 300,000 barrels of petroleum products to 

the Caribbean and Central America during the same period. 

We believe, Mr. Chairman, that academic institutions can play a 

role of thought leaders and agents of positive change by transferring knowledge and best practices, thus providing developing countries the opportunity to become fast learners to avoid mistakes 

made by others and to have access to existing process, research, 

and best practices that might be beneficial to their specific energy 

and sustainability needs. The University of Texas, Austin president 

William Powers, Jr., will be visiting Brazil June 5, 6, promoting the 

Scientists without Borders program, which will open the way for 

the Brazilian Government to fund graduate study in the United 

States for promoting Brazilian students in the STEM field. 

It is clear to us, Mr. Chairman, that lessons learned and best 

practices have to be shared in order to avoid conflicts between good 

neighbors—Colombia is a good example—and foster conditions and 

relationships toward energy security and cooperation in the Western Hemisphere. 

We thank you, Mr. Chairman, for allowing us to share with you 

our views on energy challenges and opportunities for Latin America and the Caribbean. Thank you, sir. 

Mr. SALMON. Thank you, Mr. Pin ̃ on. 

[The prepared statement of Mr. Pin ̃ on follows:]

34


80365c-1.eps

Jorge R. Pinon, Director 

Latin America and Caribbean Program 

Center for International Energy and Environmental Policy 

Jackson School of Geosciences 

The University of Texas at Austin 

The United States House of Representatives 

Committee on Foreign Affairs 

Subcommittee on the Western Hemisphere 

April 11, 2013 

"Energy Opportunities in Latin America and the Caribbean" 
35


80365c-2.eps

Geopolitical uncertainties such as political instability, resource nationalism, civil conflict, 

economic downturns, and natural disasters in oil producing and exporting countries in all 

regions ofthe world threaten both rich and poor nations alike. 

Crude oil and natural gas have become true global fungible commodities with limited 

restrictions in their deliverability across oceans and borders in order to meet the growing 

appetite for energy among emerging economies; they respectively represent 34 percent and 24 

percent of the world's primary energy consumption, making hydrocarbons the long term 

principal fuel of economic growth around the world. 

Price volatility, as a consequence of supply uncertainty, negatively impacts economic growth 

around the world, therefore straining political relationships between exporting and importing 

countries. A shift in oil revenues can represent an increase or decrease in resources for 

education, health, and social services, which can have severe economic effects and political and 

social consequences in both importing and exporting countries. 

Over 50 percent of the world's net oil exports are sourced today from politically precarious 

regions and countries of the world such as North Africa, the Middle East, the Caspian, and the 

Caucasus, among others. 

The role played by emerging markets, many of them, such as China, net importers of oil on a 

grand scale, also adds a new complexity to the challenge of international energy security as 

these countries race toward resource control outside oftheir own borders. 

To many countries and regions of the world these potential areas of conflict in the energy 

sector have become the Achilles Heel to their economic survival and growth, making these 

challenges strategically important issues in the geopolitical context. 

Latin America and The Caribbean does not escape this ominous scenario. 

According to the Energy Information Administration (EIA), 29 percent of u.s. petroleum imports 

come from Latin America and the Caribbean, while only 22 percent of imports are sourced from 

the Persian Gulf; if Canadian supplies are added to these figures over 50 percent of the United 

States' petroleum imports come from our regional neighbors in the Western Hemisphere. 

Mexico and Venezuela are among the top five suppliers of crude oil and petroleum products to 

the United States. 

It is important to highlight that the Keystone pipeline, the reversal of the Seaway pipeline, as 

well as new and existing shale liquids pipelines, will bring to the U.S. Gulf Coast refineries the 

flexibility of nearly 3 million barrels per day of new sources of crude oil supply. This will playa 

2 
36


80365c-3.eps

very important role in our national energy security strategy as it will create a new supplydemand and price relationship between the United States and Latin America particularly as it 

relates to future Venezuelan and Mexican crude imports. 

The Western Hemisphere represents approximately one third of the world's proven 

conventional and unconventional hydrocarbon reserves; Venezuela alone has approximately 

300 billion barrels of proven conventional and unconventional reserves. 

The United States Geological Survey's 2012 "Assessment of Undiscovered Conventional Oil and 

Gas Resources of South America and the Caribbean" estimates that there is an additional 126 

billion barrels of oil and 679 trillion cubic feet of undiscovered natural gas in South America and 

the Caribbean's 31 geologic provinces, including 55 billion barrels in deepwater Brazil and 

approximately 14 billion barrels in the Guyana-Suriname offshore basins. 

Most recently, a study from the EIA also showed that Argentina and Mexico are the third and 

fourth largest holders, respectively, of technically recoverable shale gas reserves in the world. 

According to this study nearly 50 percent of the world's total shale gas reserves are in the 

Western Hemisphere. 

Even though the Western Hemisphere's proven natural gas reserves only represent 

approximately 10 per cent of the world's total reserves they play an important role in the 

region's energy balance. 

With 305 tcf of proven natural gas reserves, the United States is the largest regional holder of 

natural gas reserves followed by Venezuela with 176 tcf of proven natural gas reserves; Canada, 

Mexico, Bolivia, Argentina, Peru, Trinidad and Tobago, and Brazil are also important holders of 

natural gas reserves. Peru and Trinidad and Tobago are the only two countries in the region 

currently exporting Liquefied Natural Gas (LNG). 

As the United States becomes a future exporter of LNG, it would have a considerable impact in 

the region's LNG supply/demand balance, particularly as it would compete with regional 

exporters such as Trinidad and Tobago. 

Clearly, Latin America and the Caribbean will continue to be an important strategic energy 

partner and continued future source of crude oil supply to the United States. 

Today Latin America's energy potential is being undermined by a number of serious geopolitical 

uncertainties, along with economic, environmental, social and regulatory issues that could 

impact the monetization of the region's rich hydrocarbon resources. 

3 
37


80365c-4.eps

High political risk, onerous fiscal and contractual terms and conditions, populist political 

rhetoric and the nationalization of foreign oil companies' assets have caused a decline in 

exploration and production investment both from the state and private sectors in Venezuela, 

Ecuador, Bolivia, Argentina and Mexico, seriously threatening the monetization of their rich 

hydrocarbon resource base. 

The nationalization of privately held oil and natural gas assets by a number of governments, 

such as Venezuela's 2007 appropriation of Conoco and Exxon-Mobil assets and Ecuador's 2006 

expropriation of Occidental Petroleum assets underline the reality of "resource nationalism" in 

Latin America and illustrate the potentially negative impact on future development of the 

region's hydrocarbon resources. 

Also most recently Argentina's confiscation without compensation of 51 percent of YPF shares, 

owned by the Spanish oil company Repsol, reinforces the challenge of resource nationalism in 

the region. If Argentina, a member of the G20, can carryon these policies without having to 

face the consequences, the Rule of Law could be seriously undermined, creating a domino 

effect in other Latin-American countries, further deteriorating the much needed investment 

climate ofthe region. 

The contentious legal dispute by the government of Ecuador against Chevron for the ecological 

damage caused by Texaco and its partner PetroEcuador in the development of the Lago Agrio 

oil field during the 1970s is another example which tends to question the seriousness of some 

governments in their long term commitment toward the sustainable development of their 

natural resources. 

In order to take advantage of the vast energy investment opportunities in the region, the U.s., 

and the international community at large, has to strengthen the credibility of investment 

protection principles and instruments. 

Established energy producers such as Colombia, Ecuador, Brazil, Peru, Bolivia, and Mexico, and 

new oil players such as Guyana and Uruguay will face huge technological challenges in both 

upstream and downstream resource development and environmental stewardship, along with 

governance and social responsibility issues related to the management of hydrocarbon 

resource development. 

The development, production, and commercialization of conventional, unconventional, and 

renewable energy resources is highly capital intensive and requires a high degree of 

technological evolution, research, and development efforts. 

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If countries want to increase energy and resource development activities they have to offer 

fiscal and contractual terms and conditions which offer an acceptable rate of return to investors 

commensurate with their potential and associated technical and commercial risks. 

Host governments fiscal and regulatory investment models objectives are; 

Maximize government revenues from oil and natural gas resources 

Increase and or replace resource base and production 

Attract foreign investment 

Technology transfer 

Infrastructure development 

Job creation 

The objectives of investor's (International Oil Companies) are; 

Return on capital commensurate with commercial, technological and political risks 

Increase and replace hydrocarbon reserves 

We need to encourage the design of fiscal and investment models that create alignment 

between the objectives of host governments and foreign investors, while promoting good 

governance standards and behaviors by reinforcing throughout the region the need for: 

Rule of law: incorruptible law enforcement agencies and an independent judiciary, 

where legal actions and enforcement follows rules and regulations. 

Division of responsibility between the supervisory, regulatory and enforcement 

authorities. 

Accountability, where public and private institutions are able and willing to show the 

extent, to which its actions and decisions are consistent with clearly-defined and 

agreed-u pon objectives. 

Transparency, where government actions, decisions and decision-making processes 

are open to an appropriate level of scrutiny by others parts of government and civil 

society. 

Integrity, essential for building strong social responsible public and private 

institutions resistant to corruption. 

According to the International Energy Agency (lEA) Latin America and the Caribbean's 

petroleum demand will grow in 2013 by 3.1 percent to 6.6 million barrels per day triggered by 

an increase in vehicle use from a growing middle class. 

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80365c-6.eps

Even though the region is rich in crude oil and natural gas reserves it has a considerable deficit 

in the refinery capacity needed to monetize liquids production into commercial petroleum 

fuels, much needed to satisfy its growing regional demand. 

The situation is compounded by the low operating efficiency and lack of heavy bottoms 

conversion capacity of its existing refining system; in 2011 refinery throughputs in Latin 

America and the Caribbean were only 71 percent of its available refinery capacity of 8.2 million 

barrels per day. 

Crude oil exporting countries such as Venezuela, Mexico, Colombia, Ecuador, Brazil, and 

Argentina are also importers of petroleum fuels such as gasoline and diesel, much needed to 

supply their growing markets. 

For the first time since 1949, in 2011 the U.S. became a net exporter of petroleum products. 

This was due in part to reduced domestic fuel demand and in part to increased production of 

record amounts of gasoline and diesel from new processing conversion capacity in the Gulf of 

Mexico coast refineries. Approximately 50 percent of total US petroleum exports in 2012 were 

destined to Latin America and the Caribbean. 

It is highly unlikely in our opinion that the more than 2 million barrels per day of new refinery 

capacity construction planned in countries such as Mexico, Venezuela, Brazil, and Ecuador will 

materialize in the next five years; the only new major grass-roots refinery project that is moving 

forward and will be completed in the near term is the 230,000 barrels per day Abreu e Lima 

refinery in the state of Pernambuco, Brazil. Latin American refinery expansions planned for this 

decade will not be enough to stem the region's growing dependence on imported fuels from 

the United States. 

Lastly another important challenge in the region is the shortfall of qualified human capital in 

science, technology, engineering, and mathematics (STEM) degree programs in institutions of 

higher learning, particularly in the geosciences and engineering areas of study needed to 

develop and manage the sustainable production of national energy resources. 

We believe that academic institutions can play the role of thought-leaders and agents of 

positive change by transferring knowledge and best practices, thus providing developing 

countries the opportunity to become fast learners, to avoid mistakes made by others, and to 

have access to existing processes, research, and best practices that may be beneficial to their 

specific energy and sustainability needs. 

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Programs such as Brazil's "Scientists Without Borders" and the United States' "100,000 Strong 

in the Americas" promote collaborative academic partnerships between United States and Latin 

American and Caribbean academic institutions in order to support research and development 

for new or refined knowledge and ideas in the sustainable development of new technologies to 

improve the region's energy, economic, and environmental challenges by: 

Promoting institutional exchanges by inviting faculty and staff of the cooperating 

institutions to participate in a variety of teaching and/or research activities and 

professional development. 

Receiving undergraduate and graduate students of the partner institutions for 

periods of study and/or research. 

Organizing symposia, conferences, short courses, and meetings on research issues. 

Carrying out joint research and continuing education programs. 

Exchanging information pertaining to developments in teaching, student 

development, and research at each institution. 

According to the National Science Foundation worldwide R&D expenditures totaled an 

estimated $1.276 trillion in 2009 (the latest year for which data are available). The United 

States accounted for about 34 percent of this total, followed by Southeast Asia with 28.9 

percent, Europe with 25 percent and South Asia with 2.6 percent; South and Central America 

and the Caribbean, at the bottom of the list with 2.4 percent of total R&D expenditures. 

The University of Texas at Austin has l00-year history of education and research throughout 

Latin America and the Caribbean. As a result, the University has a vast array of resources that 

can be utilized to assist in understanding and addressing energy and sustainability issues of 

importance to the region. These internal assets are force-multiplied by the fact that many of 

our graduating international students have returned to their home countries, achieved 

prominence in government, industry, and academia, and can be easily engaged in cooperative 

discussions and projects. 

The University of Texas at Austin's President William Powers, Jr. will be visiting Brazil June 5-6 

promoting the "Scientists Without Borders" program, which will open the way for the Brazilian 

government to fund graduate study in the United States for promising Brazilian students in 

STEM fields. 

It is clear to us, Mr. Chairman that lessons learned and best practices have to be shared in order 

to avoid conflicts between good neighbors and foster conditions and relationships toward 

international energy security and cooperation in the Western Hemisphere. 

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We thank you Mr. Chairman, for allowing us to share with you our views on energy challenges 

and opportunities for Latin America and the Caribbean. Our goal is, as you clearly stated, "to 

further enhance partnerships on energy development with our regional neighbors to bring 

prosperity and stability to all the countries in our hemisphere." 

8 
42

Mr. SALMON. We would like to recognize Mr. Farnsworth. 

STATEMENT OF MR. ERIC FARNSWORTH, VICE PRESIDENT, 

COUNCIL OF THE AMERICAS AND AMERICAS SOCIETY 

Mr. FARNSWORTH. Thank you very much, Mr. Chairman. Good 

afternoon. And thank you to the ranking minority member as well 

as the other members of the committee. It is a real privilege to be 

with you today. I think you are going to hear a lot of similarities 

among us and with some of the other testimony that you have 

heard previously, and I would like to ask, as well, that my full 

written statement be submitted for the record. 

Mr. SALMON. Without objection. 

Mr. FARNSWORTH. I would like to give you the bottom line first. 

Energy security is of fundamental strategic importance. It has long 

been a core component of U.S. foreign policy globally on a bipartisan basis, and it is within this context that the nations of Latin 

America, the Caribbean, and Canada must be considered. 

Already just over half of U.S. energy imports come from the 

Western Hemisphere, meeting approximately one-quarter of our 

daily energy needs. At the same time, a dramatic expansion of energy resources across the hemisphere made possible by cuttingedge technologies, including ultra deepwater drilling offshore and 

biofuel production and fracking onshore, has created the possibility 

of a new, highly favorable paradigm. 

As a result, we should seek as a first priority to work together 

as a hemisphere to increase energy security for all parties in a 

manner that lowers costs through increased production and greater 

efficiencies; encourages sustainable economic growth, development, 

and job creation; and supports a clean-energy matrix with environmental protections. These issues will become even more relevant as 

the middle class grows and expectations and energy consumptions 

continue to rise across the hemisphere. 

The reality is, we have heard from others already this afternoon, 

is that the Western Hemisphere is rich in energy resources. Latin 

America already boasts the world’s cleanest energy matrix in large 

measure due to a reliance on hydropower and the purposeful development of biofuels. Meaningful additional projects in wind and 

solar are under way. 

Nonetheless, traditional fuels will remain critical to meet both 

regional and global energy needs for the foreseeable future. And 

here, too, Latin America and the Caribbean boast significant resources. Unfortunately, politics, including populist governance and 

regional rivalries between and among states, and a suboptimal investment climate in a number of nations, specifically including a 

weak and malleable rule of law, has led to a sectoral underdevelopment and unnecessary inefficiencies. 

At the same time, the United States is not the only Nation that 

sees the potential for cooperation in Latin America, Caribbean, and 

Canadian energy. China, for example, which is now the world’s top 

energy consumer, is a relatively recent, but very active participant 

in the development of regional energy resources, as are other nations, including India and Russia. This is a region that is now in 

play. In my view, the United States must, therefore, do a better job 

43

making the case for regional partnership, because alternatives for 

the region exist today which simply did not exist a decade ago. 

With this in mind, the United States can and should become 

more proactively engaged in regional energy issues, serving as a resource and a partner for nations that seek engagement with us. In 

the first instance, we must take several steps in the near term that 

will show a seriousness of purpose and leadership in hemispheric 

energy matters. Three come right to mind, and we have discussed 

all of them to a greater or lesser extent already this afternoon: Approval of the Keystone XL Pipeline as soon as reasonable environmental concerns are addressed; implementation of the pending 

transboundary Hydrocarbons Agreement with Mexico; and greater 

alacrity in the effort to approve exports of natural gas. 

We should begin to view energy, in my view, and specifically natural gas, as a potent new tool of regional foreign policy, particularly in the Caribbean Basin, including Central America. The Caribbean Basin faces economic challenges unlike the rest of the hemisphere due to small and less competitive economies. As security 

gains are made in Mexico and increasingly Central America, drug 

traffickers will change their routes back into the Caribbean, where 

they came from originally. 

Those realities coupled with Venezuela’s growing economic challenges and political transition, which may cause Caracas to reduce 

its provision of subsidized energy under the Petrocaribe program, 

suggest that now would be an opportune time for the United States 

to help build will Caribbean competitiveness and job creation in the 

formal economy. The export of cleaner natural gas and the focus on 

regional electricity connectivity should, therefore, in my view, underlie such an initiative. 

More broadly, the United States has a strategic interest in working with willing nations to develop their own energy resources effectively while promoting models that reduce the negative, if unintended, consequences of energy development. Nations need U.S. 

technology, management expertise, and investment dollars. They 

need our education system to develop their engineers and seismologists. They need help to understand regulatory tax and pricing 

models that work. They need be exposed to best practices and environmental mitigation. And they need technical assistance to improve the investment climate and the rule of law. 

And in this regard, let me just raise very briefly one country in 

particular, because it is so much important in terms of hemispheric 

energy trends, and that is Brazil, which I believe offers a case 

study for consideration. 

Major discoveries in the pre-salt fields off the coast may soon catapult Brazil into the ranks of the global energy superpowers. Energy cooperation with Brazil is thus a prime opportunity for the 

United States, as the President said when he traveled there in 

2011. At the same time, despite massive potential, development 

has been slower than predicted due to a number of governmentmandated requirements, complicated rule of law, and continued uncertainty in terms of elements such as the sharing out of royalties. 

These issues are not unique to Brazil. The purpose in raising 

them, however, is to suggest that great opportunities in hemispheric energy come with certain challenges as well. Only by focusVerDate 0ct 09 2002 11:32 Jun 06, 2013 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 F:\WORK\_WH\041113\80365 HFA PsN: SHIRL
44

ing purposefully on the region at the most senior levels of government will the United States, in my view, be able to take full advantage of a partnership that is clearly in our self-interest to pursue. 

So, Mr. Chairman, members of the subcommittee, I want to 

thank you again for the opportunity, and I look forward to your 

questions. 

Mr. SALMON. Thank you much, Mr. Farnsworth. 

[The prepared statement of Mr. Farnsworth follows:]

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80365d-1.eps

ENERGY SECURITY OPPORTUNITIES IN LATIN AMERICA 

AND THE CARIBBEAN 

HEARING BEFORE THE HOUSE COMMITTEE ON FOREIGN AFFAIRS 

SUBCOMMITTEE ON THE WESTERN HEMISPHERE 

***** 

APRIL II, 2013 

ERIC FARNSWORTH 

VICE PRESIDENT 

As Prepared for Deli very ***** 

Good afternoon, Mr. Chairman and members of the Subcommittee. It is a privilege to be 

with you today. As you know, the Council of the Americas ("Council") is a leading 

policy voice on Latin America, the Caribbean, and Canada. For almost 50 years our 

mandate has been to promote democracy, open markets, and the rule of law throughout 

the Americas. 

As well, for the past several years the Council has organized our Energy Action Group, a 

public-private dialogue that seeks to focus on the strategic, policy, and commercial issues 

at the heart of hemispheric energy matters with a view to providing recommendations to 

policymakers on the Western Hemisphere energy agenda. We genuinely appreciate the 

opportunity to appear before you to provide testimony regarding energy security 

opportunities in Latin America and the Caribbean. 

Mr. Chairman, ifT may give you the bottom line first: energy security for the United 

States is of fundamental strategic importance. It underlies our ability to function as a 

modem society, and ensuring energy security has long been a critical component of U.S. 

foreign policy globally on a bipartisan basis. It is within this context that we finnly 

believe the nations of Latin America, the Caribbean, and Canada must be considered, 

leading to a new and abiding appreciation at the most senior levels of government of the 

strategic importance of the Western Hemisphere to the United States. 

The region cannot be an afterthought or taken for granted. Already, just over half ofU. S. 

energy imports come from the Western Hemisphere, meeting approximately one quarter 

of our daily energy needs. Canada, Mexico, and Venezuela are three of our top suppliers 

worldwide. We receive more than twice as much energy from Canada, our top supplier, 

as from Saudi Arabia, our second largest supplier. Colombia, Ecuador, and Brazil also 

contribute significant amounts. 

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80365d-2.eps

Even when political relations are troubled with certain countries, for example Venezuela 

and Ecuador, the United States continues to engage in energy trade on a commercial 

basis. At the same time, a dramatic expansion of new energy resources across the 

hemisphere made possible by new technologies including ultra-deep water drilling 

oiIshore and biofuel production and fracking onshore has created the possibility of a new, 

highly favorable paradigm for hemispheric energy. 

Herein lies the primary opportunity for regional partnership, if we are nimble enough, 

collectively, to grasp it: working together as a hemisphere to increase energy security for 

all parties in a manner that lowers costs through increased production and greater 

efficiencies, encourages sustainable economic growth, development, and job creation, 

and supports a clean energy matrix with appropriate environmental protections. In fact, 

energy partnership was one of the key initiatives at the 1994 Summit of the Americas in 

Miami, at the insistence of Venezuela, and was one of the deliverables coming out of the 

2009 Summit of the Americas in Trinidad and Tobago. Changing sector dynamics make 

the vision truly compelling, to the extent that regional political challenges can be 

minimized or overcome. 

At the same time, the United States is not the only nation that sees the potential for 

cooperation in Latin American, Caribbean, and Canadian energy. China, which is now 

the world's top energy consumer, is a relatively recent but very active participant in the 

development of regional energy resources, as are other nations such as India and Russia, 

a trend that we expect will continue and also accelerate into the indefinite future. This is 

a region that is now in play and in my view, the United States must do a better job 

making the case for regional partnership because alternatives for the region exist today 

which simply did not exist a decade ago. A strategic approach to the hemisphere with 

energy at the core should be at the top of our agenda. 

Developing Effective Regional Energy Markets Is Vital to U.S. Interests 

Any discussion of hemispheric energy must take as its point of departure the dramatic 

changes in the industry, particularly on the production side, that have occurred in just the 

past few years. These changes have broad implications for shifting patterns of energy 

trade and regional development. By now the story of exploding U. S. production and the 

potential for energy self-sufficiency is well known. The United States is now the world's 

largest producer of natural gas and could become the world's largest oil producer by 

2020. Estimates suggest that the United States could actually be a net exporter of energy 

by 2035, a remarkable historical shift. 

At the same time, the region's energy demands are increasing as economic growth has 

produced a new middle class with higher expectations for an improved quality oflife. No 

longer can the hemisphere be easily if simplistically divided into consumers (the United 

States) and producers (everyone else). This is a game changer. Old patterns no longer 

hold and the Western Hemisphere must be seen in a new light. 

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80365d-3.eps

Still, energy markets are global, and the more energy available overall, the better for 

everyone because that reduces the cost and therefore increases competitiveness. At the 

same time, greater production by anyone country changes its terms of trade, increases 

investment, stimulates technology transfer, and builds management expertise. When 

pursued with a broader vision, increased energy production can also contribute to 

sustainable, environmentally-sound economic development. It is on this basis that 

partnerships can be pursued with willing partners 

The reality is that the Western Hemisphere is rich in natural energy resources. Latin 

America already boasts the world's cleanest energy matrix, due in large measure to a 

reliance on hydropower and the purposeful development ofbiofuels. Developing clean, 

renewable energy resources is a regional priority, and meaningful additional projects in 

wind and solar are underway. Nonetheless, traditional fuels will remain critical to meet 

both regional and global energy needs for the foreseeable future, and here, too, Latin 

America and the Caribbean boast significant resources. The region is energy rich. 

Unfortunately, politics including populist governance and regional rivalries between 

states, and a sub-optimal investment climate in a number of nations-specifically 

including a weak and malleable rule oflaw-has led to sectorial underdevelopment and 

unnecessary inefficiencies. 

Of course, there is nothing more politically fraught in some Latin American and 

Caribbean countries than national energy policies. These matters strike at the very core 

of nationalist sensitivities in ways that North American observers cannot easily 

appreciate. These are sovereign nations with long histories and memories, and the 

natural resources sector is often ground zero in the national and local discourse, a shorthand, highly symbolic political proxy in nations which lack strong democratic institutions 

that would normally be expected to channel and address the challenge of competing 

political interests. These issues go a long way to predicting which nations will be more 

and which will be less receptive to meaningful energy partnership with the United States. 

Specific Actions the United States Should Take 

Nonetheless, the United States can and should become more proactively engaged in 

regional energy issues, serving as a resource and a partner for nations that seek 

engagement with us. In the first instance, we must take several steps in the near term that 

will show a seriousness of purpose and leadership in hemispheric energy matters. Three 

come right to mind: approval of the XL Keystone pipeline as soon as reasonable 

environmental concerns are addressed, implementation of the pending trans-boundary 

hydrocarbons agreement with Mexico, and greater alacrity in the effort to approve 

exports of natural gas particularly to the Caribbean Basin including Central America. 

The first of these is rightly seen as an indicator of US. willingness to deepen the strategic 

energy partnership with our top energy supplier, strengthening a relationship that is 

manifestly in the US. national security interest and limiting Canada's potential desire to 

seek alternative markets including China for its energy resources due to questions about 

the reliability of the US. market. 

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80365d-4.eps

Second, approval oflegislation to implement the trans-boundary agreement with Mexico 

will likewise be seen in Mexico as a sort of "proof of concept" to find creative ways to 

introduce outside investment into Mexico's energy sector. It also creates mechanisms to 

increase collaboration on environmental protection and disaster response, and will open 

new avenues for U.S. commercial activity which has been desired for many years. 

Finally, we should begin to view energy-specifically natural gas-as a potent new tool 

of regional foreign policy, particularly in the Caribbean Basin including Central America, 

but only if we first allow ourselves to export it rather than keeping it bottled up in the 

United States. The Caribbean Basin faces economic challenges unlike the rest of the 

hemisphere due to small and less competitive economies. As security gains are made in 

Mexico and increasingly Central America, drug traffickers will change their routes back 

into the Caribbean. Those realities, coupled with Venezuela's growing economic 

challenges and political transition which may cause Caracas to reduce its provision of 

subsidized energy under the Petrocaribe program, suggest that now would be an 

opportune time for the United States to help build Caribbean competitiveness and job 

creation in the formal economy. The export of natural gas and a focus on regional 

connectivity should underlie such an initiative. 

More broadly, the United States has a strategic interest in working with willing nations in 

the hemisphere to develop their own energy resources effectively, while promoting 

models that reduce the negative if unintended consequences of regional energy 

development, including a lack of transparency and official corruption, the distorting 

impact of consumption subsidies, an over-reliance on a single commodity or sector, 

environmental concerns, and a concentration of wealth and political power around the 

sector. In order to develop their respective industries, nations need U.S. technology, 

management expertise, and investment dollars. They need our education system to 

develop their engineers and seismologists, they need help to understand regulatory, tax, 

and policy models that work, they need to be exposed to best practices in environmental 

mitigation, and they need our technical assistance to improve the investment climate and 

the rule oflaw. 

Brazil Offers Significant Opportunity for Enhanced Partnership 

Brazil offers a case study for consideration. Major discoveries over the past decade in the 

pre-salt fields off the coast may soon catapult Brazil into the ranks of the global energy 

superpowers. Energy cooperation with Brazil is thus a prime opportunity for the United 

States. Already, significant agreements have been signed between the two countries, 

most notably the presidential-level U.S.-Brazil Strategic Energy Dialogue, signed during 

President Obama's 2011 visit to Brazil This dialogue reflects the common goals 

between the two countries for safe, secure, and affordable supplies of energy, in 

particular oil and natural gas, biofuels, and energy efficiency. Cooperation in the 

production of biofuels, of which the United States and Brazil are the top two global 

producers, has been a worthy and productive effort. This is a partnership that can be 

further developed across the broad spectrum of energy issues. 

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80365d-5.eps

At the same time, Brazil's energy sector is in transition and the direction the government 

chooses to go will have longer term implications. The reality is that despite massive 

potential, development has been slower than predicted. State energy giant Petrobras, 

while globally competitive, also exercises an inordinate amount of control in the sector, 

particularly the pre-salt fields. Price restrictions distort incentives. Burdensome local 

content requirements and a lack of sufficient trained personnel have slowed production 

timelines. Without firm commitments to produce, equipment such as drilling rigs which 

must be procured months ifnot years in advance cannot be locked in. While not directly 

related to production decisions, the high-level political battle regarding the sharing out of 

royalties is creating an impression of instability in the sector. Ongoing corruption 

investigations are also contributing to investor restraint. In fact, local independent private 

sector operators in the energy sector-those who know the country and sector best-are 

focusing their efforts onshore and even outside Brazil. And, of course, rule of law 

remains complicated. The government will hold the next round of bidding on May 14 

and 15 for some non-pre-salt deep water and onshore areas, with pre-salt bidding rounds 

set to take place in mid-November. Investor response will be detennined in part by 

where they see the sector going and the signals that the government is giving to the 

pri vate sector. 

These challenges are not unique to Brazil or to any other nation necessarily. The purpose 

in raising them is to suggest that great opportunities in hemispheric energy come with 

certain challenges as well. And only by focusing purposefully on the region at the most 

senior levels will the United States be able to take full advantage of the partnership that is 

clear! y in our self-interest to pursue. 

Mr. Chairman, members of the Subcommittee, thank you again for your invitation to 

appear this afternoon. I look forward to your questions. 

5 
50

Mr. SALMON. Chair recognizes Mr. Goldwyn. 

STATEMENT OF THE HONORABLE DAVID L. GOLDWYN, 

PRESIDENT AND FOUNDER, GOLDWYN GLOBAL STRATEGIES 

Mr. GOLDWYN. Thank you, Mr. Chairman, Mr. Ranking Member. 

And thank you for your attention to this issue, you and the members of the committee. Rather than summarize my quite lengthy 

testimony, I thought I might ask to enter into the record and then 

just talk about the opportunities. 

Mr. SALMON. Without objection. 

Mr. GOLDWYN. Thank you. 

We have heard a lot this morning about the impact of this tight 

oil and gas boom on U.S. energy security. Certainly our self-sufficiency in gas lets us be an LNG exporter, but not only of LNG, but 

natural gas by pipeline to Mexico and potentially by compressed 

natural gas to the hemisphere. The real significance of this is that 

we can create a more competitive market for the hemisphere, 

which can lower price as well as lower emissions. 

Our oil production boom has strategic advantages as well. We no 

longer import light sweet crude. This was the essence of what we 

were seeking for decades in terms of security. With supply from 

Canada, we will have a limited amount of imported heavy crudes 

from outside the Continental North American Continent. Some of 

that will come from Saudi Arabia, through its Motiva refinery system, and the rest is really a competition between Saudi heavy, Canadian, and Venezuela. 

So our decisions that we make on that will be important, but it 

also means that with our self-sufficiency we are going to force the 

hemisphere, and, frankly, everybody else who is an oil producer, to 

adapt or die, essentially to be more competitive, because investment around the world in oil and gas as shifted dramatically to 

North America because we have market, we have terms, we have 

contract security, we have infrastructure. So the countries which 

have the state-led models are going to undergo a severe challenge, 

and the countries which have market-oriented models are going to 

attract more investment. 

And this is really—this is the significance of what is happening 

to us, how it is going to shape the hemisphere. It is, frankly, an 

open question. It is a dramatic geopolitical pivot for us, because we 

have more physical security, and we have the ability to use exports 

as a tool of foreign policy. And it is going to take a while for Americans to get used to the idea that we are resource wealthy and not 

resource scarce. But we have this potential. 

So the question is how do we make the most of this opportunity? 

And I have six suggestions. The first, we have to keep up the work 

on energy efficiency and renewables, because there is a huge 

amount which the hemisphere can do, particularly the Caribbean 

and Central America, to reduce its dependence on fuel. That will 

be an economic boom for them. And so we do important work there, 

and we should keep that going. 

The second thing we need do is to spread this unconventional oil 

and gas boom to countries in the region. I began something called 

the Global Shale Gas Initiative when I was at the State Department; now it is called the Unconventional Gas Technology AssistVerDate 0ct 09 2002 11:32 Jun 06, 2013 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 F:\WORK\_WH\041113\80365 HFA PsN: SHIRL
51

ance Program, but essentially teaching other countries how to 

produce unconventional oil and gas safely and efficiently. Let them 

grow their own. Some of that is about framework, some of that is 

about taxation, some of it is about infrastructure, but also it is 

about the technology and how to protect air and water. That brings 

to the table something that we want to talk about. And then we 

get to have the conversation about framework and corruption and 

other issues, which they may not want to hear, but that is the quid 

pro quo for having that conversation. 

Third is to implement the transboundary agreement. We have 

talked about that a lot this morning, and it is very encouraging to 

know that there will be legislation from Representative Duncan to 

push that through. That is important for Mexico, because Mexico 

is also going to have to adapt, and Mexico’s national security interests clearly are in our interests as well. 

My fourth suggestion is a sharper focus on the Caribbean. And 

here I think the real choice for them is between fuel oil and gas. 

Renewables have a role to play, but they need base-level electricity. 

They are small islands, small markets, with small transportation 

distances. So the potential for gas penetration is quite large there. 

The question is, how do they get it in? Now, they don’t need 

liquified natural gas. They don’t need that price, they don’t need 

to spend that money. Maybe compressed natural gas is the answer. 

So but if we can find a way to get it out, perhaps by finding it is 

in U.S. national interests for all gas exports to the Caribbean to 

be in the U.S. national interests, make it easy for the Department 

of Energy, and find how to get that in. What they need is an engineering study more than anything else to figure out as a practical 

matter what is the most cost-efficient commercial way to get that 

in. Maybe that is something that the committee could task. 

Fifth, I think we need to reconsider our policy on exports. Now, 

with gas exports we have talked a lot about the Department of Energy’s process. I think they will get through that relatively quickly. 

I think when they look at the projects which are mature, in that 

they have gone through the prefiling process with FERC, they have 

filed their environmental reports, and they have a real contract, I 

think you will have a small number of projects that are ready to 

be permitted, and they will be permitted soon. But maybe there are 

smaller projects to export CNG to the Caribbean. They should get 

attention also. 

So I think that will move along because it has huge benefits economically and for climate, but we are also going to have to start 

looking at oil exports, because we have a surplus of light sweet 

crude. We don’t have a place to put it. Rather than using it as 

blend stock with heavy crude to make a refined product, we might 

look at a way to swap that in the hemisphere and export as much 

light as we have heavy, because our primary customer base for the 

products and for the light crudes is in the hemisphere. So it is a 

great thing that we can bring to help them. 

Lastly, I think we need to focus our diplomatic and commercial 

engagement in the hemisphere. We have a lot of fora, but we need 

to focus on Brazil, Mexico, Venezuela, and the Caribbean. And, in 

particular, if I can just say just a few seconds about Venezuela, the 

conversation is going to be difficult for a while, but we need to start 

52

talking to them again so when things turn and the wheels turn, we 

have people that we can talk to on the other side; reconnect with 

Pedevesa because they are going downhill, both in terms of where 

their market is and where their production is going and fiscal pressure. And so eventually things will change; we just need to be 

ready. Thank you. 

[The prepared statement of Mr. Goldwyn follows:]

53


80365e-1.eps

David L. Goldwyn 

President, Goldwyn Global Strategies, LLC 

House Committee on Foreign Affairs; Subcommittee on the Western Hemisphere; 

"Energy Opportunities in Latin America and the Caribbean" 

Thursday, April 11, 2013 

The Impact of the Tight Oil and Gas Boom on Latin America and the Caribbean: 

Opportunities for Cooperation 

Mr. Chairman and Members of the Subcommittee, it is an honor to speak with you today about 

the role that the Western Hemisphere plays in U.S. energy security. 

The global ener6'Y economy is undergoing significant changes, and the unconventional oil and gas 

revolution in the U.S. has played a large role in transforming global markets. The lransfornlation 

of these markets could impact the entire Western Hemisphere. Regional producers will largely 

see market growth in Asia, not the U.S. Energy conSlUners will benefit from increased energy 

supply stability, resulting from exports of petroleum products from the U.S., and, potentially 

exports of light oil and natural gas as well. Latin American producers will have to compete for 

capital with unconventional energy investment opportunities in Canada and the U.S., both of 

which otTer a more stable investment environment, better terms of investment. and a more 

favorable and welcoming political climate. This could be a pathway to developing more open 

societies in the hemisphere, with more productive economics. 

All of this is evidence that the U. S. needs a fresh approach to energy diplomacy in the 

hemisphere. The United Stales will enhance its energy security by engaging the region on issues 

that concern its people: job creation, poverty alleviation, migration, and trade promotion. An 

asymmetrical approach, one that addresses a broad range of issues rather than just ener6'Y 

security, may pay dividends equal to or greater than one focused solely on energy. But the 

opportunities for creative ener6'Y diplomacy arc numerous. The U.S. can explore avenues for 

improving the investment climate of the Hemisphere, spreading advanced clean and 

unconventional energy production technology in the Hemisphere, advocating for shale gas and 

renewable energy technologies as climate-friendly alternatives to oil and gas, and weaning 

Caribbean nations off fuel oil as a primary energy source through the export of LNG. These 

initiatives, ifrealized. would render positive benefits for U.S. intluence in the Hemisphere and for 

our broader energy and climate goals simultaneously. The U.S. must also ensure that it has the 

tlexibility to utilize sub-regional ener6'Y dialogues and that any new framework strengthens, 

rather than weakens, the energy diplomacy missions of the Department of Energy and the 

Department of State. 

I. The Unconventional Energv Revolution 

Only a short number of years ago, the U.S. was facing a future of resource scarcity. Domestic 

ener6'Y production was falling. Oil and gas imports were projected to rise. The advent of the socalled 'shale gale' has changed that outlook entirely. U.S. natural gas production has risen by 20 

percent since 2000. Shale gas production alone grew from 0.75 Tcf to 7.S5 Tcf between 2005 
54


80365e-2.eps

and 2012.1 Further innovations saw the same horizontal drilling and hydraulic tracturing 

technology expanded to the production of tight oil. US. crude oil production has grown from 5.2 

million barrels per day (mbd) in 2005 to 6.5 mbd in 2012 as a result.' As a share of that 

production, tight oil accounted for 1.2mbd in 2011 3 

We no longer expect to import sif,'I1iticant quantities of liquefied nahlral gas (LNG). These 

cargoes, once bound for the US., were rerouted to other consumers. Many of the companies that 

built costly liquetied nahlral gas (LNG) import tenninals are now seeking approval to build 

export lenninals. The production of tight oil has changed the U.S. oil import scenario as well. 

While the U.S. will continue to import foreif,'ll oil for the foreseeable nlture, both to meet total 

demand and to fulfill the requirements of domestic refineries that are not designed to process the 

light tight oiL imports are expected to continue to fall. The EIA estimates that imports could be 

as low as 34 percent of total liquid fuel use in the U.S. in 2019, compared to 60 percent in 2005 4 

This is as much a credit to demand side measures such as increased fuel efficiency standards, 

changed driving habits and bioti.Jc1s as it is to increased supply. Some experts have even begun to 

call for a reexamination of the ban on crude oil exports, arguing that exports or swaps of light and 

heavy oil would be the most economically efficient manner to meet U.S. refinery needs, sustain 

US. production and capitali"e upon the U.S. tight oil boom. 

Our resource wealth has helped reduce our trade deficit from $753.3B in 2006 to $539.6B in 

2012.' Low cost natural gas has also advanced our climate agenda. Total US. GHG emissions 

have dropped from 7.2 to 6.7 billion metric tons of CO, equivalent between 2007 and 2011 6 U.S. 

energy-related emissions of carbon dioxide have dropped considerably, falling to 5.3 billion 

metric tons of CO, in 2012, the lowest emissions since 1994,7 in large part trom substitution of 

natural gas for coal. 

We have also become a significant supplier ofpetrolelUn products to Europe ffild the hemisphere. 

Our efficient refinery system allows us to make the gasoline we need, but also the diesel products 

we need and the fuel oil and other products imported by our neighbors in the hemisphere. 

Roughly 60 percent of U.S. crude oil and product exports go to nations in the Western 

Hemisphere, with over half of those exports going to Canada and Mexico. We thereby improve 

our export balance, increase domestic revenues and provide a more competitive market for 

petroleum products. 

This great wealth of domestically produced gas and, increasingly, oiL leads some to believe that 

the U.S. is on the cusp of an era of "enerf,'Y independence." Many adherents of this line of 

thinking predict that the unconventional revolution will allow the United States to look inward 

and take less interest in international affairs, including those of the politically challenging 

cOlUltries that produce oil and natural gas in the this Hemisphere, the Middle East Africa and 

1 Energy Infonnation Administration, "Annual Energy Outlook 2013 Larly Release," 

bJp_:/~'!Y~\:\Y:·~ia:g9y:'r0!-~ga5r~~3,~_0_'~r-)~J~k~_·~JM. 

2 Energy Infon11ation Administration. "lJnited States Overv;e\v Data," February 12,2013 

hHp:/,\\ ... \- vV.eiH.gov/co:.mtrje3,\..'nunll'Y-d~lb.dln?lips US&trk -rfl,','pet 

3 Energy Infommtion AdministraLioIl, '"Annual Energy Uutlook 2013 Larly Release" 

4 Ibid 

'; lJ.S. Bureau of Hcollomic 

1990-2011," 

emissions dee1ined in 2012, 

2 
55


80365e-3.eps

elsewhere. This is unlikely to happen. Despite more production from shale deposits like the 

Bakken in North Dakota, oil's share of total US. energy demand is expected to decrease only to 

32 percent from 3G percent in 2011 by 2040. Natural gas will increase its share to 28 percent from 

26 percent and renew abies will grow to 11 percent from 8 percent according to the EIA. 8 Oil, 

even that produced domestically, will continue to be priced at market levels, meaning that prices 

here will continue to be impacted by global events. The most strategic factor in American 

consumption will remain the price of oil and the effect of disruptions on the U.S. and the global 

economy, not the source or quantity of U.S. imports. 

The shale boom will, or at least should, lead to changes in U.S. policy. We have the opportunity 

to use our energy supply mld our technology as a powerful tool for good in the hemisphere and 

worldwide. By sharing our best practices for safe and efficient development of tight oil and gas 

fomlations, engaging our hemispheric partners on cleml energy technologies, encouraging 

resource rich nations to practice transparency in how they manage their resource sectors, and 

being a direct supplier of oil, natural gas and products, we can help foster a more free and 

prosperous region. 

A. The Unconventional Revolution: Impacts on Latin America 

Latin America is a strategic region for U.S. foreign policy for mmly reasons. We are neighbors, 

trading partners, and investment partners, ffild we share deep familial and cultural ties. The 

hemisphere is largely democratic, with one notable exception. In the ener!,'Y sphere, the 

hemisphere provides the US. with a large portion of our diverse of oil and gas supply and it 

remains an essential contributor to global oil and gas supply. For this reason, the failure of the 

hemisphere to realiLe its potential for growth is a serious concem for US. and global energy 

security. While the investment climate in key Latin American countries is deteriorating as state 

control increases, even in VeneLuela access to exploration acreage remains superior to some 

countries in the Middle East. Additionally, the non-OPEC producers in this region exert counterpressure on OPEC's monopoly power. 

Mexico and Central and South American nations delivered just over 12 percent of global oil 

production in 20129 and possess significant proved reserves, which are concentrated heavily in 

Venezuela, Brazil and Mexico. The region has also been a major refining center, ffild additional 

capacity is currently being plmmed and constructed with major projects lUlderway in BraLil, 

although some delays have been experienced. Regional refineries were primarily designed to 

serve the specialized needs of U.S. markets. The most important exporters, Venezuela and 

Mexico, consistently rank in the top four sources of US oil supply along with Canada and Saudi 

Arabia. Venezuela averaged O.95mbd in 2012; Mexico averaged 1.03mbd in that year. 10 

The impacts of the tight oil and gas boom on Latin America could be significant. Increased 

natural gas production in the U.S., if it leads to greater exports of LNG, will mean more supply 

for consuming countries at lower prices thffil are currently available to them. Such U. S. exports to 

the Westem Hemisphere could help reduce Caribbean dependence on subsidized and high-carbon 

fuel oil supplies, including those from states whose goals in the region have been at odds with 

3 
56


80365e-4.eps

U.S. interests. The U.S. has free trade agreements (FTA) with ten countries in Central and South 

America and the Caribbean. If we can allow some exports to countries that do not have FTAs 

with the U.S. we can help other major consuming nations as well. Nahlral gas consumption in 

non-OECD Latin America is expected to rise from .6 Tcf in 2008 to 8.8 Tcf in 2035,11 and US 

shale gas exports could be a significant factor in meeting energy demand and lowering carbon 

emissions in the Hemisphere through the offset of coal and fuel oil. 

There are great prospects for greater ener6'Y se1t:sufficiency in the hemisphere, which will 

provide economic gains from lower cost energy, production related job growth, and reduced 

dependence on high carbon fuels for power generation. A report published in 2011 by Advanced 

Resources Intemational, Inc. CARl) for the EIA estimated that there could be as much as 1,195 

Tcf of natural gas in Latin America." ARI estimated that the largest potential reserves of shale 

gas in Latin America are located in Argentina, Mexico, and Brazil, with 774,681, and 226 Tef of 

estimated reserves respectively." Smaller shale gas resources, less than 70 Tcf apiece, were 

estimated in Chile, Paraguay, Bolivia, Uru6'lJaY, Colombia and Venezuela. The U.S .. through the 

Unconventional Gas Technical Engagement Program (UGTEP) at the Department of State (the 

successor to the Global Shale Gas Initiative I launched during my tenure at the US Department of 

State), is actively engaged in assisting foreign cOlUltries develop their unconventional gas 

resources safely and efficiently. Through UGTEP the Department of St.1te partners with the 

Department of the Treasury, . the US. Geological Survey (USGS), the Department ofInterior, the 

Department of Commerce's Commercial Law Development Program, and the Environmental 

Protection Agency (EPA). UGTEP can offer nations expertise on scientific, technological, legal, 

commercial aud environmental issues related to shale gas development. Some nations. like 

Argentina and Colombia, arc already making strides towards developing domestic programs for 

shale gas exploration mld production. 

The unconventional revolution will also force the resource-endowed nations of the Westem 

Hemisphere to develop more competitive investment frameworks. North America has become the 

investment destination of choice, with large markets, attractive tiscal tenns, strong rule of law 

and respect for contract sanctity in the US and Canada. As will be discussed in greater depth, 

many Latin American countries are noted for resource nationalism, volatile investment 

frameworks, mld political extremes rather thml stability. In order for Latin America to compete, 

investment terms will have to improve and regulatory frameworks must be enforced with equity 

and consistency. In short, the southem half of the Hemisphere must prove that it can adapt to 

changing markets, resource bases and technologies in order to compete with the opportunities 

found in North America. The prospects for this adaptation arc mixed. providing opportunities for 

US. energy diplomacy. 

II. Energy Trends in the Westem Hemisphere 

The Vvestem Hemisphere has seen the rise of two trends in energy govemance in recent years. 

One trend is towards rising state control of energy resources - in Venezuela, Argentina, Bolivia 

and Ecuador in particular. The concem here is that this trend will limit the 6'fOwth of global 

supplies of oil and gas by undermining the value of existing investments, discouraging future 

11 Energy Information Adminstration "International Energ~! ()utlook -natural gas." 

lttlp: ilv, ,\ \\ ,eiu,goY/ rort'l.:usl::>,'it'c/nai I.(as . ..:fm 

12 Lnergy Information Admini&tratioIl, by Advanced Resources Intelllational, Inc .. ""V odd Shale Gas Resources: An 

Initial Assc%ll1cnt Outside the United States," 

4 
57


80365e-5.eps

investment and leading to political instability resulting trom declining living standards. The 

economic consequence of this trend is that the hemisphere will conlribute less to the 

diversification of oil supply, thereby engendering a tighter intemational oil market more 

vulnerable to the negative e[[ecls of supply shocks, increasing the importmlce of OPEC supply 

and, over time, undermining economic development in the region. The political consequences of 

these trends include the decline of U. S. intluence in the region relative to competing ideologies 

and the erosion of democratic structures. 

A second, much more positive, trend is towards creative fiscal regimes that welcome foreign 

investment and require state owned companies to compete with intemational companies, with 

independent regulators that promote fair and efficient regulation. Counlries observing this model 

are increasing production or stalling the decline of existing reserves. Colombia, Trinidad and 

Tobago, and Peru are key examples of this creative model. 

When I last testitied on Latin American enerf,'Y trends before Congress, Mexico was generally 

considered to be a part of the first group, making the net trend negative. Today, however, 

Mexico's govemment is actively seeking refonns that include, but are certainly not limited to, the 

energy seclor. A new question mark hmlgs over Brazil, however. While Pelrobras had been 

viewed as an exemplar national oil company in recent years. it has recently seen its production 

estimates curtailed, and its market value tumble. The company is no longer second in value only 

to Exxon Mobil. Perhaps as a sign of changing regional dynamics, Petrobras is now reported to be 

worth less than Colombia's national oil company, a development that would have been thought to 

be nearly unthinkable just a few years ago. ,. While natural gas production is rising, oil 

production is falling, as Petrobras has faced major challenges tiIltill both its newfound 

responsibilities in the deep and ullra-deepwater subsalt resources, compmlies face challenges 

meeting aggressive local content requirements and Petrobras struggles to meet the political 

expectations of the govemmenl. 

Venezuc1a and Mexico are the most important oil exporters in the hemisphere. While Brazil, 

Colombia and Argentina are important destinations for foreign investment, and helpfully produce 

enough oil to meet their own domestic needs and make some contribution to the global export 

market, they are not slrategic suppliers to the global market at this time. Only Mexico, BraLil and 

Venezuela produce more than a million barrels per day. although Colombian crude oil production 

rose as high as 944.310 barrels per day in 2012,15 and Federico Renjifo, the Colombian Energy 

and Mining Minister, has stated that the country expects to produce 1.01 mbd in 2013.'6 Bolivia 

has enonnous gas reserves, but exports mostly to Brazil and modestly to Argentina. Only 

Trinidad and Tobago is a key supplierto the world gas market. 

A. The Rise in State Conlrol 

From those countries now committed to increasing slate conlroL the U.S. faces two key 

challenges: the loss of production growth and diversity of supply from the region if new 

economic trameworks are unattractive to foreign investors and, most critically, the loss of U.S. 

influence vis-a-vis competing political visions. 

J..\ Simon Romero, --Petro bra:::>, On~e Symbol of BraLil 's Oil Hopes, SLrive::; to Regain Lost Swagger;' ~VeH' York Times. 

March 26, 2013 15 

"Colombia expect:; higher average oil production in 2013," Reuters, feb 7, 2013 

5 
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80365e-6.eps

The Economic Impact a/Rising Stale Control 

The recenl wave of changes in conlraclual lenns and dramalic changes in lax regimes in 

Venezuela, Bolivia, Ecuador and, in recent years, Argentina, threatens to slow new investment 

and evenhJally deepen instability and poverty in these nations, as well as destroy shareholder 

value for the companies invested there. The deterioration in the investment climate for energy in 

these countries is primarily an economic threat, as it foments an environment where supply is 

conslrained and prices are high. We are seeing the revision of economic lenns al a lime when 

producers rather than companies hold more market power. 

Venezuela 

In 2007, President Hugo Chavez led the nationalization of oil exploration and production in 

Venezuela, mandating renegotiation of contracts with a minimum 60 percent PdVSA share. 

While sixleen companies, including Shell ffild Chevron, complied wilh the new agreemenls, 

ExxonMobil and EN I retused to cooperate and were forcibly taken over. Both companies have 

pending complainls before the Inlemalional Cenlre for lhe Selliemenl of Inveslmenl Dispules 

(ICSID) at the World Bank that are expected to be decided in late 2013. As a result of those 

claims, parliculariy lhe ExxonMobil claim, Venezuela wilhdrew from the ICSID in 2012]7 The 

impact of the nationalizations, according to expert analysts like Deutsche Bank and Wood 

Mackenzie, was a massive tlight of investment capital trom Venezuela's heavy oil sector to 

Cffilada's oil sands, effectively freezing development of the hemisphere's largest oil reserves 

during one of the greatest oil booms in history. The net impact on V cne7ucla' s credit and 

credibilily are quile negative, again wilh serious negalive long-lenn consequences for the global 

oil market and Venezuela's own economy. In 2008, ENI and Total came reached an agreement 

wilh PdVSA regarding a 2005 joinl venlure requiremenl lhal lhey had nol previously signed an 

MOU for. Terms for involvement in natural gas development in Venezuela are slightly more 

bencticial, although in 2012, the year before his death, President Chavez expressed some interest 

in altering those terms. It is generally expected that Venezuela's oil production will continue to 

tluctuate or stagnate without considerable outside investment. According to the EIA, some 

analysls eslimale lhal PdVSA musl spend al leasl $3 billion annually in order lo keep produclion 

at its current levels." Venezuela plays a significant role in the Western Hemisphere, acting as a 

proxy for Cuba and providing oil al favorable cosl and financing lemlS lo Caribbean nalions 

through Petrocaribe and the Southem Cone through Petro sur, ventures which add stress to the 

country's tiscal situation. While change is unlikely to happen quickly, pressure stemming from 

the recent failed currency devaluation, rising inflation, and vast extemal subsidies will take a toll 

on the economy and arc ultimately unsustainable. 

Bolivia 

In Bolivia, President Evo Morales ensured the adoption of a new Bolivian Constitution in 2009, 

the 17'h in the country's history. One of the clauses in the new Constitution states that "all 

hydrocarbon resources are the property of the Bolivian people and that the state will assume 

control over their exploration, exploitation, industrialization, transport, and marketing (Articles 

u.s. Department of State, "2013 Inve5tment Climate Statement Venezuela," March 2013 

Country Analysis BrieL" Odober 20 12 

6 
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80365e-7.eps

34X and 351 ).,,19 Under the new constitution, the state-owned company Yacimientos Petroliferos 

Fiscales Bolivianos (YPFB), which had also benefilled from governmenl aclion in 2006 lhal gave 

it control of all domestic production and transportation, is responsible for managing all transport 

and sale of hydrocarbons, as well as delernlining whelher il can be exporled. 20 The U.S. 

Departulent of State considers investment in Bolivia to be difficult for both domestic and foreign 

companies. For companies seeking to operate in hydrocarbon industries, the only contracts 

available are negotiated as service contracts, although there are "no restrictions on ownership 

percentages of the companies providing the services."21 Because all foreign companies in the 

hydrocarbon induslry are subjecl lo slale sovereignly, wilh a Iimiled abilily lo appeal for 

inte1llational arbitration, there has been extremely limited foreign investment. This is deeply 

lUlforllUlale and Bolivia has enornl0US reserves of nalural gas lhal could be monelized lo address 

the country's longstanding poverty. 

Ecuador 

In Ecuador, Presidenl Correa convincingly won re-eleclion in February 2012, defealing several 

candidates from a political opposition that analysts routinely describe as fractured. Given the 

dealh of Presidenl Chavez, Correa is now arguably the mosl prominenl Bolivarian leader in lhe 

region and may seek to bolster his international profile. Yet it is unlikely that Correa has adequate 

resources lo lurn Ecuador inlo a regional player wilh influence commensurale lo Chavez's 

Venezuela. While Correa hasn't launched a nationalization campaign in a scope equal to that of 

Chavez, critics have raised conce1llS that he is aggressively expanding Presidential power and is 

seeking to clamp down on the independent media. The climate for foreign investment in Ecuador 

is considered relatively hostile. While the State Department's 2013 Investment Climate Statement 

for Ecuador noles lhallhe nalion is "relalively open lo foreign inveslmenl in mosl seclors" and 

that policies have been enacted aimed at drawing investors to the country, they add the caveat that 

"olher legal changes have reduced privale seclor parlicipalion in so-called slralegic seclors, mosl 

notably extractive industries. Continued changes to the nation's economic, commercial and 

investment policies, as well as tax codes, prevent the investment climate trom being stable for 

any industry and presents significant difficulties to the development of business plans. The 

continuation of high protile legal cases against foreign oil companies, most notably Chevron, has 

also served lo Iimil inleresl from foreign inveslors. In 2010, under Presidenl Correa, reforms lo 

Ecuador's Hydrocarbons Law came into effect providing for the negotiation of contracts with 

foreign oil companies operaling in the counlry, and as a resull five operalors successfully 

negotiated contracts, while three other companies did not. The operations of those companies 

reverted to state control. The Occidental tield, which Ecuador asserted state control over in 2006, 

is still not a productive field. Despite the domestic resources and production, a lack of refining 

capacity in the country means that Ecuador is forced to export cmde oil and import refined 

producls in order lo meel domeslic demand. 

Argenlina 

Argentina boasts considerable natural resources, but its recent history of nationalization, 

particularly that of YPF SA in the shale gas fields, have made it a risky destination for foreign 

7 
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80365e-8.eps

investment. The country has recently made efforts to revamp its image, most recently in January 

2013, when the government unveiled refonns of the oil export taxes aimed at luring in new 

investors. Tn November of 2012, President Cristina Fernandez announced that wellhead natural 

gas prices would be permitted to rise as high as $7.50 per million British Themlal Units (BTU), a 

44% increase over the previous $5.00 cap. These reforms. coupled with a willingness to adapt 

contract tenns, have made it easier for companies to take on the risk of operating in Argentina, 

particularly in t11e shale gas fields that are estimated to be even larger t11an those in Europe. 

The net effect of these developments is that new investment in these countries is virtually frozen 

at a time when prices should be driving new exploration and production. It is notable that even 

China, which is aggressively competing for exploration acreage worldwide, is not a major player 

in the hemisphere. Since 2008, China has finalized oil-for-loan deals with a number of Latin 

Americffil cOlUltries, including VeneLllela, Brazil, Ecuador and Bolivia. Observers have suggested 

that China has recently appeared less willing to provide additional financing to Venezuela, 

perhaps due to compounding economic ditllculties there and the political uncertainty that such 

negative developments could eventually bring about. Several companies, including Occidental 

Petroleum, Repsol YPF Ecuador SA, and Noble Ener!,,),, have filed complaints against Ecuador 

with the ICSID at the World Bank. The most notable case was that of Occidental PetroleU111, 

which was awarded $1.77B in October 2012, although President Rafael Correa disavowed the 

award and has threatened in the past to expel any compffily that sues it in intemalional courts. 

The future growth potential of t11e hemisphere is being undermined and the region's economies 

risk a major contraction if oil prices drop significantly anytime over the next decade. 

Brazil 

Brazil has received enormous, well-deserved credit for the contribution that sugar based ethanol 

has made to its self-sufficiency in oil. But equal credit should go to Brazil's opening of its oil 

sector to foreign operatorship, which led to technological innovation and a boom in its domestic 

oil production. While the adoption of a competitive model made Brazil one of the most desirable 

destinations for exploration, even this 'success story' has seen recent overtones of state control. 

As recently as 200g, Brazil's ag!,'fessive oil production strate!,,), increased domestic oil production 

by 1 mbd over 10 years. In 1995, Brazil produced less than 700 mbd. In 2008 they produced close 

to 2.4 mbd." Their jump in domestic production had as great ffil impact on reduction in oil 

imports as ffilything else. 

Since 200g Brazilian production has fallen by roughly 14 percent to 2.061 mbd in 201224 

Petrobras was recently the second most valuable publicly traded energy compffily behind only 

Exxon Mobil, but its value has fallen drastically. This trend has been, in large part, attributed to 

attempts by the govermnent to assert higher levels of control over Petrobras, placing it in charge 

of the deepwater oil discoveries in 201 O. despite the attempts of the 1990s to end the Petrobras 

monopoly. Brazil's local content requirements, lack of sufficient refining infrastructure and 

delays to construction of new refineries, ffild the use of Petrobras to shore up the national 

economy have all had an impact on the countries ener!,,), sihJation. In spite of these challenges, 

8 
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80365e-9.eps

Petrobras remains protltable, and remains a publicly traded company influenced by global 

markets, giving it ml advantage over the fully state-run companies of Venezuela mld Bolivia. 

Mexico 

Mexico has been a long time reliable supplier, but its oil production has been falling steadily 

since 2004. Due to constitutional constraints, foreign involvement in upstream development and 

ownership of resources has been strictly limited. In 200g minor refonns were undertaken that 

loosened those restrictions, grmlting PEMEX greater autonomy mld making it possible for some 

private participation in exploration and production through incentive-based contracts with foreign 

oil companies, but the impact was minimal mld production has continued to falL In 2011, 

PEMEX announced the first production licensing round in Mexico in over 70 years, with 20 

blocks noted for intemational bidders.2s For a number of years, analysts have noted that unless 

ilie Mexican govemment dramatically increases the amount of PEMEX earnings it can keep for 

capital investment (in 2004 PEMEX paid the govemment 60% of its revenues), the company 

would have significant diITicullies in maintaining production, not to mention expanding into more 

technically complex and diverse resources. Mexico has enonnous oil potential on its side of the 

Gulf of Mexico and a change in policy could both change global oil markets and create a 

formidable source of wealili for development of ilie country itself 

Change appears to be forthcoming for Mexico. In 2012 Mexico ratified ilie US-Mexico Transboundary Agreement that would pennit foreign investment in the Mexican Gulf of Mexico if a 

trans-boundary reservoir were to be found, and if companies on both sides of ilie reservoir wished 

to cooperate. This is an etfort 1 helped launch during my tenure at the Department of State. The 

US needs to adopt implementing legislation allowing the U.S Department of Interior to 

implement the agreement, and the US needs to notity ilie Congress, although it does not require 

Senate ratification in my view. More recently, the new government of President Enrique Pena 

Nieto has announced plans to undertake major reforms of ilie energy sector and conduct some 

experimentation with Mexico's shale oil and gas reserves. Some analysts view these refonns with 

skepticism, noting that the constitutional nature of the restrictions on the energy sector may 

require that any refonns are backed by a constitutional amendment, but the initiative appears to 

be sincere. If the refornls are unsuccessful, the EIA estimates that Mexico, currently one of the 

largest sourees of oil exports to ilie U.S., could see its production sink as low as 1.4 mbd by 2025, 

compared to 2.96 mbd in 2011. Any incremental step that Mexico can take would be helpful to 

ilie global oil market. I mn optimistic iliat Mexico will make significant reforms, including 

constitution changes. 

B. The Market Model 

The hemisphere is not monolithic. We have seen remarkable success stories. including Colombia 

and Peru, which have created independent regulators and obliged their national energy companies 

to compete wiili outside companies for exploration rights. Sueh progressive cases provide bright 

spots in the region. 

Colombia 

25 Energy Information Adminislration, --Mexico Country Analysis BrieL" Odober 2012 

http /i\nHy.eia.go'v,'routltries/~-"ab.ctln?fip~~?vIX 

9 
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80365e-10.eps

The story in Colombia is largely positive. Colombia has set up favorable tlscal tenns for foreign 

investment, has an independent regulator working to ensure safe mld efficient development of 

resources. and recognizes the importance of competing in the global economy. While Colombia, 

like mmly other Latin Americml companies, legally considers all natural resources to belong lo 

the state and centers production under state-owned compffilies Ecopetrol and Ecogas, the country 

has made strides to make foreign investment attractive. Colombia allows foreih'll companies to 

take 100 percent stakes in oil ventures, competing with Ecopetrol. The government has also 

undertaken several initiatives. including partially privatizing Ecopetrol in 2007 and "establishing 

a lower, sliding-scale royalty rate on oil projects and lengthening the time for exploration 

Iicenses."26 As a result, Colombia has experienced h'fowing oil production, up 47% between 200X 

and 2012 according to EIA, mld is also the recipient of significmlt new investment in its shale gas 

resources. Colombia is taking a model approach to shale gas development. It selected a small 

number of qualified companies to participate in its first shale gas bid round in 2012, and has 

engaged in an intensive effort to develop best practices for environmental protection. 

Trinidad and Tobago 

Trinidad and Tobago is another exmnple of a Latin American country that has worked to develop 

its energy resources as part of the global economy. The economy of Trinidad and Tobago is 

driven primarily by the energy industry, making it one of the only Caribbean nations that do not 

rely primarily on tourism for government revenue. The islffild nation produces only minimal 

amounts of cmde oil, but produced 1.4 Tcf of nahlral gas in 2011 27 Nearly half of that gas is 

exported as LNG, making the nation a fairly significant player in global LNG trade. Given that 

the U.S. no longer requires LNG imports, much of its LNG supplies will likely tlow to Asian 

consumers. Trinidad and Tobago is considered to be friendly to foreign investment, and 

numerous U.S. companies are invested in the oil and gas sectors. Looking to the future, the U.S. 

Department of Stale notes that challenges lie ahead for the nation's economy. as it must cope with 

declining gas reserves, high production costs, production slowdowns, ffild a lack of political will 

to invest in the tuture of the enerh'Y sectors. Depending on how developments take place in 

Venezuela, the country could be become a center for liquefying and transporting Venezuelan 

LNG. 

III. The Impact of Hemispheric Energv Trends on U.S. Foreign Policv 

The tight oil boom will produce competitive pressure on the region's oil and gas producers. If 

global oil prices sonen, revenues could fall signitlcantly and put major tlscal pressure on 

governments highly dependent on resource revenues for their budgets. The market will impact 

these economies far more than any U.S. policy can. But there will be a debate over economic 

frameworks in the hemisphere, and the U.S. should be a part of it. While U.S. influence in the 

hemisphere has waned in key areas in recent years. our ability to help these economies revive 

through energy investment. and to grow through more competitive energy feed stocks can help 

chffilge this pattern if we take advantage of it. We have key strategic partners in the region 

including Brazil, Mexico, Chile. Argentina. and Colombia. We can effectively use trade as a tool 

for good, as witnessed by the US-Colombia Free Trade Agreement. We need to appreciate the 

salience of legitimate regional issues like poverty and advocate how our economic and political 

:6 Energy Information Administration, "Colombia Country Analysi5 BrieL" June 2012. 

12.2013 

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80365e-11.eps

models can alleviate them. Examples of this are addressing trade barriers to agricultural imports, 

expmlding educational opportunities in the U.S. for future leaders, improving the visa application 

process, dealing with migration issues with Mexico in a spirit ofrespect and faimess, supporting 

World Bank and Inter American Development Bank infrastructure programs in the hemisphere, 

supporting the development of civil society and the capacity of democratic institutions, and 

treating our relations with our hemispheric neighbors as intrinsically important, not as litmus tests 

of loyalty to the U.S. on issues external to the region itself. In countries where we face 

ideological competition, it is crucial that we do not abandon the tield. We need to increase our 

diplomatic engagement and defend our way of thinking. 

A. Uncertaintv in Vene~uela 

Vene~uela has long been seen as the leader of a regional group of states seeking to wage an 

ideological and political competition for regional influence with the U. S. Yet the death of 

President Chavez, whose charisma has long been regarded as a key facet of the Bolivarian 

narrative, and VeneLllela's growing economic problems, which were recently reflected by the 

govemment's efforts to devalue the currency by more than 30% against the dollar, have led some 

observers to believe that the influence of the Vene~uelan model has peaked. Many are now 

forecasting that the Brazilian economic model, which still provides for a generous state role in the 

economy, yet does so in a more market-friendly and democratic context, will gain clout among 

states in the region that remain skeptical of liberal economics and the Washington consensus. 

In the wake of Hugo Chavez's death, many questions remain about whether political change is 

possible in Venezuela itself. Indeed, the opposition candidate in the April 14 election to succeed 

Chave~, Henrique Capriles, is a vocal adherent of the Bra~ilian model that many say is gaining 

regional traction. Yet it is widely assumed that Chavez' handpicked successor. Vice President 

Nicolas Maduro, will win the election. Several divergent prognostications have been made 

regarding what a Maduro Presidency would entail for the U.S. While some perceive Maduro as a 

pragmatist who may be amenable to normalizing bilateral ties. others believe that he will be eager 

to prove his Bolivarian credentials to Chavez's constituency and reject any U.S. entreaties to 

reengage. Still others doubt whether he will be able to retain the Presidency at all should the 

economic situation deteriorate further. Diosdado Cabello, a fellow Chavez adherent who is 

President of the National Assembly and is reported to be a popular figure among the Venezuelan 

Arnled Forces, is commonly cited as an individual capable of seizing the Presidency, potentially 

through forcible means, should ffi1 opportunistic situation present itself. 

The manner in which the next Venezuelan President manages Venezuela's oil wealth will have 

significant implications for intemational oil markets, which remain fairly tight due to supply 

disruptions in geopolitical hotspots Irml, South Sudan, Yemen, mld Syria. In February 2012. the 

Fconomist estimated that intemational markets have lost 1.25 million barrels per day as a result of 

these and other recent supply disruptions 2 ' Vene,wela is ml even more significant player in 

international markets; EIA estimates that it exports around 1. 7 million barrels of crude per day.'" 

The impacts on Venezuela's own economy will also be very profound, as Venezuela's economy 

is far from diversified and remains nearly entirely dependent on the oil sector. In recent years, 

PdVSA's exploration and production capital expenditures have not been sufticient to reverse 

" The Economist, "Oil Markets: IIigh Drama:' February 25, 2012 

., .I anumy 22, 2011 

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80365e-12.eps

production declines in the country's mature conventional fields or to harness the country's 

massive oil sands reserves in the Orinoco Bell. These unconventional resources are thought to 

account for around 90% of Venezuela's remaining proven oil reserves. Tn order to maintain 

production at a reasonable clip, the next VeneiOuelan President will have to improve the country's 

oil and gas investment regime to attract international firms with expertise in enhanced oil 

recovery techniques in conventional fields and in the unique, challenging technical requirements 

for producing the extra heavy crude oil in the Orinoco Belt. and that also have the resources to 

alleviate massive intrastmcture bottlenecks that plah'lle the oil sands production. 

It is hard to be optimistic about Venezuela's near term prospects. Canadian heavy cmdes are 

likely to fulfill a greater share of the US need for heavy crude. While heavy coking refinery 

capacity is growing world wide, Venezuela will face a challenging market for its crudes and 

lower profit margins as the distance to market will grow. 

B. The Status ofCuITent Dialoh'lleS 

The US has had a number of bilateral and multilateral enerh'Y policy fomms in the hemisphere 

over the years. These forums are platforms to understand market dynamics, share best practices 

on energy efficiency and conservation, share understanding on ways to enhance energy 

production, and exchange views on how a nation's energy policies may be enhanced or refonned 

to promote the nation's own policy. These policy dialogues are also essential for building the 

understanding and relationships that arc essential for trade promotion and conflict resolution. 

Numerous dialoh'lleS and programs have been enacted since 200X, when I wrote that engagement 

with the Western Hemisphere needed to be renewed. Among those are a number of programs 

and initiatives aimed at energy relations. 

The Energy and Climate Partnership of the Americas (ECPA) was founded at the invitation of 

President Obama following the April 2009 Summit of the Americas, hosted in Trinidad and 

Tobago. ECPA was intended to focus on issues including energy efficiency, renewable energy, 

cleaner and more efficient usc of fossil fuels, enerh'Y poverty, and intrastmcture, and Secretary of 

State Clinton later proposed expanding the focus to include sustainable forests and land use and 

climate change adaptation. ECPA brings together governments and public and private sector 

partners to implement initiatives and complete projects, and boasts numerous initiatives in 

Central and South America and the Caribbean. 

Among the ECPA Initiatives are the Colombia Biomass Initiative, which aims to develop a 

technological plan for the production of enerh'Y trom agroindustrial biomass, and the Chile 

Renewable Energy Center, which is intended to serve as a tool and resource for the region as it 

seeks to increase its usc of renewable tuels. Both projects arc undertaken in collaboration with 

the U.S. Department of Energy, which provides technical assistance and opportunities for 

collaborative work. 

Numerous dialogues exist today between the U.S. and Brazil. The U.S.-Brazil Strategic Energy 

Dialogue (SED), a presidential-level partnership aiming to deepen enerh'Y cooperation between 

the two nations, is one of the most signifIcanl. Strengthening energy security, the creation of new 

jobs and industries and reduction of carbon emissions arc key goals of the SED. Major topics of 

the dialogue include biofuels, renew abies and the sustainable development of oil and gas 

resources. 

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80365e-13.eps

The US has a trilateral enerb'Y policy dialogue with Canada and Mexico, which has addressed 

electric power, energy conservation, hannoni.lation of standards and market outlooks. II has taken 

many fonns, but it nJl1ctions very well. [n May 2012 the US., Mexico, Canada Map of Potential 

Carbon Dioxide Storage Capacity was released, identifying capacity in North America for at least 

500 years worth of carbon dioxide emissions. The "New North American Carbon Storage Atlas" 

was created through the North American Carbon Atlas Partnership, and was developed by DOE, 

Natnral Resources Cauada, and the Mexican Ministry of Energy. 

We have many paths for cooperation. What we need now is a sharper focus on what we should 

prioritize, so we can maximize our impact and make the most of the limited engagement of our 

senior officials. 

IV. Energy Securitv Opportunities for the US. 

The Committee is wise to see the unique period of opportunity that the massive changes in oil and 

gas markets have created for US. foreign policy. While we will be more self-sufficient at home, 

our national security will still depend on a diverse global supply of oil gas, one able to withstand 

the inevitable disruptions we will face. If we can take this moment to help the hemisphere 

increase its own self sufficiency, weau itself from high carbon fuels, access more cost competitive 

feed stocks for power and transportation, and reduce dependence on subsidi.led Vene.luelan fuel 

oiL we will have helped our own national security interests and helped to foster a freer, more 

prosperous, and more climate secure hemisphere. Here I otfer six steps that the United States can 

take to meet its energy security goals in the Hemisphere. 

1. Sustain EjJor/s Aimed a/ Energy Efficiency and the Adoption oj Biofilels and Renewable 

Technologies 

Lowering global carbon emissions in order to mitigate the impacts of climate change is an 

important step towards ensuring global enerb'Y security. Latin America is highly dependent upon 

fossil fuels for its energy needs, most notably oil, coal and natnral gas. Fuel oil is still a 

frequently used tuel for power generation, in spite of the fact that it is relatively inefficient and 

particularly bad for the enviromllenl. Hydropower has long been the favored form of renewable 

energy in Latin America, but changing weatiler patterns and droughts have prevented it from 

being fully reliable. The United States has, as described above, undertaken initiatives aimed at 

expanding the spread of biofuels and renewables in the Western Hemisphere, and this should 

remain a priority. The expiration of the U.S. tariff on imported biotilels was a step in the right 

direction, and more can be done to develop biofuels industries in Latin America. The 

development of new industries, clean enerb'Y research centers and gove11lment policies 

incentivi.ling the use of renewable technologies for power generation will help to build long-te11ll, 

sustainable industries in the Hemisphere. Regardless of the power source used, enerb'Y ctficiency 

is a worthwhile goal for Latin America. The lEA noted in the World Energy Outlook 2012 that 

while energy intensity is not particularly high in Latin America, it is prinlarily because high 

enerb'Y intensity in enerb'Y producing nations is offset by low enerb'Y usc in enerb'Y importing 

nations. Improving energy efficiency, particularly in energy producing nations, will permit more 

etllcient usc of enerb'Y resources, allowing them to stretch farther. Existing forums like the ECPA 

already have energy efficiency as ml issue of focus mld cml aid in connecting companies that 

represent successtul and proven etllciency technologies with partners in Latin America. 

2. Propagate Advanced Production Technologies Abroad 

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80365e-14.eps

Latin America has signiticant reserves of oil and gas, including potentially huge unconventional 

resources. One of the faslest mld perhaps easiesl, ways for the U.S. lo ensure diversificalion of 

enerh'Y supplies is to help other nations take advantage of the unconventional enerh'Y revolution. 

This will mean sharing technology, building regulalory regimes, improving environmenlal safely 

stffildards and possibly even developing infrastructure in nations with shale gas and tight oil 

reserves. The U.S. should continue to expand upon the work that the Department of State and 

partner agencies are attempting to achieve through UGTEP, offering technical, regulatory, 

geological and other support to countries that want to develop their shale oil and gas resources. 

There are also roles for companies lo play, sharing lheir lechnology and lechnical experlise 

through partnerships, investment opportunities or service contracts. Helping other nations 

develop lheir domestic resources will increase global energy securily by increasing and 

diversifying global supply. Natural gas is also, as far as fossil fuels go, a relatively low-carbon 

source of energy, mld the expansion of the shale gas boom may offsel global coal consumplion 

and carbon emissions, serving as a boon for climate goals as wel1. By helping other nations, such 

as Colombia, Brazil and Mexico, adapt to changing enerh'Y markets and complex new sources of 

energy, the U.S. will be simullaneously ensuring ils own energy securily. 

3. Research Ways /0 Encourage Gas Penetration in the Caribbean 

With abundanl nalural gas supply a shorl dislmlce from the Caribbean, the US should look for 

ways to back out fuel oil and gasoline as a feedstock for power and transportation. While these 

nations arc trying to maximize renewable enerh'Y, they still need a non-intennittent source of 

power generation. But short driving dist.1nce makes CNG or other natural gas technologies a real 

possibility. The key challenges arc moving gas to small islands, ensuring storage or other means 

of securily of supply, and idenlifying the righl forms of vehicle lechnology. How to make lhis 

transition economically is a question for engineers as well as policymakers. The US. should 

design ways lhal privale foundalions, in landem wilh our nalionallaboralories mld perhaps lhe 

OAS, can look for near-term, practical ways to increase natural gas utilization. Combined with a 

pennissive policy on nalrlral gas exports to the Caribbean, this could be major step forward for 

clin1ate and national security for the Caribbean. 

4. Reconsider the Us. Policy Regarding Oil and Gas Exports and Swaps 

In Iighl of the unconvenlional revolulion, the U.S. will have surpluses of nalural gas mld even 

light oil, given that the domestic refining system is primarily configured to process heavy oi1. 

Large price differentials also exist for U.S. resources, largely as a resnlt of intrastrllclrlre and 

policy constraints that keep them trapped in the US. Current US. policy only permits the export 

of cmde oil in highly limited circumstances. A careful reconsideration of U.S. export policy, 

parlicularly lowards oiL may be warranled. Allowing some exporls or swaps of Iighl oil 

produced in the U. S. for the heavy oil needed for rctineries would enable us to supply our 

hemispheric neighbors, increase exporl earnings, and suslain domestic job growlh. Granling an 

additional avenue for sale of energy resources, either oil or gas, will also ensure that artificial 

barriers to export dOid lead to decreased production, high domestic prices and lost value to the 

economy, while simultaneously adding to global energy supply stability and security. 

The hemisphere can also benefil from addilional exporls of nalural gas. Mexico imporls coslly 

LNG at oil-linked prices. The Caribbean is dependent on fuel oil for power generation and Brent 

prices gasoline for lransporlalion. These exporls could presenl a polilical advanlage as well as an 

economic one, granting the US. with another tool to use in the Western Hemisphere, where 

VeneLuelan iniluence is cemenled by subsidiLed sales of crude oil and producls. 

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80365e-15.eps

5. Complete the US-Mexico 'f"ranshoundary Agreement 

On February 20, 2012, the US. and Mexico signed a transboundary hydrocarbons agreement that 

allows for the joint the development of oil ffild gas reservoirs that cross the inlemational maritime 

boundary between the two countries in the Gulf of Mexico."] If implemented, the agreement 

would end the current moratorium on exploration and production in the border area. While the 

Mexican Senate ratified the agreement on April 12, 2012, the Obama Administration has not 

fornlally submitted the agreement to the U.S. Congress for passage. The entry into force of this 

agreement would render significffilt benefits for both the US. and Mexico.'] Il would provide a 

means for Pemex to collaborate with private companies in the Gulf of Mexico border area, which 

would give Pemex a crucial opportunity to gain expertise in deepwaler activities that could be 

applied to the firm's operations throughout Mexico. This would serve US. interests by boosting 

Mexicffil production and reducing US. dependence on imports from more politically troublesome 

regions, which have replaced lagging Mexican exports in recent years. l2 Conversely, US. 

reticence to implement the agreement may send the wrong signal to Mexico and dampen 

enthusiasm for energy sector refonn at a time when the stage may be set for historic change. 

Indeed, competent implementation of the agreement could demonstrate to Mexico that its 

interests can be protected in joint production regimes with US. companies ffild bring about an 

impetus for broader Mexican energy reforms. 

6. Revive Energy Diplomacy and Commercial Engagement 

Energy diplomacy and commercial advocacy should be vital components of U S. energy policy in 

the coming decades. The global enerh'Y system is projected to remain dependent upon fossil fuels 

for the foreseeable future, and as a resuil, having access to reliable, affordable sources of energy 

will remain important, as will the stability of energy markets. Energy diplomacy should center on 

ensuring that the US. has good working relationships with the countries that produce and 

consume energy. Successful energy diplomacy can serve a critical role in managing tensions 

over enerh'Y development, transportation, investment. and other issues. 

The Department of State has significantly increased its capabilities to conduct enerh'Y diplomacy 

through the establishment of the Energy and Natural Resources Bureau, led by Ambassador 

Carlos PascuaL Its programs should be robustly funded. We should also deepen the intemational 

energy diplomacy capacity of the Department of Energy. The Department of Energy's 

relationships with civil servants in ministries across the globe provide a bridge across changes in 

government here and there. They can talk when the politics of non-enerh'Y issues obstruct 

dialogue among the foreign ministries. It is easier to get Energy Ministers together for regular 

meetings than Secretaries of State. Their staff should be expanded and serious program budget 

established to make our cooperation more than rhetoricaL For true refoml to be achieved, foreign 

ministers and heads of govemment will have to be involved, as this will be the key to integrating 

energy security into foreign policy. 

The three countries that need robust attention at this time arc Mexico, Brazil and Vene7uela. 

Mexico is considering major reforms and we have much we can share at a technical level on gas 

1C' Department of State Fact Sheet, "U.S.-Mexico Transboundary Hydrocarbons Agreenlcnt" Febmary 2012 

http://www.state.govlrlpa/prs/ps/2012102/184235.ht111 

31 Neil R. Hrown and Carl H. Meacham, "Oil, Mexico, and the Transhoundary 

2012 "."'.,.c.,,,,e'tl". 

3C Ibid 

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80365e-16.eps

markets, unconventional oil and gas technol06'Y, safe re6'lllation of the deepwater, and ener6'Y 

efficiency. We should create a quiet bilateral mechanism for sharing this information with 

Mexican ministries, its nascent regulator and PEMEX. Changing global markets also impact 

BraziL ffild we should ensure that the Strategic Energy Dialogue is reactivated as soon as new 

officials are on board at the Department of Energy. Venezuela is trickier because it is in political 

transition and there is a great deal ofrhetorical hostility. But the US had a technical dialogue with 

Venezuela that lasted over 30 years. We need to know the new officials at the Ministry and 

PdVSA and to share our view of market realities, even if we may not agree on them. Sometime in 

2013, after the Venezuelffil elections, this technical dialogue should be revived, perhaps at the 

Assistant Secretary, or Deputy Assistant Secretary level. 

Conclusion 

Mr. Chairman, the ties between Latin America and the Caribbean and the energy security of the 

United States are numerous. Here I have addressed only a few of the possible avenues for 

improving U.S. energy security, and there are undoubtedly more, but the overarching conclusion 

is that ener6'Y security goals in the Hemisphere can be achieved through improved dialogue and 

relations with allies ffild adversaries alike. As I stated in 2008, it will require new approaches to 

energy and foreign policy. It will require fresh policy approaches, money, and creative 

diplomacy. But more than ffilything it will require leadership. As a citizen I thank the committee 

for its leadership on this critical issue. 

16 
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Mr. SALMON. Thank you, gentlemen. 

I yield myself now 5 minutes for questions. And the first question 

I would like to direct to Mr. Farnsworth, but it could equally be 

addressed to you, Mr. Goldwyn. 

You touched on the LNG exports and the importance of the U.S. 

finally moving forward with granting export licenses to LNG to the 

Caribbean. Formalizing economies in the Caribbean Basin and 

Central America should be a regional goal. So how important 

would these exports be toward realizing that goal? And with the 

Petrocaribe’s largesse in question now, now is the time to push, I 

believe, for free trade agreements with many of these nations in 

the Caribbean Basin. Do you agree with that? 

Mr. FARNSWORTH. Yes, sir, I do. And thank you for the question. 

I caution that it is not a panacea. I mean, there are some real 

issues here in the Caribbean Basin. But fundamentally, if you look 

at a global economy, there aren’t a lot of options for small island 

state that is connected only through tourism or maybe some small 

industry or some small agriculture. And if the cost of electricity 

and the cost of fuel imports is three, four, five times higher than 

in advanced economies just next door, you are fundamentally economically uncompetitive. 

If you take that and you take away, potentially—we don’t know, 

but potentially you take away the subsidies that some of the islands have been receiving from Venezuela, and you layer on top of 

that the enhanced security requirements that are quite predictable 

as the United States works with our Latin America partners in 

Central America and Mexico to try to address some of those security issues, you have a fairly complicated stew here that could compel one of two things. It could compel illegal activity, or it could 

compel additional migration. Neither one of those is particular, I 

think, in terms of the U.S. interests. 

So it seems to me we should try get ahead of the curve to the 

extent that we can, recognizing there are lead times in terms of 

permits and infrastructure development and all of that. But we 

should get started now because we can see this train coming down 

the tracks. And this is something that I think is both proactive, but 

it is also positive. 

You know, the United States has a very strong and positive relationship with the Caribbean in the context of global politics. During 

the Cold War we were very active with the Caribbean Basin Initiative. We saw it in global context. That is fine. The beneficiaries, 

however, were the Caribbean region and Central America. And I 

think we really need to begin to look at this region in a new way, 

a way that recognizes some of the obvious limitations, but says, 

look, we have a foreign policy need in the region, and let us use 

energy as part of that. And I think you can’t really get there from 

here unless you begin to open the spigot in terms of natural gas 

exports. 

Mr. SALMON. Right. 

Mr. Goldwyn. 

Mr. GOLDWYN. I would just add two quick points. One is these 

are relatively small markets, so in terms of total volume of gas, it 

really shouldn’t be a concern on price. And given all the studies 

70

that have been done, I actually don’t think there is a legitimate 

concern on price anyway, but that is another question. 

The second is these countries do need a market signal that if 

they sign a purchase agreement, that they will be able to get a license relatively quickly. And so that is where I think a policy determination would be helpful. 

Mr. SALMON. Thank you. 

Mr. Pin ̃ on, thank you for your testimony, and thank you for coming all the way from Texas to be here with us. 

With respect to Argentina’s recent confiscation of YPF shares 

owned by the Spanish firm Repsol, you correctly point out that 

they flagrantly turned their nose up at the rule of law, yet Argentina has significant resources, particularly in shale gas fields, and 

they can benefit from the U.S. shale gas revolution. 

Do you see President Kirchner taking more serious steps toward 

attracting foreign investment while moving away from her statist 

and highly politicized policies? 

Mr. PIN ̃ ON. Well, I believe that a major change has to take place. 

I think the signal that she sent to the industry by the confiscation 

of the Repsol assets sure puts in question who else is going to invest money in Argentina. If I was a major oil company or an international oil company, I would question how long will my assets be 

safe in Argentina. 

You have also have to remember, Mr. Chairman, that any upstream project takes anywhere between 1 to 7 years to bring 

onstream. These are issues that do not happen overnight. There is 

huge amount of capital investment that has to go up front. So even 

if I sign an agreement today that is valid to my corporation, what 

says that after 5 years, when I already have 2-, 3-, 5 billion on the 

ground, that the rules of the games are not going to change? 

So that is the big issue. That is what happened in Venezuela. 

That is—with Exxon Mobil and with CONOCO. That is what happened in Ecuador with Occidental Petroleum. Once these international oil companies start putting large amounts of capital into 

the country, they more or less have you; in other words, the negotiation rule now is totally different. 

I think she is going to have a problem. There is economic problems in Argentina. Argentina is a very wealthy country not only in 

oil and gas, but in many other areas, and the country has always 

failed to materialize. So we will see what happens. 

Mr. SALMON. I think, you know, I learned early in my business 

career that if you take the idea that you have got to deal with longterm objectives for your business, and that is grow business over 

time and develop a reputation as an honest broker and somebody 

that people will be willing to do business with, and not the mentality that some look at the used car salesman—just sell that car 

and take advantage right here and now because we gotta get the 

sale, gotta squeeze every bit out that we possibly can now—it provides long-term success. And with Argentina’s economic travails 

and problems, they would be well suited to look at focusing on 

some of these rule-of-law issues on investment, not just in regard 

to Repsol, but in regard to many other companies that I have 

talked to, international companies, that are very wary about doing 

business in Argentina because of these contract issues that are not 

71

being adhered to and rule-of-law issues that are being flouted. And 

I think ultimately if Argentina recognizes it is not in their best interests, it is not in their best long-term interests to continue going 

along this road, they have got to start recognizing contracts and 

adhering to rule of law. 

But thank you very much. 

I would like to recognize the ranking member Mr. Sires. 

Mr. SIRES. I am glad that the Caribbean Basin has been raised, 

because I think one of the problems that we have had in the past, 

in my opinion, is that we focus on the big fish. You know, we focus 

on Mexico, we focus on Brazil. And obviously the large opportunities are in those countries. 

But there is a whole host of small countries, small markets that 

we seem to fly over. So when you said, Mr. Pin ̃ on, that we give 

them 300 million gallons, you know, of oil, that—I didn’t know that 

figure. I think that bodes well for us, because we can certainly rebuff the influence of Venezuela by doing the same thing. I guess 

the 115 million people in Mexico makes Mexico the best partner we 

could ever have because of all the resources. And I would think the 

natural connection that we have with Mexico would make it a natural to continue. 

But one of the concerns that I always hear from Mexico is that 

they don’t want to be seen as the United States’ interfering in their 

business. And even this change that they are going to modernize 

their industry, they are very cautious about proceeding so they 

don’t perceive that the United States is pushing this. 

Can you comment on that? All three of you? I will start with you, 

David. You don’t mind if I call you David do you? 

Mr. GOLDMAN. Please. I think there has been a bit of an evolution in Mexico. Traditionally, certainly this was nationalization 

was core to the revolution, it is a very sensitive subject. And most 

of the conversation right now is going on among the political parties in Mexico to see what they can live with. And they have this 

hard balance. They want to increase production, and they want 

new technology and their capital constrained. So they have to figure out how do they get that in, and will they have constitutional 

reform or not? And so it is largely an internal discussion. 

I don’t think they see us pushing it. I think they have a 

Petrobras model, they could have a stat oil model. They could have 

a number of models which keep the state as the owner of the resource and keep the state as the regulator and keep the state in 

every deal, but still allow foreign companies to be operators and to 

book reserves. They have got to figure that out. 

I think what we can do is very quietly we can let our geologists 

talk to their geologists. We can talk to people at the Department 

of Energy about the nature of deepwater technology. We can have 

people in Interior talk about how to manage that safely, and none 

of that has to be in the public eye. We can work to give the government privately the confidence that it can see its way through to do 

this. But I agree, the less public we are, the better. But I really 

think this is internally driven by the pon and by the pre rather 

than seen as some sort of a U.S. effort to impose this or change 

this. 

72

Mr. FARNSWORTH. I would agree with that, and I would simply 

add that from my perspective, it seems that the new government 

of Enrique Pena Nieto sees energy reform in the context of overall 

national competitiveness, and so they don’t see it as an independent stand-alone but rather integral to Mexico’s ability to 

achieve its economic growth targets over time and the ability to 

really turn Mexico into an engine of global production and growth 

which is clearly where the government is headed. Now how they 

do that is really an issue for the Mexican people to figure out. 

There are some good models out there which would seem to hit the 

framework that they need politically. But it is their issue. 

And frankly, I have been quite amazed at the restraints that has 

been shown by other countries, not just the United States, but 

other countries saying, look, this is a political issue for you, and 

you need to resolve it in your own way in your own terms. But having said that, there is a horizon out here by which if you can find 

a way to reform this sector, it will turn Mexico into, or contribute 

to turning Mexico into that type of partner, Mr. Ranking Member, 

that I think we would all see. 

Mr. PIN ̃ ON. I lived in Mexico for 5 years and I agree with David, 

I think even if the legal and legislature and political obstacles can 

overcome, you still have Pemex. Pemex is not Petrobras. Pemex is 

not Ecopetrol. So even if you can put the legal mechanisms in place 

that would allow Mexico to play ball in this game, they won’t be 

able to achieve the goals that we are looking for because they have 

this state oil company that is called Pemex. And it is not from the 

point of view of their technical expertise. By the way, many of 

them are graduates of the University of Texas. That is not the 

issue. 

Is there skills as far as being entrepreneurs, is there skills of 

being able to play the game competitively? Mexico has been a national oil company that has stayed inside of Mexico for the last 50 

years. Petrobras has an international experience. Petrobras is a 

true independent international oil company. Ecopetrol today, Colombia’s national oil company, is doing business with Shell in the 

U.S. Gulf of Mexico. Why? Because they learned from that experience and regrettably Pemex is a true national oil company from the 

point of view that technically they might be very competitive. But 

from an entrepreneurial management stewardship point of view I 

think they lack the skills to really take Mexico into what we want 

it to be 5, 7 years from now. 

Mr. SIRES. So you are not very hopeful of this? 

Mr. PIN ̃ ON. No, sir, I am not. Mr. Pena Nieto has 6 years in 

power. It is a 6-year presidential term. And as I share with you 

today, any project upstream takes anywhere between 1 to 5 years 

to materialize. I am sorry, I am optimistic for the potential of Mexico. It has been shared by all of us this morning, this afternoon in 

the panel. I just don’t think that they will be able to achieve their 

goal, again, in particular with the organization that they have of 

the energy sector particularly in Pemex, I don’t think so. 

Mr. SALMON. The chair recognizes Mr. Radel. 

Mr. RADEL. Mr. Pin ̃ on, in that same vein looking at Brazil, have 

they reverted to increased resource nationalism? Brazil? And I follow up with we have this so-called pre-salt reserves, which has the 

73

potential to turn the country into one of the top five oil and gas 

producers in the world. Is there opportunity there for us? 

Mr. PIN ̃ ON. Brazil will surpass both Venezuela and Mexico as the 

largest producers of oil in the region, which to many of us that 

have been in this industry for 34 years, we never thought that we 

would mention something like that. 

When Lula da Silva came in power in 2003, I believe, those of 

us that were in the industry said there goes Petrobras. We thought 

that is it, close the doors, go home, there is another Venezuela coming. And Lula da Silva is probably to me the best President that 

Latin America has ever had because being a leftist, being a socialist, he was able to recognize that Petrobras was that golden goose 

that was laying the eggs, and he said, I have to let it run like a 

true enterprise. I, as the state, am more than happy to collect the 

dividends and part of the shares if they go up. I want it to make 

more money because I am collecting 28, 30 percent corporate tax 

and by the way, they are going to make a lot of money for me. Lula 

knew how to run Petrobras. He just let it be Petrobras. 

That is why I am concerned about Argentina. We have two poster childs in the region and that is Brazil and Colombia. And what 

I am afraid of is that if we let Venezuela and Ecuador and Bolivia 

and all of these guys and now Argentina go through, it might give 

some of these governments a second thought, particularly if they 

do find all of these resources that now they say, by the way, I don’t 

need the techno, I don’t need the geologist, because I know where 

it is. I still need the engineers because I need to know how to get 

it out. But I don’t need the geologists anymore. 

What is the advantage of an Exxon or a marathon or a Chevron 

or a Conoco to any of these countries anymore? Is it really technology? You have Schlumberger and Baker Hughes and Halliburton today in Mexico doing business that used to belong to the 

international oil companies. So the service business even has taken 

today a role that the majors always never wanted to take, which 

was the service type of business. 

So I have a problem. I think that we really, again, I think the 

future is fantastic. I am optimistic. I think Latin America can do 

it. All that I am saying is we need to take a step back, and we need 

to take the job and the role that some of these countries are playing. 

And China, today when China goes and is, and forgive me Mr. 

Chairman, but when China today is negotiating with Brazil and in 

the other room you have an American oil company, there are two 

different type of negotiations going on. I am not saying that the 

U.S. ought to have a national oil company, by the way. We don’t 

have a national oil company. So when you have an international 

oil company in one room and you have a Chinese oil company in 

the other room, that Chinese oil company has government officials 

with it, has the National Bank of China with it, has all of the infrastructure required, has the engineer, has a turn key package. 

We don’t have that flexibility because we don’t have a national 

oil company. And I am not saying that we need to have one. But 

I just want the members of the committee to understand that when 

you have a China national oil company competing versus an American oil company, in many of these countries, and it is not—but 

74

wait—it is not an issue of corruption. It is not an issue of corruption. It is an issue that they have the competitive advantage that 

we don’t have. That is what I am going to say. 

Mr. GOLDMAN. I will just offer a slightly different view. I am a 

little bit more worried about Brazil because the big boom in Brazil 

happened when they opened the offshore to foreign operators and 

they got in technology and project management, what they didn’t 

have, and they learned a lot and they had to tag along with that. 

And now they have taken a step back by saying that Petrobras has 

to be the operator in every project, that they have to put capital 

into every project, that they have to evaluate every project, has already slowed them down. 

So their production estimates have declined and the local content 

requirements are understandable, but they are required, companies 

are required to have things that Brazilians don’t make yet. So all 

of that is going to slow things down. I think they will still be huge 

and they are very adaptive, so they may learn that this is not a 

revenue maximization model, and maybe they wanted to have that 

money for development and they will change. But right now where 

if that take off looked like this, it has flattened out a little bit. 

And I think Brazil, if the prices soften a little bit, companies will 

bid in the next round. But whether they go from exploration to production will depend a lot on what the returns are and what the 

price is whether Brazil is competitive. So I think they are going to 

have to compete more or they are not going to be the producer that 

they could be. 

Mr. FARNSWORTH. If I could just piggyback on that as well; this 

is where the North American play comes in so heavily because 

given a choice between investing in the United States or Canada 

versus uncertain markets in Latin America, most people chose 

North America. And what we have seen with the dramatic increase 

in recoverable energy in North America, companies don’t have to 

make those riskier plays. And to the extent that any country, 

Brazil or any country is taking a step back, the issue then is how 

are they going to be able to attract the massive investment that is 

required to develop those resources? 

The resources are there. What isn’t there is the investment. This 

is why China is so important because it has played a role that really didn’t exist in the past whereby countries—Venezuela is a perfect example—can pursue policies and ambitions that the rest of 

the international community might have rejected in the past, but 

with China’s support, they have been able to pursue certain policies. Now perhaps the Chinese are getting a little bit impatient 

with Venezuela and the inability to repay debts and that sort of 

thing, that remains to be seen. 

But this is where I think an argument in terms of the quality 

of investment can be developed with the western hemisphere. And 

I think the Western hemisphere nations are very receptive to that. 

In other words, a dollar of Western company investment isn’t necessarily the same as a dollar of Chinese investment, not necessarily 

because the Chinese come with a package, but because of all of the 

externalities that we don’t discuss: The corporate social responsibility, the hiring on the local economy, the support for local education systems, anti-corruption, Foreign Corrupt Practices Act, corVerDate 0ct 09 2002 11:32 Jun 06, 2013 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 F:\WORK\_WH\041113\80365 HFA PsN: SHIRL
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porate governance, all of these that Western companies will bring, 

none of those things that the Chinese will bring. 

And so you have a quality of investment. Yes, you can make 

more money in terms of some of the investment coming from other 

parts of the world. But in the longer term, is that a good thing to 

help develop your country along the way that, frankly, I think most 

of the people in the region would want to go, dare I say it, does 

that help support democracy? Now this is the Western Hemisphere 

Subcommittee, so I am comfortable making these types of argument. 

But the truth is, I think this is a concrete connection between investment policy and energy and resource nationalism and the quality of democracy down the road and true partnership. And I think 

we are seeing that develop right before our eyes in many of the 

countries in the region. 

Mr. RADEL. Thank you, gentlemen. 

Mr. SALMON. Thank you. The chair recognizes Mr. Duncan. 

Mr. DUNCAN. Thank you, Mr. Chairman. 

I just want to mention one thing that the gentleman from New 

Jersey talked about in the last panel, and that is opportunity with, 

in a post Castro, post Chavez environment in the Latin America region. We have an opportunity there to go back and redevelop some 

relationships and find some opportunity for American businesses. 

But I know we all only want to deal with democratic regimes and 

democratic governments. And so I think we have got to find a way 

to negotiate that, we have got to find a way to support pro democracy, and we have got to find a way to seize those opportunities. 

And I look forward to working with the ranking member going forward. 

I think the administration should begin that process as well, and 

so I appreciate the efforts, especially with Cuba that the ranking 

member has had. 

Mr. Pin ̃ on, you mentioned China and the Chinese example. We 

heard the same thing in the Kurdish region of Iraq that when 

American companies are trying to negotiate with these governments, the Chinese have a leg up in that they have got the support 

of their government, and along with that comes the bank and everything you mentioned. I think the American Government needs 

to do a better job with supporting American businesses going into 

those negotiations. And I hear that other places. So I appreciate 

your bringing that up. 

And what we see with China is not just negotiating with Chinese 

companies with the government backing, we actually see the Chinese Government going in and not only purchasing mineral rights 

and mines and oil and natural gas fields and rights but also purchasing companies and rare-earth minerals and just a lot of different things. 

And so I guess the question I have, because this is a very interesting topic for me, is what can the U.S. Government do to better 

support American businesses so that U.S. business can better compete with China, Russia, Iran, and I appreciate you guys mentioning Argentina, Argentina has reached out to Iran recently, and 

that concerns me greatly. 

76

And so what can the government do? Give us some ideas, things 

that we might be able to work on as the legislative branch to push 

forward those concepts? 

Mr. GOLDMAN. I think we can do a number of things. One is we 

can make clear to the countries in the region that the expertise in 

unconventional oil and gas, which is the future of their hemisphere 

was born and raised here in the United States. So they are not 

going to find that expertise from Chinese companies. Second, deepwater, ultra deepwater other than Petrobras, no Chinese company——

Mr. DUNCAN. They are paying big dollars to purchase these mining companies, not the rights, but the companies themselves, they 

are paying big dollars for that in order to have access. I didn’t 

mean to interrupt you. 

Mr. GOLDMAN. They bought Nexen up in Canada. But I don’t 

think anybody is yet trusting SINOC to be the operator of a deepwater. Now mining is a different story and I agree with you there. 

But one thing we can say is if your future is in unconventionals 

and in deepwater, you want to go with people who actually know 

how to do this right and do it efficiently and those tend to be Western companies, not exclusively American, but in this hemisphere, 

American. 

The second thing I think is to point out to them the reliability 

and the business climate that it creates. If you want investment in 

lots of other areas you have to have a positive investment climate 

and we come with all the things Eric has explained so well how in 

terms of how we behave in country. 

The Chinese increasingly being seen as colonialists, particularly 

in Africa, because they have an enclave way of operating. They 

don’t bring any jobs. They keep to themselves. They don’t treat the 

environment well. And people are getting irritated with them. And 

in the hemisphere so far, they have mostly bought assets which 

Western companies have wanted to dump so they haven’t made 

any strategic acquisitions. 

But I think going forward, as you said, we have go to also just 

get in there and have a relationship that is good across the board 

so that we can make the case and be commercial advocates. 

Mr. DUNCAN. Before I come back to Mr. Pin ̃ on for some additional, let me make just make a comment that I was talking with 

some oil and natural gas folks from the Gulf of Mexico, the Louisiana Texas area, and they are talking about a lot of those companies left the Gulf and went to the coast of Brazil, went to the coast 

of Africa and now they are coming back because what they found 

dealing with those governments and their regulations and the slowness of permitting and other things, as bad as the rules and regulations are currently under this administration for deepwater drilling 

in the Gulf of Mexico, it is still they understand there is some certainty, they understand what the policies are, they may not like 

them, but it is a better business climate for dealing with our U.S. 

Government having to go through the delays and all that, at least 

they know what they are getting, whereas there is so much uncertainty. 

So they are pulling a lot of those rigs back to the Gulf of Mexico. 

I thought that was an interesting thing to hear from them because 

77

of the certainty aspect and the uncertainty, I guess, is what I am 

trying to say dealing with the Brazilian Government or the African 

governments that they had to deal with. 

And so going back to what can the U.S. Government do to support businesses and these environments, U.S. companies to make 

them better to compete with the Chinese? Mr. Pin ̃ on. 

Mr. PIN ̃ ON. I still think that we do need, we have in this country, 

and by the way one of the things that made this country the best 

country to invest in oil and gas is because we do have that separation between the private sector and the state, and the government. 

And so we have to be very careful in the amount of support that 

the United States oil companies can get from our Government. We 

have to be very careful with that. 

But again, I think support in the area of technology transfer, the 

area of STEM education, working with, like Brazil, with scientists 

without borders, we in the United States have right now the State 

Department 100,000 strong in the Americas in which we exchange 

students, in other words, there is a lot of ways in which the U.S. 

can really influence and work on changing the behaviors and the 

knowledge and the skills in a lot of these countries. 

But we have to be very careful how the United States Government gets involved in the business dealings of U.S. oil companies 

overseas. I think that could set certain precedents that I wouldn’t 

be in favor of. 

By the way, another issue that China is doing is China and 

Brazil today have joint ventures with both Statoil and with Repsol. 

So China is also not going necessarily on their own, but China is 

also going into joint ventures with international oil companies who 

have the deepwater expertise like the Norwegians and like Repsol. 

So the Chinese, I don’t know what David’s data shows, but we 

believe that in the next 4 years, if you have all of the equity production that China could very well have in Latin America, including the oil for loan exchange, China could be pulling as much as 

600,000 barrels a day out of Latin America in equity production. 

In fact, they are looking for a refinery. They have talked to 

Valero, they have talked to a number of people to look for refinery 

capacity in the Caribbean. 

And by the way, China is a good partner. Many of us, ask the 

Exxons and the Chevrons and everybody else, we have partnership 

with China in China and in many other places in the world. So 

that is not necessarily the issue. If, like you said, the rules of the 

game when they go into a lot of these countries is totally different 

than the rules of the games as far as it goes with us. 

You mentioned the issue of all of the regulations and all of the 

rules that we have to follow, by the way, not necessarily because 

they are set by the United States Government, because from the 

corporate point of view, is good business. So those are the things 

that we have to work with. 

Mr. DUNCAN. My time is expired but I just want to mention the 

ranking member talked about fly-over countries, the smaller countries in Latin America, because we focus on Argentina, Brazil, Colombia, and we focus on the hot spot of Venezuela, but there are 

tremendous opportunities in Honduras and Nicaragua and other 

78

countries in the isthmus there. But also there is opportunities in, 

I believe, in Ecuador and Bolivia, Paraguay, Uruguay. 

There are tremendous opportunities for the U.S. to begin fostering, reestablishing those relationships that I think are going to 

be very, very important for us going forward and I yield back. 

Thanks. 

Mr. SALMON. I couldn’t agree more. 

Mr. Sires had a follow-up question. 

Mr. SIRES. I guess I get a little more reaffirm of the fact that I 

think some of these countries are going to miss the opportunity 

that is there for them by doing all the things that we talked about 

today. 

Here is a golden opportunity to move forward, and they are their 

own worst enemies by doing what, as Congressman Duncan said, 

he spoke to some of the members, some of the companies are pulling back and they are coming back into America. Why? Because 

they don’t have the same problems that they encounter when they 

do business in those countries. 

I was just telling the chairman the last time I was in Colombia, 

I had dinner with one of the presidents of one of the universities. 

And he said to me that the second most studied foreign language 

in Colombia today is Mandarin. So that tells you something that 

the influence of China, and that is Colombia. I could just imagine 

where they have more influence and where they are doing more 

business than in Colombia, what is going to happen? Thank you, 

Mr. Chairman. 

Mr. SALMON. Thanks. We do have a few more minutes. I would 

like to ask another question, too. I have a significant amount of 

background with China. I have been there over 30 times. I speak 

the language. And I did not learn it in Colombia, but, in fact, I 

learned it in Taiwan. But I would like to say that given the fact, 

it is always easier to move things when you deal with an autocratic 

government, where the business and the government are all working in concert with one another. 

And Mr. Pin ̃ on, you mentioned that that is an advantage with 

their oil companies, the state-owned oil company where they have 

the government, the financier there, the oil company all at the 

table and they can blow and go. We can’t do that, and we never 

will because we live in a government where the system of checks 

and balances and free market sector. 

So what are some of the things beyond—that we can adopt as 

policy to make it so our oil companies can compete a little bit more 

effectively? 

And then one other question to Mr. Goldman, you talked about 

the importance of energy and diplomacy and I couldn’t agree more. 

But what can the United States and this subcommittee, in particular, do to help encourage energy-rich nations like Ecuador and 

Argentina develop the type investment climate that will boost their 

production and increase exploration? Thank you. 

Mr. PIN ̃ ON. Mr. Chairman my apologies, I am biased, but 52 of 

the top geologists in Petrobras today are graduates of the University of Texas. Now I can assure you that the University of Oklahoma and Texas A&M and those universities also have a huge 

79

number of graduates from the universities in those national oil 

companies. 

The best way that we have to reach those governments are 

through our own people, whether it is education, whether it is technology, whether it is student exchanges, whether it is environmental issues, water resources, one of the things that we are working now at the University of Texas helping a lot of these countries 

is whether it is shale gas or something else, it is going to impact 

water resources in a lot of these countries. So we are focusing on 

that too. 

We have just had the vice minister of energy of Guatemala, Eric 

was there, so we are looking at Guatemala for geothermal, how can 

we help Guatemala develop their geothermal industry. So I think 

there are a lot of things that we can do as the United States not 

only from the government, but also from the private and academic 

sectors. 

Mr. SALMON. Thank you. 

Mr. Goldman. 

Mr. GOLDMAN. Thank you. Well, I think the market is a strict 

disciplinarian, so I think the first thing that is going to happen is 

they will notice how Colombia is doing, and how Chile and Argentina are doing something on gas and the Bolivias of the world will 

have to adapt. But I think the other thing we can do is use some 

of our multilateral mechanisms, the energy and climate partnership of the Americas, use demonstration examples as you heard 

from Ambassador Pascual earlier, so Colombia can stand up and 

say this is how we are getting an investment; Brazil can say this 

is what has worked for us so far; Mexico can say these are the 

changes we are looking at so they can hear it from their neighbors 

and not from us. 

And I think we can also our strategic dialogues with Brazil and 

others to talk about whether we can do some triangulation and get 

some, the people who those countries listen to to deliver some of 

this message so it is not coming from us directly. 

Mr. SALMON. Great idea. Mr. Radel, did you have any other questions you wanted to ask? 

Mr. RADEL. Sure, for the record as we talked about Mandarin 

being studied in Colombia, we are learning Spanish here in the 

United States. 

Mr. SIRES. You got some oil. 

Mr. RADEL. I would like to talk about Ecuador. I think maybe 

Mr. Goldman, this would be best for you. There is a vacuum now 

with Hugo Chavez gone, even just symbolically. Could you describe 

our relations right now with Ecuador? One of the biggest splashes 

that Correa, President Correa made years ago was we said we 

would like to have our air base there and he said, sure, I would 

like one in Miami too. Not going to happen. But could you describe 

our diplomatic relations with them, and whether or not you believe 

that they would try and fill that kind of vacuum within the 

Bolivarian revolution, if you will. 

Mr. GOLDMAN. Well, I think I have been out a little while so I 

don’t know how relations are. So my guess is they are probably cordial. The foreign investment condition in the energy sector is worse 

than it is in any investment sector in Ecuador, but that is where 

80

it is worst and the actions against Oxy and others have been very 

serious. So I think the Department warns people of the volatility 

there. 

I don’t think Ecuador has the resources, and I don’t think Correa 

has the charisma, and I don’t think the country has the respect to 

fill that vacuum. I don’t think anybody wants to follow the Ecuadorian model. Bolivia has tried, I think, to its enormous detriment, 

and maybe permanent detriment as other countries find their own 

sources of gas. So I don’t think anybody is going to be following 

President Correa wherever he may be trying to lead them. 

And, in fact, we will have to see what happens to Ecuador’s production, but if it declines at the pace that Venezuela’s production 

has declined, my guess is there will be enough internal problems 

there that no one will wish that on themselves. 

Mr. RADEL. Well, there is one assessment. Thank you. Mr. 

Farnsworth do have something as well? 

Mr. FARNSWORTH. I agree with what David has said, but also to 

piggyback on what Mr. Sires, the point that you made which I 

think was absolutely correct. You have a boom in global energy 

that threatens to bypass some of the countries in the region despite 

being extraordinarily wealthy in energy. For the last several years, 

production in Venezuela has decreased, even though global emergency markets have been at historic highs. And any first year business student will tell you you want to sell as much as you can in 

a tight market for the highest price you can. And in fact, the production has been decreasing because of mismanagement of the energy sector et cetera, et cetera, some of the things we have already 

talked about. 

One country we haven’t talked a lot about but which just came 

up is Bolivia. Bolivia is a perfect example of this. Bolivia should 

be, in some ways, the major supplier of natural gas in South America because of their geographic location, because of the amount of 

supplies they have. And what happened is they created conditions 

that were so negative to investment and delayed so long the actual 

development of the sector that now, discoveries around them have 

taken over and you have surrounding countries, Brazil, Argentina, 

of course we know Peru, Chile even, which traditionally doesn’t 

have a lot of energy at all, and now you have Bolivia, instead of 

being the center of energy in South America, is really the hole in 

the doughnut. And the people that lose ultimately, in my view, are 

the people of the country because they are the owners and they are 

the ones who should be receiving the benefit of the natural resources, and they are not, because it is just not getting sold. 

Now yes, I am overstating the case, yes there is Bolivian gas 

going to Brazil, yes, it is going to Argentina, et cetera, but not as 

much as it should have, and they should have been the first mover 

in South America that would capture those markets, capture those 

patterns of trade and allow them to really establish the terms of 

discussion. 

They haven’t done that. But I think if you extrapolate that more 

broadly, you could see and you later on, now some of the changes 

again that we talked about in North America, some of the changes 

in Asia, some of the finds we see that we have seen in the Middle 

East et cetera, et cetera you have a region that is rich in resources 

81

that might simply miss the boom because of politics, and that is 

a concern to all of us. 

Mr. SALMON. This discussion has been increasingly engaging and 

I don’t want to cut anyone off. I believe Mr. Pin ̃ on, you wanted to 

talk and then I am going to close with Mr. Sires’ last question. But 

you guys have been phenomenally well-spoken in giving us your 

thoughts and ideas, and I think we could probably go on for another couple of hours, and none of us would be bored. We are really 

enjoying this, so I don’t want to clamp it off. We have got another 

few minutes, Mr. Pin ̃ on, and then I will go close with Mr. Sires. 

Mr. PIN ̃ ON. Just one comment, we haven’t talked about the Guyana basin. We have today Guyana and Surinam who probably have 

15 billion barrels of reserves offshore. And I was just recently in 

Georgetown, and those countries are not ready to what is coming 

for them. We really have to keep an eye on both Guyana and Surinam because they have huge resources. And if they do discover oil, 

we need to be there. 

The other one is Uruguay. Already, international oil companies 

are moving offshore Uruguay. By the way Bolivia is looking now 

at moving gas LNG via barges down the Parana because they are 

now really being landlocked. 

So all that I am saying is that the Western Hemisphere and 

Latin America is going to be a lot of fun, and we look forward to 

come down here often and share with you our thoughts on the region. Thank you. 

Mr. SALMON. Mr. Sires. 

Mr. SIRES. Mr. Chairman, this has certainly been a very informative hearing today, and I thank you for putting it together. But 

I have to end it with disagreeing with you a little bit about these 

countries’ adopting. I think some of these leaders are making too 

much money. You look at the Nicaragua, whole family is multi millionaires. These people were in the mountains years ago. So I don’t 

think they get it for their people. Some of these people are getting 

very, very wealthy in this whole process. And to adopt, and they 

are going to have to adopt, I am sorry, I disagree with you. That 

is just the way I think. Thank you for the hearing. 

Mr. SALMON. Thank you so much, Mr. Sires. And thank you so 

much. We are in an exciting crossroads right now, and I think that 

we have phenomenal opportunities if we but use them, and it is totally win-win. 

Mr. Radel, you mentioned earlier I believe on some of the issues 

of illegal immigration we are talking about. Is it not one of the best 

things that we could do to stave off some of those problems to prop 

up Mexico’s economy or help them to be more successful? 

That having been said, their economy is growing at about 7 percent and their unemployment rate is lower than ours, and I have 

heard that they are about to employ a U.S. guest worker program 

in Mexico. 

So thank you very much for being here today. We appreciate 

your attendance, and we appreciate your wonderful comments and 

intellect. Thank you very much. This meeting is now adjourned. 

[Whereupon, at 4:55 p.m., the subcommittee was adjourned.] 

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SUBCOMMITTEE HEARING NOTICE 

COMMITTEE ON FOREIGN AFFAIRS 

US HOUSE OF REPRESENT A TTVES 

W ASHlNGTON, D.C. 20515-6128 

Subcommittee on the Western Hemisphere 

Matt Salmon (R-AZ), Chairman 

April 3. 2013 

TO: MEMBERS OF THE COMMITTEE ON FOREIGN AFFAIRS 

You arc 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 2200 of the Rayburn House Olliee Building (and 

available on the Committee website at \"\'"\\"""\v.:foreignaffairs.hollse gov): 

DATE: I111IYsday. April I!. 2013 

TIME: 300 p.m 

SUBJECT: Energy Opportunities in Latin America and the Caribbean 

WITNESSES: Panel J 

l1,e Honorable Carlos Pascual 

Special Emoy and Coordinator for International Energy Affairs 

U.S. Department of State 

Mr. Matthew M. Rooney 

Deputy Assistant Secretary 

Bureau of\Vestem Hemisphere Affairs 

U.S. Department of State 

Panel 11 

Mr. Jorge R. Pinon 

Associate Director 

Latin America and the Caribbean Program 

Center for lntemational Energy and Environmental Policy 

Mr. Eric Farnsworth 

V ice President 

Council of the Americas and Americas Society 

l1,e Honorable David L. Goldw,-n 

President and Founder 

Goldwyn Global Strategies 

By Direction of the Chairman 
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COM1\UTTEE ON ~FOREIGN AFFAIRS 

MINUTES OF SUBCOMMITTEE ON ______ Th~.Western Herni,'phere HEARING 

Day __ T."-,h-"u"-r",$d,,,Q},,,' __ Date~ __ IJ4-11-2IJ13 

Starting Time __ i""·u.Ou0.pp .... w"'-_,Ending Time 5:01 p.rn. 

Recesse, ___ < __ to __ ) <--to __ )( __ 10 ~ <--to __ ) <--to ~ ( __ 1o __ 1 

Presiding :Iolomber(,) 

Chairman Malt Salmon 

Check all ~f the fOllowing that apply: 

Open Session [l] 

Executive (closed) Session D Televised [ZJ 

TITLE OF' HEARING: 

Electronically Recorded (taped) [ZJ 

Stenographic Record [ZJ 

"Energy Opportunities in Latin America and the Caribbean" 

SCBCOMMHTEE :V/F,MBERS PRESENT: 

Chairman .ilJatl Salmon, Rep. Jejj1Juncan, Rep. Trey Radel, and Ranking Member Albio Sires. 

NON-SUBCOMMITTEE MEMBERS PRESENT: (Mark with an * iflltey at" not "",mllers f!fr;,11 mmmiltee.) 

NIA 

HEARING WITNRSSF:S: Same a. meeting notice attached? Yes 0 No 0 

(If "no ", please list helm-v and include titli? agency. depurlmehl, or organi=ation) 

STATEI\,IE~TS FUR THE RECORD; (List any srateflJl!nt', suhmiUedj"iJr the record.) 

Testimony by Jeremy M. Martin, Director, Energy Program, in,litute of the Americas 

TIME SCHEDCLED TO RECONVE:"K ___ _ 

Or 

TIME ADJOl:RNED 5:01 p.m. 
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MATERIAL SUBMITTED FOR THE RECORD BY THE HONORABLE MATT SALMON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARIZONA, AND CHAIRMAN, SUBCOMMITTEE ON THE WESTERN HEMISPHERE


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The opportunity for Central America to benetit from regional electric integration; and 

The region's long term outlook, including Latin America's tremendous upside and 

production potential for both conventional and unconventional resources 

Natural gas: exporting the lessons learned from the US energy boom 

Let's begin by looking at the energy boom in the US - the so-called shale revolution -

but more specifically the lessons Latin America should heed when developing its own 

unconventional reserves. 

When it comes to shale gas in the US, we all know the story: just a few years ago, trends 

indicated a decline in domestic production. But thanks to shale - and a lot of money - the 

energy outlook of the US has radically changed. Indeed, on the back of the shale 

revolution the US is poised to become the world's largest overall hydrocarbon producer 

by 2020. 

Latin Americans should take note of four aspects that have been critical to the success of 

shale development in the US: I) Natural resource ownership; 2) Finance; 3) Technology; 

and 4) Infrastructure. 

That is to say, who owns the rights to the subsoil - the natural gas deposits - the ease and 

access to significant finance and risk capital, the availability of cutting edge technoIOb'Y, 

and the ability to use existing infrastructure to move the gas to market. 

Natural resource ownership presents the first major hurdle for many Latin America 

nations. Most governments across the region fiercely guard their role and rights as the 

owners of "the subsurface" be that oil, gas, gold, copper, or coal reserves. In Mexico this 

concept of state ownership is even stipulated in the Constitution. 
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Beyond mineral ownership, technology stands out as another key component in the 

successful development of unconventional resources. Gaining access to the technology 

and know-how necessary to extract the gas in a cost effective manner is critical. 

However, the real challenge is to create the appropriate market incenti ves and policy 

framework to provide capital for shale gas development and access to the cutting-edge 

technology. Latin American nations with higher levels of state intervention in particular 

have been unable to provide the conditions necessary to jumpstart entrepreneurial 

investment in the shale industry. 

The US experience underscores the signiticant investment required to develop shale gas 

and its corresponding infrastructure. Insufficient infrastructure in Latin America has 

already impacted the nascent industry. According to a recent analysis, a shale well in 

Argentina today costs $4 - 5 million more than in the US 

I do believe Latin America's shale potential will be developed, but it will require deft 

navigation of each country's unique natural resource culture, as well as time and 

patience. 

Central America electric integration 

The potential benetits of electric integration in Central America have long been touted, 

particularly if larger electric generation proj ects can tap into a regional market and take 

advantage of economies of scale 

The Central American Electrical Interconnection System (SIEPAC), first envisioned in 

the mid-1990s, aims to establish an electricity market across the Isthmus. At its core is a 

roughly 1,800 kilometer electric transmission line, that once completed later this year or 

early next, will run from Panama to Guatemala and connect the electric systems of the six 

Central American nations. 
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The initiative also aims to create a regional market, known by its Spanish acronym MER, 

which will permit exchanges of electric power across the existing six national markets 

using the STEPAC transmission infrastructure. 

Bu the fundamental challenge for SIEP AC is to establish this regional market and a 

corresponding regulatory system in which political intervention assists rather than 

impedes integration, and which allows the six member nations to think and act regionally 

instead of ceding to domestic concerns. 

Latin America's long term energy outlook 

The US is not alone, with paradigm-shifting energy developments rippling across the 

Western Hemi sphere. 

Despite some recent hiccups, Brazil's discovery of the deep sea pre-salt basin should 

catapult that country's oil production to roughly 5 million bpd by 2020 or soon thereafter. 

Meanwhile, oil production in Colombia has almost doubled to I million bpd, with a goal 

of 1.5 million bpd by 2020. And by many accounts, including estimates by the US 

Geological Survey, Venezuela holds the world's largest oil reserves. Argentina's 

unconventional reserves are the largest in Latin America, according to the ETA, and have 

drawn interested companies from across the globe. Add in the latent but important 

reserve base in Mexico and it is apparent that the Americas have the potential to alter the 

international geopolitical landscape when it comes to oil and gas 

More importantly, the major oil and gas producing nations of Latin America are in a position 

to greatly aid the entire hemisphere's energy balance. However, it is not just a question of the 

region's potential, but rather how all countries - and companies - can best work in a 

cooperative, collaborative manner to assure the long term development and sustainability of 

oil and gas, from the Hudson Bay to Tierra del Fuego. 
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Indeed, cooperation between nations and companies is one positive trend already apparent 

across the hemisphere, particularly in the case of National Oil Companies (NOCs). Based 

upon the increasing role ofNOCs, there should be a shift to focus on how to work in concert, 

how to foster partnerships and how to find win-win opportunities. 

Examples of collaboration include Colombia's ECOPETROL, which is teaming up with 

several US firms in a bid to increase its stake in the US Gulf of Mexico to 136 blocks in 

20\3; there are also numerous partnerships between private firms and Petrobras in Brazil; 

and even in Venezuela, private partnerships with PDVSA remain important to oil and gas 

developments. 

Perhaps the most exciting opportunity, however, is the potential for US companies to 

collaborate with Mexico's NOC, Pemex, under the 2012 Transboundary Hydrocarbons 

Agreement. The agreement, once approved, would allow joint ventures between Pemex and 

US finns to exploit deepwater reserves along the two countries' maritime boundaries in the 

Gulf of Mexico. The Agreement has been ratiiied by the Mexican Senate but approval has 

been delayed in the United States. 

To conclude, it is true that Latin America is in need of massive investments in energy and 

infrastructure. But its importance to the US market means the United States simply cannot 

aiJord not to engage, particularly with the largest oil and gas producing nations. Without 

question, Latin America's outlook and opportunities are complex and at times challenging, 

but given the region's potential, the energy glass is at least half full over the long tenn 

It is my personal opinion that we will see the Western Hemisphere re-emerge as a global 

energy hub, though not as quickly as some have suggested. 

Thank you for your time. I hope that my written remarks have been useful.