Another big 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.

MEXICO’S 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 in Congress.

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.

THE PANAMA 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.

NORTH 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 partners.

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 European markets.

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 CROSSROADS

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 electric portfolio.

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 resources.

That Peru is expecting over $8 billion of investment in the country’s energy sector in 2014 is an early positive sign.