Global Oil & Latin America
Ali Moshiri, Managing Director
ChevronTexaco Latin America
Poder Business Forum
It's an honor to be here today to share with you ChevronTexaco views of the outlook for energy production and use in Latin America and globally. The best way to present "Energy Opportunities" is to describe it in the form of supply and demand.
Let's start with demand first. By 2020, the world population is expected to increase by 1.8 billion to a total of 8 billion people. Sixty percent of this increase will be in Asia and Latin America. At the same time, the expectation for global growth will average 3 percent. These two factors indicate that there will be growth in energy demand, and every year demand goes up by 1, 2 or 3 percent – more people, more cars and growing economies. More than any other commodity or product I can think of, energy from oil and gas is something the whole world needs and benefits from.
Technology to take advantage of alternative energy sources is improving. But oil and gas supply about 40 percent of total energy needs, and petroleum supplies more than 97 percent of fuels for our trains, planes and cars, as current American Petroleum Institute statistics show.
Economic progress for developing nations is especially dependent on reliable energy sources – for the construction of infrastructure, the development of industry and to improve the quality of life for our people. We are in a constant race between consumption and replacing the oil and gas we use. It takes a long time and a lot of capital to find and produce energy.
What about consumption? Well, that's about 76 million barrels per day, same as production. We use everything we produce. So, supply and demand are balanced.
And as I said, every year demand goes up by 1, 2 or 3 percent – more people, more cars and growing economies. And that makes the balance even tighter. We can say that oil and gas are the lifeblood of the modern world.
So the next question is how much will we have to produce in the future? How? From where?
For any understanding of energy, it's essential to think long term, really long term. Getting a new oil field on stream can often take 10 or 15 years. In fact, most of the energy projects my company gets involved with are planned out for two, three or even four decades, and the initial investments can run into the hundreds of millions of dollars before a dollar of earnings flows through.
The world energy balance is always in a race between using up the oil and gas we've already discovered and finding and developing new sources.
The Middle East has the vast majority of resources with more than 686 billion barrels, followed by South and Central America with about 98 billion barrels, and dropping off to North America with less than 50 billion barrels. Only Venezuela has about 78 billion barrels.
Chevron and Texaco have been major players in Latin America from the first years of the 20th century. We have been in Brazil since 1915 and in Colombia and Venezuela for more than 80 years.
Today, ChevronTexaco accounts for 10 percent of Argentina's oil production and ranks as that country's second-largest oil producer and exporter. We are the largest private foreign producer in Venezuela in terms of daily oil production and recently entered in the exploration for natural gas offshore in the Plataforma Deltana. We operate the largest natural gas fields in Colombia. We have gas production in Trinidad and offshore exploration blocks in Brazil. Overall, ChevronTexaco's production in Latin America is 260 thousand barrels per production day.
So Latin America is clearly a region of interest to us. We have more than $3 billion in capital employed in Latin America. We watch developments there very closely and try to stay in continuous dialogue with the governments and national oil companies.
We believe that Latin America – with much less complexity than other regions, like the former Soviet Union and the Middle East – can continue to be a major supplier of energy to the United States. There is a natural link between energy supplies from Latin America and the largest consumer of energy, the United States. Also, Latin America has the resources that can provide the internal energy needs for economic growth. In the United States – which has been well explored, except in those areas declared off limits by the government – there is an annual decline in oil reserves of about 2 or 3 percent, and that's despite a lot of exploration and the best enhanced oil-recovery technology in the world. By the way, that's why the United States is currently dependent on other nations for about 60 percent of the oil it needs.
This is why I need to emphasize that the potential of Latin America is hard to overstate. It could one day exceed that of the former Soviet Union. After a decade of participating in the free market, Latin America is poised to make the most of this potential. Yet, progress can only continue through a true commitment to open markets and continued liberalization and privatization.
These markets opened at the beginning of the last decade, with the privatization of Argentina's national oil company and the deregulation of its upstream production. In 1995, Venezuela began opening up parts of its petroleum sector to foreign investment, including the Orinoco Belt heavy-oil deposits – the world's largest petroleum reserve. Brazil swiftly liberalized its petroleum sector through a constitutional amendment. Since 1998, Brazil has offered five offshore oil-lease licensing rounds, with a sixth expected later this year. Brazil further opened up the downstream market just last month, eliminating the state monopoly on fuel importation.
What have been the fruits of liberalization? Wherever markets have been opened, the results can be summed up in success stories. Argentina has seen a 70 percent increase in oil production since liberalization. Once a net importer of oil and gas, Argentina is now a net exporter. In Brazil, scores of international oil companies entered the race for offshore blocks. In addition to the influx of capital, the national oil company, Petrobras, has had the opportunity to diversify investments into other oil opportunities elsewhere in the world. Venezuela has begun to bring Orinoco heavy oil into production and for sale to international markets – heading toward a goal of 620,000 barrels per day by 2006.
Will Latin America remain open to such investments? That is a difficult question to ask, but I am fully able to answer it for you today. Although privatization and deregulation of the energy sector has made progress in some areas, a troubling lack of free-market conditions throughout the region persists. Why is this happening?
In Latin America, cross-border transactions have always been hampered by red tape and by regional trade agreements that amount to managed trade.
Nations, no less than individuals, in times of hardship have a natural tendency to turn inward. As a result, steps toward further privatization are becoming difficult. We are also seeing levels of taxation that could make exploration and production uneconomic – for example, the export tax imposed by Argentina, overtaxation on production in Brazil, not to mention the recent events in Bolivia.
But there are, nonetheless, other positive changes in some countries that encourage private sector investment in exploration and production. In Colombia, for example, ChevronTexaco recently signed a contract extension agreement that will bring more than $170 million of investment. In Venezuela, the company was awarded exploration blocks in the Plataforma Deltana, which can attract more than $2 billion of investment.
Without a rapid pace of change and consistent legislation, the benefits of liberalization will not be fully realized. Even Mexico – under the leadership of its pro-market president – is finding it hard to make rapid changes and hold to the commitment to the free market. With abundant resources and ready access to the largest market in the world, Mexico has always been well recognized as having enormous potential. But Mexico's energy policies have been slow to prevent erosion of the nation's petroleum reserve base and its energy production.
For the long term, I remain optimistic. We have already seen tremendous progress in Latin American energy markets. We have seen unprecedented opening and progress.
Experts from the Washington-based Center for Strategic and International Studies predict that world energy demand will increase by 50 percent by the year 2020. This enormous increase in global demand is a great opportunity. It can allow Latin America to become a preferred provider to an energy-hungry world. And ChevronTexaco will be ready to help. All Latin America will need is the capital to do the job, and the cheapest capital is participation of the private sector, domestic and international.
In summary, the potential for production of oil and gas in Latin America is significant. It can be a great asset for the region. There should be more liberalization of exploration and production in the major producing countries. There should be less red tape for cross-border transportation of energy. And most of all, there should be faster decision processes driven by a long-term strategic direction. We cannot find a better combination of partnership between the supply side – Latin America – and the market – the United States. We are confident that the Latin American resource base is sufficient to meet the internal consumption and successfully capture the export market share.
Updated: March 2004