Council of the Americas 33rd Annual Washington Conference
David J. O'Reilly, Chairman and CEO
Washington, D.C., April 29, 2003
Speech in Spanish
33º Conferencia Anual del Consejo de las Américas en Washington
Speech in Portuguese
33ª Conferência Anual do Conselho das Américas em Washington
[Read the related press release]
I'm delighted to be here and welcome the opportunity to participate in the Council of the Americas 33rd Annual Washington conference. ChevronTexaco has been a member of the council for several years, and we fully support the work you're doing to promote a free and open trade environment throughout the Western Hemisphere.
ChevronTexaco operates in more than 180 countries around the globe, and the Americas are very important to us. We have significant operations in the United States and Canada. We have major exploration and production interests in Venezuela, Argentina, Colombia, Brazil and Trinidad. And we market petroleum products through more than 5,000 service stations in more than 40 countries across the Caribbean and Latin America. Overall, we have more than $4 billion invested in Latin America alone.
Over the past decade, we've been especially gratified as more of our neighboring nations have embraced free markets and taken steps to create a more open and transparent business environment. This has been especially true in Latin America, where the council has been aggressive in promoting the benefits of economic reform.
I applaud your efforts.
The economic reforms you've encouraged have revitalized existing industries, including the petroleum industry.
Clearly, the region still faces some difficult challenges, many of which are being discussed at this meeting. In recent years, a number of countries have been shaken by financial, social and political turmoil. Additional, much needed, economic reforms have been delayed. And in most nations of the region, poverty remains at unacceptably high levels, affecting, in some cases, more than 80 percent of the population.
Combined, all of this is creating an unsustainable situation; and it's impacting those of us who do business in the region.
In my time this morning, I've been asked to focus on Latin America and free trade from an investor's perspective, representing a company with more than $4 billion invested in the region and the potential to invest more.
I plan to look first at Latin America in terms of its energy resources, and then cover the progress that economic reform has already brought to its petroleum industry. And finally, I'll describe some of the challenges ahead and how free and open trade can help overcome them.
Latin America: An Important Energy Region
Let me begin by saying that Latin America is very important to the world's energy future.
Each day, the world consumes some 75 million barrels of oil and 230 billion cubic feet of natural gas. Over the next three decades, energy demand is expected to grow by two-thirds.
Alternate energy sources will become more important and contribute to the mix, but they'll meet only a small fraction of rising demand. It will be oil and natural gas that will continue to meet the lion's share of demand. When we consider where new supplies will come from, it's clear that Latin America will be one of the leading providers.
It's impossible to overstate the significance of this, especially from the standpoint of U.S. energy security. Latin America has been a major source of oil and natural gas for decades and now supplies the United States with about 3.3 million barrels of oil a day. That's equivalent to about one-third of U.S. oil imports.
Looking ahead, Latin America could become an even more important energy partner. By most estimates, the region has more than 125 billion barrels of crude oil reserves and 200 trillion cubic feet of proven natural gas reserves.
Thanks to new advances in technology, Latin America's existing fields still have a good deal of life in them. And we believe there are major, new oil and gas discoveries yet to be made in its deep water and other frontier areas. Moreover, it has vast reserves of heavy oil, which technology is also making economically feasible to develop.
Altogether, the region could double its exports and meet its own energy requirements for generations to come — with one caveat — provided that the region can continue to attract foreign investment and gain access to leading-edge technology.
International oil companies like ChevronTexaco can do much to help develop Latin America's energy resources. We have the capital to make the large, long-term investments that are needed to find and develop oil and natural gas. We have more than a century of expertise, operating in virtually every corner of the globe. We have proven business systems and processes. And we have leading-edge technology.
However, we also have a responsibility to our shareholders to invest their money wisely and in projects that can deliver a competitive return.
For that reason, it's important we direct our funds to countries that are committed to developing:
- stable commercial systems,
- economic structures that allow us to earn a return commensurate with the risk we assume,
- social structures that provide for the safety and security of our people and our property.
Economic Reforms: A Stronger Latin America Petroleum Industry
Over the past decade, Latin America has made a good deal of progress in creating such a business climate, and its petroleum industry has flourished as a result.
Let me give you just a few examples.
In the late 1980s, Argentina was a net oil importer, and its domestic petroleum industry was on the decline. For years, the country had failed to invest in exploration or in the technology that would enable it to recover more oil from its existing fields.
In 1989, the government began a broad-based reform of the industry. It privatized the state oil company and created a regulatory environment that encouraged the long-term investments needed to revive the industry.
Investors, both foreign and domestic, were assured stable fiscal terms and given access to foreign exchange proceeds from their export sales. The reform was successful — so successful that today Argentina is not only self-sufficient in oil and gas production, but it's become an exporter of both commodities.
Over the past decade, the country has increased its crude oil output by some 70 percent and its natural gas production by more than 75 percent.
Moreover, the Argentine petroleum industry is now a significant contributor to government revenues at both the federal and provincial levels. It generates significant foreign exchange for the country. And it's a major employer in several provinces.
Currently, Argentina faces many problems with its economy, and there's growing concern that it may raise its export tax on petroleum and reverse some of the reforms it enacted in the 1990s.
I hope this will not be the case. If Argentina is to maintain investor confidence, it must not impose artificial barriers to free trade and jeopardize the efficient development of its energy resources.
Let me turn now to Brazil, another country that's built a strong petroleum industry based on economic reform.
In 1995, a constitutional amendment allowed the return of private and foreign investment to the petroleum sector after a seven year absence. As a result of that amendment, Brazil has held three successful licensing rounds for offshore blocks, which have attracted more than 40 international oil and gas companies.
Today, Brazil is one of the world's leading exploration plays with extensive drilling programs under way in the Campos and Santos basins. Although the extent of Brazil's reserves has yet to be determined, the country has already made significant progress in becoming a self-sufficient oil producer. Moreover, international companies are expected to make additional, major investments in the country as they find and develop oil and gas discoveries.
However, those investments will be sensitive to costs. So, it's critical that Brazil not endanger the commercial viability of potential projects by imposing onerous, local content requirements for offshore platforms. To do so would be a violation of free trade principles and could jeopardize future investments in the country.
Let me give you two other examples of the open trade and investment regime that's taking hold in Brazil and other parts of Latin America.
First is the Bolivia-Brazil Gas Pipeline. This was a decades-old dream that finally came to fruition in 1997. Today, the pipeline provides a steady supply of natural gas to Brazil and a reliable source of foreign exchange earnings for Bolivia.
The pipeline is an excellent example of regional integration. And it's a testament to policies that encourage foreign investment, multilateral guarantees, open trading rules and independent regulation.
And finally, there's Brazil's decision last year to eliminate restrictions on imported fuel products. The country has yet to decide how it will regulate access to import terminals and product pipelines, but it has clearly created the basis for a competitive market in the distribution and sale of refined products.
The Benefits: A Rippling Effect
What I've described are definitive examples of how Latin America's petroleum industry has benefited from economic reform. But these are benefits that are not confined to the industry alone. Rather, they have rippled through every sector of society.
By the encouragement of foreign investment, new jobs have been created, and new skills developed. Infrastructure has been built to serve growing populations and industries. And new technologies have been introduced to the region, technologies that not only enable the development of oil and natural gas but also provide for a cleaner, healthier environment.
A spirit of entrepreneurship has also been unleashed as local citizens have built their own businesses to support their countries' petroleum operations. In our experience, we've found that every new job created in the petroleum industry generates five additional jobs in related businesses.
Clearly, ChevronTexaco and other international oil companies have also benefited from the economic reforms that have occurred in Latin America. We've gained access to major new oil and gas developments that will keep our own companies financially strong, as well as help us deliver new supplies of energy.
And we've benefited from the region's own economic development. When trade expands, economies grow. And when economies grow, demand increases for the products we produce.
Latin America: The Challenges Ahead
International companies like ChevronTexaco would like to see Latin America continue to encourage foreign investment in the development of its petroleum resources. Indeed, that would be in the best interest of the petroleum importing nations, as well, including the United States.
But there are some serious challenges that must be overcome.
For all their progress, many countries in the region still have unstable fiscal and regulatory systems. For investors, this raises risk and reduces confidence. For the petroleum industry, in particular, it discourages the very large, long-term investments that are the industry's mainstay. This is why we're closely watching Argentina's export tax and how Brazil handles the local content issue with regard to offshore platforms.
Some countries have also deliberately erected barriers to foreign investment.
Mexico's constitutional ban against any non-state activity in its upstream oil and gas industry is a prime example. This self-imposed constraint severely limits that country's ability to offset declines in its reserves and develop new capacity.
Venezuela's Organic Hydrocarbons Law is another example. This law limits foreign equity participation in new upstream oil projects to 49 percent. This has denied the country access to a new and very effective form of private investment — that is, project financing.
Governments must weigh the consequences of actions such as these and their impact on trade and foreign investment.
Free Trade: Creating a Winning Environment
I've talked about the challenges Latin America needs to overcome. But free trade is about give-and-take and creating a winning environment for all participants.
That's why it's important that the United States and its trading partners work in Latin America and elsewhere to ensure market access flows in both directions. At the same time, all nations, including the developed ones, must respect the decisions of international arbitration panels on trade, even when those rulings go against one of their own domestic interests. And finally, trade negotiations must address the difficult and divisive issues of agricultural subsidies and quotas, export subsidies, textile and apparel trade, and anti-dumping duties.
It's important, too, that policymakers remember that for every industry that may benefit from protectionism, consumers and others that rely on imported goods may be economically harmed.
ChevronTexaco: Our Support of Free Trade
Clearly, all of us want to see Latin America continue to develop its economies and create a stable social and political environment for its people. Free and open trade is one of the best mechanisms for doing so.
Trade encourages the investments that enable countries to grow their economies and provide a better standard of living for their people. This, in turn, tends to lessen social inequality and alleviate tensions that all too often lead to civil unrest and turmoil.
This is one of the main reasons why ChevronTexaco supports free trade agreements and believes it's vitally important that governments move the free trade agenda forward. To do so should help accelerate economic reform and integrate the economies of the Americas ever more tightly with one other and with the world economy.
Latin America: Cause for Optimism
Before I close, let me say that I'm very optimistic about the future of Latin America. I say this for three reasons:
- first, because of the enormous potential the region has in its natural resources and its people;
- second, because the reforms of the past decade have built the platform that will enable future economic development and growth;
- third, I'm optimistic because it's difficult to reverse progress. The people of Latin America have now experienced first-hand what can be accomplished when countries encourage fairness, transparency and rule of law.
There may be setbacks, and we're seeing them in some countries today. But we're also seeing a determined effort by many to get their economies back on track.
For us to continue to make long-term investments in Latin America, we must have confidence in the long-term growth and stability of the region, as evidenced by its commitment to maintaining a fair and open trade and investment system.
Again, I commend the Council of the Americas for the steps you're taking to encourage and support our neighbors in Latin America.
And I thank you for inviting me to speak here today.
Updated: April 2003