Workshop Theme: The new geopolitics of energy, Brazil and the South Atlantic

Speaker: Igor Fuser (Professor UFABC)

The closed event was organized by the Chatham House Rule and all participants were invited to present opinions, criticisms and suggestions to the professor Igor Fuser research

Regional Energy Integration - Preliminary Approach focused on Brazil and the Southern Cone / Mercosur

The professor began his lecture defining the current context as a scenario of uncertainty. There are several challenges: volatile oil prices affecting energy market, policy uncertainty in key countries (Brazil and surrounding areas), global and regional economic crisis or climate disorders.

The professor exposed some difficulties with the research: precariousness of any prediction, incipient analytical material, limited data.

The main points of the presentation were: 1. geopolitical variables; 2. Uncertainty factors; 3. Scenario in Brazil (pre-salt layer); 4. Regional Integration.

Latin America is inserted in the the global context as exporting energy region (producing 5.5% of total world energy in 2014 and consuming just 4.3%). It is noticed an increase in energy consumption, and countries like Brazil receive investments mainly from OECD and China. Energy is affecting relations between Latin America, global actors and large blocks of power, as BRICS, OECD or OPEC.

Two topics stand out in the global energy discussion: energy security and sovereignty. Energy security refers to ensuring access to energy resources at reasonable prices; energy sovereignty, in turn, refers to the degree of autonomy and control over existing resources by the states. In this area, is perceived a dispute between the visions of “north” countries, which see Latin America as a global energy security factor. For them, the governance idea emphasizes the free market, where energy inputs are seen as commodities and companies are the main actors. According to the south countries, there is an emphasis on state sovereignty over resources considered strategic, tax revenue of the states as a goal, which are assumed central role and must prioritize domestic supply. Energy resources, from this perspective, are seen as key to achieve public policy objectives with a focus on development.

Latin America is a priority region in energy issues: it owns 20% of global oil reserves and 9% of global production. Some specific examples are oil reserves of Venezuela, the Brazilian pre-salt layer and the progress in biofuels, huge reserves of oil and unconventional gas in Argentina (third largest in the world of shale gas, only behind US and China). It also highlights the Brazilian energy matrix, considered clean, since it has a high share of renewable (29% versus global average of 13%).

The specific case of oil makes us consider a radical fall in prices (barrel price fell from US $ 117 in July 2014 to US $ 54 in 2015 now). Oil represents 47% of Latin America energy matrix (39% of Brazilian matrix and 31% of the global matrix). Despite the increased participation of renewable energies, the fossil ones still dominates, and its consumption will continue to grow in the short term. In addition, the importance of oil is to be the main commodity in the global market, the largest private or state-owned companies in the world are oil companies. It is considered significant geopolitical factor and a decisive export product in countries like Venezuela and Ecuador. The incorporation of Brazil as a regional leader relates largely to its oil reserves (and pre-salt layer) and with the country's development plans.

About causes of oil price fall, stands out on the supply side, the increased production of shale gas and tight oil in the US, Canadian oil sands, and the fact that Iraq and Libya, paradoxically to the domestic crises scenario, increased their production. On the demand side, we see fall with the Chinese slowdown, stagnation of the OECD - except in the US -, the reduction of US imports by the increasing of domestic production via fracking technology, and the impact of energy efficiency and alternative sources. However, the decisive factor for the oil price fall is the production of Saudi Arabia, who decided to change its behavior in the international oil scenario. It was expected a reduction in Saudi oil production to keep the price level as considered appropriate by OPEC, but Saudi Arabia increased its production in order to make life difficult for competitors and maintain its market share

With the new low prices scenario, consumer countries improved their economic situation, because more resources were freed for other uses. But at the same time, crises hatched in exporting countries, suffering with severe fiscal imbalance, as in the case of Russia, Iran, Venezuela, Nigeria and Mexico.

It is noticed the strengthening of the US and perspective of maintaining production of shale gas, although the price drop of oil can reduce investments in the sector. The oil price drop also generates high cost investments restriction, as in the case of oil in the Arctic. Pre-salt layer prospections are still viable in the low price scenario, as long as minimum price to ensure its viability is maintained (50 US $ per barrel). In Brazil, it occupies strategic role for reactivation of the domestic industry and to prevent the so-called "Dutch disease". But the question remains: is the price drop sustainable?

It is believed that the price hardly will return to 117 US $ per barrel in the near future. Market provides 20-year cycle. A commented possibility refers to the Iranian case: if Iran normalizes its relations with the international community, leading to the end of sanctions, may increase receiving foreign investment and increase its oil production. The increase in Iranian exports may further push down prices.

In the Latin American political scene, marked the last 15 years by progressive governments, there are currently crises: notorious cases are Brazil, Venezuela and Argentina. The political crisis may mean uncertainty on the energy issue. Added to this resistance based on environmental challenges, which have generated controversy in relation to fracking in Argentina, the hydroelectric dams in Brazil and Peru. In addition, water crises reveal the effect of climate change on hydropower.

At the end of the presentation issue of energy integration in Latin America was discussed. It was the central focus of the experts’ debate that followed. There is a discourse of consensus on energy integration benefits, but face each other difficulties in its practical implementation. In South America, there is net energy exporter countries and also net importers, which are precisely the most industrialized, pointing to a natural complementarity in the region.

Currently the South American Energy Treat is widely discussed. The Integration theme has been approached by the perspective of Bilateral Projects (Itaipu Hydroelectric, between Brazil and Paraguay; The Gas Pipelines between Argentina and Bolivia and Colombia and between-Venezuela). Nowadays there is a trend to reach the multilateral scope (Ethanol Partnerships, utilization of Itaipu’s energy surplus production for an electric and gas integration in the Pacific). However there are some obstacles for the integration as historic disputes (since the Pacific War between Chile and Bolivia, for example). It is noticed conflicting visions about the integration because there is not consensual opinion about the integration model neither by the countries and business leaders. There still inertial factors in this theme, as sovereignty controversy and mistrust between neighbors.

Stated the overview of the energy issue in South America, a debate was started among the experts, representatives of institutions such as Universities, Ministry of Foreign Affairs, Ministry of Environment, IPEA, MTCI, FLACSO, CEBRI and Konrad Adenauer Foundation .