By Carlos A. Garibaldi, Executive Secretary of ARPEL
Energy Transitions must be Just and Plural
The oil and gas industry of Latin America and the Caribbean shares the collective sense of urgency for curbing the projected effects of global climate change. We firmly believe that we can contribute by transitioning our regional primary matrix to being even further weighted by renewable and lower-emission energy sources, such as natural gas. ARPEL has undertaken as a mission to drive the necessary transformation of the sector in this region and has incorporated renewable energy into its scope.
There is no universal recipe for Energy Transition, not even a regional one. To be accepted, sustainable and successful, the course-rhythm of each transition must be “just” in terms of circumstances and starting point of each country, always putting people first to ensure equity.
We are not comparable to rich economies, homogeneous socioeconomically, with fully developed infrastructures, large middle classes and relatively small populations living in poverty. In contrast, Latin America and the Caribbean (LAC) is an eclectic region with respect to levels of development, energy matrices, hydrocarbon resources, and exposures to the effects of Climate Change. It also has large social liabilities in poverty (33%, and 13% in indigence), energy poverty, infrastructure, health, education, and security.
With 8.3% of the world’s population, LAC emits 8.3% of GHG emissions. However, its GHG emissions are dominated by agriculture, land use, and forestry, with only 43% coming from energy (versus 75% global average). LAC also has the most sustainable primary energy matrix: only 5% comes from coal (vs. 27% globally) and 35% from nuclear and renewable energy (vs. 18% globally). About 61% of its electricity generation comes from renewable sources (versus 30% globally). Therefore, it could be said that LAC has a head start in the transition. Furthermore, the region is a major global carbon sink, with approximately half of the remaining tropical rainforests on the planet.
However, given the region’s heterogeneity, our contributions to a global energy transition will be adapted to the situation of each LAC country and bespoke to national and even local energy structure, development, poverty situation, and differing urgencies/hierarchies of national and social priorities, such as energy security and sovereignty. For example, in many of our countries, hydrocarbons play a fundamental role in economic prosperity; they affect tax revenues, FDI, exports, GDP and poverty reduction. Our hydrocarbon-producing countries have the right to develop their resources sustainably and monetize them to alleviate their structural and energy poverty and inequities.
Our Regional Industry is Undergoing Transformation
Nevertheless, we are not passive, and we are doing our part to mitigate the effects of climate change because it is a global phenomenon, and many mostly coastal and island countries in our tropics are highly vulnerable to it. Many of the State-owned and private-sector companies operating in the region are doing their part to proactively transform themselves, even ahead of national policies and regulations. They are working on decarbonizing their operations and facilities, minimizing venting, non-emergency flaring, and methane leaks, recovering vapors, replacing diesel with natural gas, or electrifying their operations entirely.
They are also diversifying their energy supply operations by seeking more natural gas weight in their portfolios, and by venturing into lithium mining, solar and wind power, geothermal, and blue and green hydrogen. Some are offsetting their carbon emissions through nature-based solutions, like large-scale reforestation.
Natural Gas Complements Renewables
As it names implies, transition doesn’t mean abrupt replacement. It entails having the necessary realism and pragmatism to seek synergies and “quick wins” towards the decarbonization goals. If we allow pragmatism into the debate, natural gas is thus an ideal transition fuel to fill the gap between energy demand and renewable and low emissions supply: by gradually displacing coal and heavier petroleum-derived fuels; by extrapolating its competencies and infrastructure to CCUS, biomethane and hydrogen; and by providing a synergistic uninterruptible, technologically available and deliverable, reliable, and economically accessible basis to solar, wind and hydro.
Besides, natural gas can continue to contribute to socioeconomic growth and has always contributed to the security and flexibility to energy systems subject to climate variances (like El Niño in the Andean hydro-dependent matrices) or seasonal demand variances (like marked contrasts between summer and winter in the Southern Cone).
Thus, our natural gas industry has the opportunity and key role to grow energy supply to address both energy security and decarbonization in its domestic and regional markets, and even beyond. We have still undeveloped gas reserves and untapped gas resources along the Guyana-Suriname equatorial margin fairway, the Colombian Caribbean, the Mexican sector of the homonymous Gulf and the Vaca Muerta shale play in Argentina, which is promptly building additional gas pipelines and a liquefaction and export terminal.
But the elephant on the room is Venezuela, holding the lion’s share of the region’s natural gas resources. Of these, 4.3 Tcf of non-associated offshore gas are in the Dragón field, a stone-throw from the Hibiscus infrastructure in Trinidad & Tobago, the region’s largest exporter of LNG. Trinidad & Tobago is facing a declining domestic gas supply and holds world-class liquefaction and industrialization gas facilities, so the synergy is obvious.
But both our region and the world need and demand the complementarity of all energy sources. Our region holds a vast sunbelt, regular wind alleys in Patagonia and coastal areas (favoring offshore green hydrogen), and deep geothermal opportunities along its Andean, Central America, and Caribbean volcanic arches. These low-carbon alternatives are not fully mature for their immediate and ubiquitous deployment due to technological, infrastructure and regulatory limitations, or bottlenecks in their value chains. Hence, we must supplement and synergistically complement them with natural gas while they come to fruition.
We thus have ample opportunity to grow our natural gas while growing our renewables in parallel. This way, we can lower even further our regional GHG emissions while providing energy security, socioeconomic development and capitalizing on global opportunities to replace coal.
We need Access to Capital, even to Decarbonize
To achieve these goals, we will require significant long-term capital investment inflows. To attract and enable them, countries in our region must show clear and consistent sector policies at the national levels, independent of electoral cycles and their ideological swings. There must be better coordination within governments to have efficient concession, contractual and environmental permitting processes for all relevant energy projects, and cooperation among governments to seek further integration and infrastructure compatibilities.
Most importantly, to attract the required capital, our countries must demonstrate that they can offer legislative, fiscal, judicial, and regulatory systems that are robust, aligned with the policy objective, efficient, transparent and, above all, stable; massive and long-term investments decisions demand confidence and predictability.
ARPEL is ready, able, and committed to work side-by-side with the regional private and government actors, in this worthy endeavor of transformation for sustainability and growth.