The last few years have been tumultuous for the world in general but particularly so for South America. In recent times, mass protests have swept across several countries, including major oil and gas producers. Protestors are disillusioned with corruption, anti-democratic practices, inequality, and the rising cost of living. These conditions and widely varying economic models lead to uncertainty over energy policy. Especially when the energy transition is occupying the more progressive governments.
Improved technologies, cheap capital plus financial subsidies have substantially reduced the cost of renewable energy in South America. To measure the long-term costs of building an energy project, the industry often evaluates using the levelized cost of energy (LCOE). In 2019, eight countries in the world had a lower country-level weighted LCOE for new onshore wind projects when compared to the cheapest fossil fuel projects. Of those eight countries, two of them, Argentina and Brazil, were from South America. Brazil, Chile and Peru also recently announced record-low solar photovoltaic auction prices, reflecting the growing feasibility of constructing solar projects in the region.
In the conventional energy realm, oil-exporting South American countries are now benefitting from resurging global energy demand and higher crude prices providing a boost to oil nations’ balance sheets. However, these benefits are not equally distributed among oil and gas exporting countries. South American nations that produce mostly heavy crude with higher sulphur contents, such as Venezuela, Ecuador and Colombia, are seeing diminishing global demand for those types of resources. They must now develop their own renewable energy portfolios, and cleaner fossil fuels, to progress as the world transitions to cleaner fuels. Guyana and Brazil, which have lighter oil and lower sulphur content, as well as relatively low operating costs, will still attract foreign investment.
Brazil and Guyana are likely to be amongst the world’s top sources of oil supply growth over the coming years. The current government in Brasil has implemented policies that have brought substantial foreign investment to the oil sector and although the country needs to carry out further reforms to introduce market competition, Brazil is clearly on track for major increases in oil and gas output.
Guyana, despite its small size, is poised to become the region’s newest ‘petrostate’. However, it has been slow to develop the institutions and legal framework needed to govern the new oil industry and manage the significant expected revenues, and a recent political crisis has further delayed that process. Nonetheless, Guyana is set to become one of the region’s top producers. It is hoped this new wealth will at least in part be used to develop its green energy potential.
