Publish in Perspectives - Thursday, January 23, 2014
The Panama Canal expansion delay impacts LNG markets as the expanded waterway will accommodate close to 90 percent of LNG tankers, compared to less than 10 percent currently. (Photo: ACP)
energy year in the Western Hemisphere.
BY JEREMY MARTIN AND ALEXIS ARTHUR
2014 is shaping up to be another big year for energy in
the Western Hemisphere.
Some of the stories likely to dominate the sector are a logical continuation of trends in 2013 – think Mexico’s momentous energy reforms and the continued surge in oil and gas production in the United States.
Others figure less in international headlines but are worth keeping an eye on such as Peru. The following trends are not meant to be an exhaustive list, rather an introduction to the issues most likely to have an impact on energy policy in the coming year.
BRIGHT NEW YEAR
Eyes remain keenly focused on Mexico and the next steps
for the historic energy reform that before Christmas amended the nation’s
constitution and effectively overturned a 75 year-old national energy strategy
centered on state control.
That the passage moved so swiftly through Congress and
gained approval by the requisite number of state legislatures was remarkable.
But the rapid-fire pre-holiday approval also foretold the importance of 2014
for maintaining the government’s momentum.
The good news is that first drafts of the implementation
legislation have surely been crafted by now in order to meet the deadlines set
forth in the new laws. Better yet, passage will require only a simple majority
But that does not mean that the Peña Nieto administration
will not quickly begin to feel pressure to “put points on the board” and
demonstrate to the average citizen that energy reform will positively impact
their wallets and improve their daily lives.
Equally strong, however, is the pressure to get the
implementation legislation right, particularly in remodeling the national
hydrocarbons commission and restructuring both state energy monopolies Pemex
and CFE, not to mention managing the way forward for oil and gas bid rounds.
Mexico’s poorly managed reform of the banking sector in the mid-1990’s casts a
long shadow to this day.
All of which points to a big year to come for
Mexican energy policymakers and sector participants – as well as those eager to
join the latter group.
CANAL’S ARRESTED EXPANSION
Meanwhile in Panama, progress on the canal expansion
project is attracting headlines of its own.
The tale linking the Panama Canal and natural gas is one
of unexpected promise. When the canal expansion project was conceived in 2007,
the US energy revolution was still in its infancy and none predicted the
enormity of US oil and gas production by 2014, nor the prospects for natural
gas exports that would seek transit through the Panama Canal. But it is not
just a US story. The Canal has the potential to alter trade routes worldwide,
and transform global LNG markets.
The newly-expanded Canal will accommodate close to 90
percent of LNG tankers, compared to less than 10 percent currently. This is a
big deal for natural gas producers on the Atlantic seeking access to the more
lucrative Asian markets. In the near future, much of that trade will originate
in the US Gulf Coast.
But the project has faced its share of challenges.
Expansion of the Canal is only 72 percent complete and the original deadline of
October 2014 has been pushed to July next year.
The current spat between the Panama Canal and the
consortium building the project highlights the challenges in completing the
largest infrastructure project in the world both on schedule and budget.
Negotiations are underway to resolve the current impasse.
Once that happens, LNG exporters in the US and elsewhere should be able to
breathe a sigh of relief.
AMERICA’S ENERGY REVOLUTION CONTINUES UNABATED
North America’s natural gas exporters are not alone in
seeking greater access to more lucrative markets this year. Indeed, the energy
production boom looks set to continue at full speed in 2014, particularly in
the United States.US oil production will hit around 8.5 million barrels per day
(bpd) by the end of the year while the Energy Information Administration is now
predicting the US could top 9.6 million bpd by 2016 – levels not seen since
1970. And the rising trend is not limited to oil; the US is also predicted to
become a net natural gas exporter by 2018.
Against this backdrop, pressure is mounting to review the
United States’ hydrocarbon export rules, in particular to lift the four-decade
ban on crude exports. Those in favor argue that the current web of rules
regulating the export of natural gas, LNG, crude oil, and refined petroleum
products is both unwieldy and untenable.
The LNG export debate will continue to dominate domestic
energy policy in 2014 as natural gas producers go up against manufacturers in
their bid to push the pace of LNG export license approvals to non-free trade
Just five applications have been approved by the
Department of Energy so far, with 23 pending. Proponents fear that delays in
2014 could cause the US lose out to exporters such as Australia in Asian and
In terms of oil, it seems very likely there will be
progress on the crude export ban in 2014, particularly given that US Energy
Secretary Moniz has expressed a willingness to review the issue.
Advocates argue that the ban dates from a bygone era
characterized by oil scarcity, rather than abundance. Moreover, they argue that
lifting the ban will lower gasoline prices in the US and create jobs at home.
Oil transport will likely remain the epicenter of energy controversy
in 2014 – primarily the oil vs pipeline debate. It is unclear how much movement
we’ll see on the keystone XL pipeline, and Canadian oil sands producers will
likely look into rail and other transport options as production continues to
rise. That said, with rail accidents and spills making headlines, the issue may
become more urgent in 2014.
PERU AT A
Finally, an energy story that may not be on your radar
for 2014 but we think is one to watch for its insights into hydrocarbon
development is Peru.
This year marks the 10th anniversary of the inauguration
of the Camisea natural gas project. Since Camisea’s launch, Peru has
effectively created from scratch a domestic natural gas market. Natural
gas-fired power generation now accounts for over 20 percent of the nation’s
But as the country celebrates its historic natural gas
milestone, many sector participants are concerned that the hindrances caused by
regulatory hurdles and high levels of government red tape have become major obstacles
for Peru’s continued oil and gas development. Opposition by indigenous and
environmental groups has also grown stronger in the last few years.
Add to these points demand on the energy sector created
by the country’s economic boom as well as plans to sell up to 49 percent of the
national oil company, Petroperu, and 2014 appears to be an important crossroads
for Peru’s energy outlook but particularly development of its hydrocarbon
That Peru is expecting over $8 billion of investment in
the country’s energy sector in 2014 is an early positive sign.
While other issues will surely emerge this year, these
four will undoubtedly figure among the key energy trends in the Americas in
Jeremy M. Martin is the director of the Energy Program at the Institute of the Americas at the University of California, San Diego. The institute is a nonprofit inter-American organization focused on economic development in the Western Hemisphere. Martin can be reached at firstname.lastname@example.org and Twitter @jermartinioa.
Alexis Arthur is energy policy associate at the Institute of the Americas. She regularly writes and tweets on energy and natural resources policy in the U.S. and Latin America. On the side, Alexis writes about Australia-Latin America relations. She can be reached at email@example.com or via Twitter @IOA_Energy
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