In Energy

As 2022 unfolds, higher energy prices will lead to an inflow of capital investment and government revenues, improving living standards in several countries. These are some of the encouraging developments in LatAm’s energy sector.

However, higher oil prices will divert funds away from low-carbon initiatives and towards fossil fuel investments. Latin America’s energy transition will be further delayed by the region’s dependence on oil royalties.

In addition, the Russian invasion of Ukraine will drive energy prices higher and aggravate inflation, all while Latin America struggles to recover from the economic devastation wrought by the pandemic. Governments will face tough fiscal decisions, while energy investors, operators and service providers face an increasingly thorny investment climate that’s laced with political risk and changing regulatory frameworks. 

The Good

Historically, Suriname and Guyana have been two of the poorest countries in the world. GDP per capita was below US$5,000 and 40% of the population lived on less than U$5.50 per day. [1] That is about to change. Together, Guyana and Suriname have recently discovered an estimated 16 billion barrels of oil equivalent, more than 10% of the total conventional oil found in the world since 2015. [2,3] The crude discovered is also light and sweet, which produces less emissions in the refining process and satisfies the new fuel standards set by the International Maritime Organization.

This high-quality crude is complemented by the countries’ low breakeven costs, high drilling recovery rates and attractive regulatory frameworks. Per capita, Guyana will become the largest producer of oil in the world, passing the likes of the United Arab Emirates (UAE) and Kuwait. Oil revenues could approach U$30 billion dollars a year by 2030, roughly 3x the size of both country’s GDPs…combined. [4]

The numbers are startling, especially in Guyana, and it is creating an excitement akin to the ‘49er gold rush in the mid 1800s. Back then, the U.S. experienced the largest mass migration in its history when more than 300,000 people migrated to California in search of newfound wealth. In Guyana, expatriates and investments are already flooding in to support this energy boom. If oil revenues are managed transparently and strategically, both Guyana and Suriname will see a substantial improvement in their living standards. This could lead to higher incomes, longer life spans and more robust infrastructure. If squandered, they will likely follow the footsteps of Nigeria and Venezuela, two impoverished countries that failed to adequately capitalize on their abundant discoveries.

Outside of Guyana and Suriname, where new commercial discoveries and drilling programs continue to be announced monthly, Spanish Repsol and state-owned YPFB recently discovered a major gas field in southern Bolivia, named Margarita 10, which will produce 300 to 350 billion trillion cubic feet of gas. [5] In Brazil, state-owned Petrobras continues to discover hydrocarbons in the country’s offshore pre-salt reserves. [6] Low breakeven costs, robust local capacity and high-quality crude have turned the pre-salt area into an attractive prospect for investors. Smaller hydrocarbon investments and discoveries are also being made in Colombia and Argentina, where both governments are implementing favorable investor-frameworks to boost exploration and production.

In a region where commodities account for over 60% of total exports, and natural resources are abundant, the higher echelons of a commodity cycle will naturally drive an influx of new capital. [7] Simply put, an increase in commodity prices translates into greater profits for governments and oil & gas companies, driving new exploration and more discoveries. With global energy consumption growing nearly 50% through 2050, the demand for the region’s exports—from lithium to natural gas—will continue to flourish. [8] Overall, this should lead to growing economies and higher incomes—especially for the region’s oil-exporting nations.  

Sources: IMF, World Bank, IEA, BN Americas, AMI analysis

The Bad

Globally, the narrative has visibly shifted around fossil fuel investments as oil prices surged past the $100 per barrel mark. At the peak of the pandemic, when oil prices reached the negative territory, many analysts proclaimed that oil was “dead.” Now, 18 months later, geopolitical risks, economic growth and tight supply have quickly redirected capital towards oil and gas investments. Renewables have also struggled to provide competitive returns due to excess supply and cheap capital. In 2021, oil and gas bank deals amounted to $290 billion dollars, ten times the size of renewables. [9]

Despite public pressure, government opinion around oil and gas never really shifted in Latin America. Many countries’ budgets are dependent on oil royalties and exports—a fundamental part of internal tax revenues and foreign reserves. This pro-hydrocarbon mentality was especially relevant in Mexico and Venezuela as they doubled down on heavy crude assets and costly refineries. Surging oil prices during a time of fiscal austerity will delay the necessary diversification of the region’s economies, the decarbonization of heavy industry and the development of green energy. It is possible that certain Latin American countries will find themselves flat-footed in the middle of an energy transition.

This is already reflected in Latin America’s slow trickle of electric vehicle (EV) sales. As a result of underinvestment in “green” infrastructure, complemented by unclear government guidelines and insufficient subsidies, Latin American EV sales accounted for less than 1% of the region’s auto sales. Globally, EV sales represented nearly 9% of the total auto market. [10] Toyota CEO for LAC, Masahiro Inoue, said that electric vehicles will make up 5% of the total regional market in 2030, a far cry from the 14% estimated in Europe. [11,12] In fact, only Costa Rica has a 100% zero emission vehicle sales target in the region, compared to eight countries in Europe. [13]

Despite the global records set by low-carbon investments in 2021, there is still a U$3.5 trillion annual gap between current spending and the necessary spending needed to reach net zero by 2050. [14] Latin America alone will need to nearly triple its clean energy investments from 2026 to 2030, especially in end-use sectors such as EV infrastructure, hydrogen refueling stations, retrofitting buildings, and decarbonizing heavy industry.  It is likely, however, that Latin American and foreign investors will continue to divert their attention and capital from low-carbon initiatives towards oil and gas investments.

Source: IEA, 2021. “Financing clean energy transitions in emerging and developing economies.”

The Ugly

As a result of Russia’s barbaric invasion of Ukraine, and a mismatch between energy supply and demand, commodity prices around the world are likely to remain elevated. Russia is responsible for 17% of the world’s natural gas production, most of which goes to Europe, and 12% of oil, making it the second largest oil exporter in the world. They also produce 43% of palladium, used as a catalytic converter for cars, as well as 11% of the wheat, 11% of nickel and nearly 6% of aluminum. [15] Although supply chain disruptions and inflation will be felt most aggressively in Europe, the ripple effects of this war will be felt globally, not regionally.  

A prolonged war in Eastern Europe will aggravate sky-high energy prices and will force Latin American leaders to make drastic decisions that could impact their livelihoods. In Argentina, where inflation surpassed 50% in 2021, the IMF is looking to significantly reduce the government’s U$11 billion dollars in annual energy subsidies. [16] Although Argentina’s Secretary of Energy estimates that the average cost of LNG will triple in value this year, it is seeking to put a 20% ceiling on natural gas prices for households. [17] To manage this discrepancy, the ruling Peronists will have to decide between a debt bailout or political longevity.

In Brazil, the likely winner of the upcoming presidential election, Luiz Ignacio da Silva (Lula), has signaled that state-owned Petrobras will sell fuel at below-market prices to lessen the burden on consumers’ pockets. [18] This will impact the profitability of Petrobras and will further aggravate the government’s fiscal deficit. The alternative is scarcely better. If Lula decides to pursue a free market, he will see a decline in public support and may fuel a 2018-esque trucker’s strike.

Sources: BNAmericas, GlobalPetrolPrices

Surging prices for raw materials will also raise the cost of investments in green energy projects, potentially delaying the deployment of renewable technology across the region. Since the beginning of 2020, the price of photovoltaic-grade polysilicon has quadrupled, while steel, copper and aluminum have increased by over 50%. Since commodities and freight costs make up about 15% of the total investment cost for utility-scale solar PV and onshore wind, developers will have to spend more to get the same value. This has already led to a decline in the use of cleaner fuels. Brazil, Argentina, and Colombia approved mandates to reduce their biodiesel and ethanol blends to combat elevated crop prices. [19] Green activists may find comfort in the fact that all types of generation sources, from natural gas to coal, are becoming more expensive for investors.

Supply chain shortages, record commodity prices and a substantial Covid-19 stimulus package have created a grim inflationary and fiscal scenario that has left regional governments with few options.  Latin America is still reeling from its worse economic decline since World War II, making it difficult for the government to justify passing on extra costs to consumers. As seen in Kyrgyzstan in 2010, the elimination of subsidies and elevated energy prices can topple a regime. [20] Yet, governments are constrained by enormous debt levels and watchful credit agencies.

With populist leaders dominating the region, consumers will continue to see highly subsidized energy costs at the expense of cheap capital, currency appreciation and lower carbon emissions. But few leaders will feel remorse – the alternative option is losing public support and potentially being replaced. Energy investors, operators and service providers will struggle to navigate this challenging investment climate that is crowded with political risk, changing regulatory frameworks and greedy local partners. They will require on-the-ground sources, a deep understanding of changing political alignments and detailed due-diligence to mitigate risks. This is where AMI can help. 

Contact us to find out more about how our energy market intelligence can help you mitigate risk, discover new opportunities, find the right local partners and more, all with an eye towards maximizing your company’s success in your market of focus or in all Latin America.


[1] The World Bank

[2] Unproven reserves are estimated at more than 25 billion barrels of oil equivalent (20+ billion in Guyana and 6.5+ bn in Suriname)

[3] Darren Woods, Guyana Energy Expo and Conference

[4] Estimates made by Rystad Energy based on the price of crude at U$65 per barrel

[5] La Información, 2022. “Hallan en Bolivia 350 billones Tpc de gas natural en un pozo que opera Repsol”

[6] Epbr, 2021. “Petrobras anuncia descoberta no pré-sal da Bacia de Santos”

[7] GTR, 2021. “Latin America should take advantage of higher commodity prices, says UN”

[8] U.S. Energy Information Administration, 2021. “EIA projects nearly 50% increase in world energy use by 2050, led by growth in renewables”

[9] Refinitiv

[10] IEA, 2022. “Electric cars fend off supply challenges to more than double global sales”

[11] Bloomberg, 2021. “EV Sales in Latin America May Only Touch 5% by 2030, Toyota Says”

[12] EY, 2020. “Accelerating fleet electrification in Europe”

[13] This does not include the EU’s commitment

[14] McKinsey, 2022. “The net-zero transition: What it would cost, what it could bring,” Amount needed considers the necessary spending on physical assets for energy and land-use systems under NGFS Net Zero 2050 scenario. This includes power, industry, mobility, buildings, agriculture, forestry and waste.

[15] The Economist, 2022. “Commodity prices jump as Russia goes to war”

[16] Bloomberg, 2022. “Curbing Argentina’s $11 Billion Energy Bill Key for New IMF Deal”

[17] Ámbito, 2022. “La guerra presiona más sobre los subsidios energéticos: u$s4.000 millones irán sólo a GNL”

[18] Bloomberg, 2022. “Lula’s Cheap-Fuel Pledge Threatens Petrobras’s Billion-Dollar Dividend Windfall”

[19] IEA, 2021. “What is the impact of increasing commodity and energy prices on solar PV, wind and biofuels?”

[20] Foreign Policy, 2010. “The dumb sanctions that toppled Kyrgyzstan’s regime”

Recommended Posts