ENERGY ADVISOR a WEEKLY PUBLICATION of the DIALOGUE November 13, 2015

LATIN AMERICA ADVISOR ENERGY ADVISOR A WEEKLY PUBLICATION OF THE DIALOGUE www.thedialogue.org November 13, 2015

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Mary Rose Brusewitz Partner, OIL & GAS Strasburger & Price Should Panama’s Jeffrey Davidow Cuba Planning Senior Counselor, New Gulf Oil The Cohen Group Government Build Exploration Ramón Espinasa Consultant, Cuba is planning new oil explo- Inter-American Development Bank an LNG Terminal? ration in the Gulf of Mexico after Luis Giusti four exploratory wells failed to Senior Advisor, fi nd commercially viable oil, a Center for Strategic & Cuban offi cial said Monday. International Studies Page 2 Jonathan C. Hamilton Partner, White & Case RENEWABLE ENERGY Raul Herrera Partner, Mexico to Seek Corporate & Securities Practice, Bids in Renewable Arnold & Porter Energy Auction James R. Jones Co-chair, Mexico will start soliciting bids Manatt Jones Global Strategies Nov. 19 in its fi rst renewable ener- Jorge Kamine Panama’s government wants to build a liquefi ed natural gas terminal once expansion on the gy auction as part of an overhaul Counsel, canal, pictured above, is completed in April 2016. // File Photo: Panamanian Government. that will end state-owned power Skadden Arps company CFE’s monopoly, govern- Craig A. Kelly ment offi cials said Wednesday. Offi cials from the Panama Canal Authority say they are Director, Page 3 Americas Int’l Gov’t Relations, interested in building a liquefi ed natural gas (LNG) terminal Exxon Mobil once the canal’s historic expansion is completed next April, Jeremy Martin Q OIL & GAS giving it the capacity to handle signifi cantly larger ships. Director, Venezuela, Energy Program, What are the risks and advantages involved in the terminal project? What Institute of the Americas is the outlook for LNG in Central America? How are low global prices Ecuador Seek Larry Pascal Chairman, for hydrocarbons affecting the LNG market in the region? Would a LNG Oil Price Boost Americas Practice Group, Ecuadorean President Rafael Haynes & Boone terminal help contribute to energy security, as its proponents suggest? Correa and Venezuelan President How might the United States benefi t from an LNG terminal in Central Charles Shapiro Nicolás Maduro on Tuesday called President, America? on Middle East leaders to reduce World Affairs Council of Atlanta crude production in order to boost R. Kirk Sherr oil prices. They met with OPEC President, Lisa Viscidi, director of the Energy, Climate Change & Ex- heads of state during a two-day Clearview Strategy Group tractive Industries Program at the Inter-American Dialogue: South American-Arab summit. Garrett Soden Page 2 Director, “In September, a subsidiary of the AES Corporation submitted Etrion Corporation A the winning bid to build a 350 megawatt gas-fi red plant with a Mark Thurber 170,000 cubic meter liquefi ed natural gas storage tank and regasifi cation Partner, Andrews Kurth facility on Panama’s Caribbean coast. The project is still subject to regula- Alexandra Valderrama tory approval, but construction is expected to begin in early 2016. The Manager, International Government Affairs, new LNG terminal could yield important benefi ts for Panama and Central Chevron America as a whole. The Panama terminal will be large enough to become Lisa Viscidi a regional hub, although exporting to the rest of Central America would Program Director, Inter-American Dialogue require signifi cant infrastructure investments. For Central America, the Max Yzaguirre project will provide a needed increase in generation capacity and an alter- President and CEO, native to oil products for power generation as well as an increase in ener- The Yzaguirre Group gy security by diversifying the energy matrix. It will also serve as a backup source for intermittent renewables, lower electricity prices for consumers Correa // File Photo: Ecuadorean Government. Continued on page 3

OIL & GAS SECTOR NEWS formation, the Associated Press reported. The NEWS BRIEFS decision came after YPF refused to disclose environmental information surrounding the Pemex Overhauls Cuba Planning New project in the southern province of Neuquén. Gulf Oil Exploration Argentine Senator Hector Giustiniani requested Pension Program the disclosure, alleging that the deal contained Mexican state-owned oil company Pemex and Cuba is planning new oil exploration in the Gulf secret clauses, including a “commitment that the country’s oil workers’ union have agreed to of Mexico after four exploratory wells failed to would force the country to hand over the rights an overhaul of the company’s pension program, fi nd commercially viable oil, a Cuban offi cial The Wall Street Journal reported Wednesday. said Monday, Agence France-Presse reported. After diffi cult negotiations, the company and The newest round of drilling is expected to the union agreed to increase the retirement age start in late 2016 or early 2017, said the head by fi ve years to 60 for employees with fewer of offshore exploration at Cuba’s state-owned than 15 years of service. Pemex has some oil company Cupet, Osvaldo López. He said $90 billion in unfunded pension liabilities, and drilling in deeper areas may prove to be more the pension reform is seen as a lifeline for the lucrative for Cuba. International experts believe state-owned company. that Cuba’s exclusive economic zone in the Gulf of Mexico, which covers 112,000 square Capitanich // File Photo: Argentine Government. kilometers, holds fi ve to nine billion barrels of Venezuela and Ecuador oil. The Cuban government, however, estimates that there are as many as 15 billion barrels of to the third-largest deposit of unconventional Call on Middle East to undiscovered reserves in the area. Currently, oil and gas for the next 35 years.” He also said Reduce Crude Output one clause would allow Chevron to collect roy- Ecuadorean President Rafael Correa and Ven- alties on the shale deposit even it decided to ezuelan President Nicolás Maduro on Tuesday terminate its involvement in the deal. The gov- called on Middle East leaders to reduce crude The newest round of ernment has said that the deal was transparent production in order to boost oil prices, govern- drilling is expected to start and constitutional, and then-Cabinet Chief ment-sponsored television network Telesur Jorge Capitanich last year denied the existence in late 2016 or early 2017. reported. Correa and Maduro, whose countries of any “secret clauses.” have been hard-hit by the fall in the price of oil, their main export, met with leaders of OPEC Colombia Planning to nations including Saudi Arabian King Salman Cuba produces 25 million barrels per year of oil bin Abdulaziz in Riyadh during the two-day from land and offshore drilling, which covers Cut Taxes for Some Summit of South American-Arab Countries, about half of the island nation’s annual demand Telesur reported. for oil. The other half is supplemented by oil Off shore Drilling from Venezuela, which Cuba imports on favor- able terms. Last month, Cupet said it would be Colombia will lower taxes for some offshore willing to negotiate exploration deals with U.S. drilling blocks in order to encourage explora- Bill Clinton Tours oil companies, as well. tion amid a global oil price slump, the country’s Wind Farm in Panama mines and energy minister said Monday, Reu- Former U.S. President Bill Clinton visited ters reported. Oil companies already drilling in Central America’s biggest wind farm, located YPF Ordered to some offshore blocks in the Caribbean will get in Panama, on Tuesday, the Associated Press a 25 percent discount on income taxes and will reported. The wind farm is expected to open Disclose Details be exempt from value-added tax and customs next year and is projected to produce enough charges. The move will help maintain output of Chevron Deal energy to cover eight to nine percent of Pan- at about one million barrels per day, Mines ama’s energy demands. Clinton emphasized and Energy Minister Tomás González said in a Argentina’s Supreme Court Tuesday ordered during the visit the potential for renewable en- statement. Oil is Colombia’s biggest source of state-owned oil company YPF to disclose ergy to help protect developing countries from foreign exchange and its most-exported com- clauses of an investment deal made with U.S. the worst effects of climate change. Clinton’s modity. Its economy has suffered from the drop oil company Chevron for producing oil and gas visit was part of a trip to Latin America that in oil prices, and the government hopes the by hydraulic fracturing the Vaca Muerta shale also included stops in Peru and El Salvador.

COPYRIGHT © 2015, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ENERGY ADVISOR November 13, 2015 new tax incentive will aid in boosting invest- parks. The bill would address conservational- ment in the oil sector to its goal of $15 billion Costa Rican ists’ and several lawmakers’ concerns by ensur- per year, up from its current investment level of ing that the geothermal electricity development $5 billion to $7 billion per year. [Editor’s note: Legislator Working activity would conform to conservation goals See Q&A on insecurity in Colombia’s oil sector on Geothermal Bill of all protected areas, an aide to Solís said. in the July 3 issue of the Energy Advisor.] The land used for the development projects would not be sequestered by Costa Rica’s Ener- Ottón Solís of Costa Rica’s governing Citizen’s gy Institute, ICE, but would rather remain under Action Party is working on a bill that would al- the control of the Costa Rica’s National System RENEWABLE ENERGY NEWS low the government to pursue geothermal elec- for Conservation Areas. The bill is expected to tricity development in three volcanic protected be brought forward during the ordinary session areas, The Tico Times reported Wednesday. Mexico to Seek in April, rather than during the extraordinary The move comes despite the executive branch- session starting in December, in which the ex- Bids in Renewable ing having said that the government will not ecutive branch creates the legislative agenda, pursue geothermal development in its national Energy Auction given the president’s misgivings toward geo-

Mexico will start soliciting bids Nov. 19 in its FEATURED Q&A / Continued from page 1 fi rst renewable energy auction as part of an overhaul that will end state-owned power com- by as much as 23-30 percent, and cut carbon reliable and affordable and counts heavily pany CFE’s monopoly, government offi cials said emissions. The project also presents an on liquefi ed natural gas and natural gas. Wednesday, Reuters reported. The fi rst awards opportunity for U.S. companies, as LNG im- Alongside Panama’s boom, the global LNG are set for March and would provide the right to ports will likely come from the United States. industry has thrived. Since 2000, the number obligate clean energy production, offi cials said. The global LNG market is currently facing a of LNG importing countries has tripled. Last Around six million certifi cates with 20-year con- glut in capacity and many planned projects year saw the second-highest year for LNG tracts are up for auction, and the government have been shelved, depressing spot market trade in the industry’s history and greatly expects the contracts to produce 2,500 mega- prices and leading to intense competition outpaced 2013. The Pacifi c Basin, led by for new markets. For U.S. LNG exporters, Japan, remained the largest source of the decline in oil prices also reduces their demand. Global liquefaction capacity also The renewable energy competitive advantage as the spread soared and new frontier LNG regions have auction is part of an between U.S. gas benchmark Henry Hub emerged including the U.S. Gulf Coast and and international crude oil benchmark Brent Canada. One U.S. project, in Cameron, La., overhaul that will end has narrowed (most LNG contracts outside is set to be the supplier of natural gas for CFE’s energy monopoly. the United States are indexed to crude oil). Panama’s fi rst ever natural gas fi red power Although the most bullish forecasts for plant, being developed by AES. The Panama U.S. gas exports have been undermined by Canal fi gures prominently in the evolving watts of energy from renewable resources such this price drop, the United States is still set global LNG landscape. Set to go into opera- as wind and solar. Initially, CFE will be the sole to become a net gas exporter, and an LNG tion in April, the expanded canal will be able purchaser of energy created by the companies hub in Panama would be well-positioned to to accommodate 88 percent of LNG cargo awarded the contracts, said Energy Minister capitalize on the surplus of U.S. gas exports ships. Currently, just less than 10 percent Pedro Joaquín Coldwell. He added that new because of its close proximity.” can fi t through the canal. Moreover, the wholesale power companies allowed by the expansion will facilitate a route that will cut energy overhaul will also eventually be able to Jeremy M. Martin, director an estimated 11 days off a trip from the Gulf purchase the clean power. The contracts will of the energy program at the of Mexico to Asia, which could be critical for also help CFE meet the terms of a mandate Institute of the Americas: U.S. LNG suppliers as price margins tighten. that it must generate at least fi ve percent of A “Panama is riding a wave of The Panama Canal can also play a role in its power from clean sources. Mexico has tradi- prosperity, boasting one of Latin America’s the global shipping industry’s transition tionally generated most of its power from oil fastest growing economies. The government from fuel oil and diesel to natural gas. More and is a major crude oil exporter and importer, hopes to meet its energy needs by promot- stringent emissions controls coming into though in the last several years has generated ing a diversifi ed energy matrix that is stable, effect should result in a rising demand for more power from cleaner-burning natural gas Continued on page 6 and renewable resources.

COPYRIGHT © 2015, INTER-AMERICAN DIALOGUE PAGE 3 LATIN AMERICA ENERGY ADVISOR November 13, 2015 thermic exploitation in national parks. In the past, President Luis Guillermo Solís has said ADVISOR Q&A that the possibility of exploitation in national parks is not up for discussion. Is Costa Rica’s Economy on the

POLITICAL NEWS Right Track?

Costa Rica over the past fi ve two administrations—mine and that of Óscar Relatives of years has implemented the Arias—put forward a series of bold initia- Maduro Indicted Q highest number of reforms of tives. Among them: the negotiation of trade any country in Latin America in agreements with the largest economies in on Drug Charges an effort to improve its business climate, the world—the United States, Europe and Chi- according to the World Bank’s Oct. 27 na; the beginning of the accession process Two relatives of Venezuelan President Nicolás “Doing Business 2016” report. However, the to the Pacifi c Alliance and the OECD; the Maduro were indicted late Thursday in New country’s economy posted its sixth consec- opening of the telecommunications sector; York on drug traffi cking charges, CNN reported. utive slowdown in GDP growth in this year’s an ambitious public investment program for Efraín Antonio Campo Flores and Francisco second quarter. Is Costa Rica on the right the construction of port and road infrastruc- Flores de Freitas, who are nephews of Vene- track to attract more investors and improve ture; and an ambitious regulatory reform that zuelan First Lady Cilia Flores, were charged its business climate? How well is President allowed us to move up in the international with conspiracy to import, manufacture and Luis Guillermo Solís handling the econo- rankings. President Solís’ administration distribute cocaine into the United States. The my? How strong are the country’s levels of has remained committed to ongoing efforts two men “participated in meetings in Venezue- investor and business confi dence? in attracting foreign investment, but that la, regarding a shipment of cocaine that was to has not been the case with other policies. be sent to the United States, via Honduras,” the Laura Chinchilla Miranda, For example, the infrastructure projects are indictment alleges. Campo Flores and Flores former president of Costa Rica: suffering delays, Costa Rica’s access to the “Costa Rica has sound and Pacifi c Alliance was put on hold and nec- A stable democratic institutions, a essary fi scal reforms were postponed. This solid foreign investment and trade platform, last decision has the potential to undermine and an educated and highly skilled work- the country´s credit quality and constrain Neither attacks nor force. Thanks to those conditions, we have economic growth. Finally, the appreciation imperialist ambushes become one of the strongest performers in the value of our currency confronted with can derail the people in Latin America. However, despite these the recent depreciation of other regional of the Liberators.” strengths, we have some problems that are currencies is damaging the competitiveness — Nicolás Maduro negatively affecting our economy’s compet- of our export sector.” itiveness. These include the poor quality of infrastructure, excessive red tape and a fi s- cal defi cit that continues to climb steadily. In EDITOR’S NOTE: More commentary on this order to continue to lead Costa Rica through topic appeared in the Nov. 6 issue of the de Freitas did not enter pleas during their court the path of growth, and to overcome some of Latin America Advisor. appearance Thursday, and the judge in the case the aforementioned challenges, the previous ordered them to be held without bail. If con- victed, they face a maximum sentence of life in prison, CNN reported, citing the U.S. Attorney’s to DEA agents who fl ew them to New York. The U.S. Treasury has listed nine Venezuelan Offi ce for the Southern District of New York. Venezuela’s government has not responded offi cials as “kingpins,” saying it considers them Local authorities in Haiti arrested the men as to requests by CNN for comment. However, suspects in drug traffi cking. Earlier this year, they were allegedly about to fi nalize an agree- in a posting on Twitter, Maduro said Thursday The Wall Street Journal reported that Diosdado ment to transport 800 kilograms of cocaine without referring directly to the arrests that Cabello, the leader of Venezuela’s National into the United States, a Drug Enforcement “the fatherland will continue on its path, neither Assembly, was under investigation by U.S. Administration who participated in the men’s attacks nor imperialist ambushes can derail authorities for alleged drug traffi cking. Cabello detention told CNN. The Haitian authorities the people of the Liberators, we have only one has denied wrongdoing and has said there is turned Campo Flores and Flores de Freitas over destiny and that’s to win,” BBC News reported. no proof linking him to any illicit activity.

NEWS BRIEFS BUSINESS NEWS recent poll by the news service, seven analysts expected 3 billion reais on average. The Colombia to Legalize Rousseff Fines bank’s net income rose 10 percent in the third Marijuana for quarter to 3.06 billion reais. The bank, based in Mine $66 Million Brasília, said it increased provisions to cover Medical, Scientifi c Uses bad loans amid Brazil’s faltering economy. Colombia will legalize the cultivation and sale After Dams Burst The bank’s level of delinquent loans increased of marijuana for medical and scientifi c purpos- slightly to 2.2 percent in the quarter. es, offi cials said Thursday in a surprise change Brazilian President Dilma Rousseff on Thursday of policy for the longtime U.S. ally in the war announced $66.2 million in fi nes against a Head of Bradesco’s on drugs, the Associated Press reported. Pres- mine owned by BHP Billiton and Vale, following ident Juan Manuel Santos is expected to sign an environmental disaster in which two dams Insurance Unit Killed the law as a presidential decree, joining other burst, killing at least nine people on Nov. 5, Latin American countries like Mexico and Chile Reuters reported. Authorities say 19 people in Plane Crash which have recently debated changes to strict are still missing. The fi nes come as federal laws on marijuana. prosecutors are investigating possible crimes Marco Antonio Rossi, the head of Banco Brad- that may have contributed to the structural esco’s insurance unit, was among four people instability of the dams. The top government killed earlier this week in a plane crash, the Pope to Visit Three lawyer and Brazil’s environmental regulator, bank said Wednesday in a statement, Reuters IBAMA, are together planning on suing the reported. Rossi, 54, was traveling from Brasília Mexican States, Capital mine owners for as much as $1 billion for back to São Paulo in the bank-owned Cessna Pope Francis will visit Mexico’s capital and environmental damages. The fi nes are for river Citation VII when the plane went down late three other states in early 2016, Mexican For- pollution and damages to urban areas and Tuesday. Lúcio Flávio de Oliveira, the leader of eign Relations Secretary Claudia Ruíz Massieu could be followed by other penalties, Rousseff announced Wednesday, the Associated Press said. “We are determined to hold responsible reported. In addition to Mexico City, the pope those who are responsible for this,” Rousseff will visit Chiapas, Chihuahua and Michoacán. told reporters. She added that the companies During his visit to the latter three states, the are expected to pay for the rescue and cleanup pontiff is expected to discuss issues he has efforts, as well as for compensation for more emphasized in the past, including poverty, mi- than 500 people who were displaced after gration and supporting indigenous populations, the environmental disaster. Rousseff’s moves all of which are issues the states face. come after mounting complaints that the national government had done little to respond Rossi // File Photo: Banco Bradesco. in the immediate aftermath of the dam bursts, Bradesco Seguros’ life insurance and retire- The Wall Street Journal reported. On Wednes- ment business, and the two pilots were also Arab, Latin American day, the chief executives of BHP and Vale held killed in the crash, Bradesco said in the state- Leaders Voice Support a news conference in which they apologized ment. “They were recognized for their talent, for Palestine at Summit for the disaster and said they would meet their competence and enthusiasm at work, fraternal obligations as the mine’s owners. relations with their teams and total dedication Middle Eastern and South American leaders to their families, having carried out brilliant ca- both expressed support for Palestinians during reers,” the bank said. The Cessna likely crashed a summit Wednesday in Saudi Arabia that is Banco do Brasil at about 8 p.m. local time, according to Brazil’s aimed at strengthening Arab-Latin American Air Force. Rossi had been seen as a likely relations, the Associated Press reported. Misses Estimates as successor to Luiz Carlos Trabuco, Bradesco’s Venezuelan President Nicolás Maduro, who Provisions Rise chief executive offi cer, Reuters reported. Rossi has backed Palestinian statehood, specifi cally succeeded Trabuco as head of Bradesco’s mentioned Palestine in his public remarks. Lat- Government-controlled Banco do Brasil on insurance unit in 2009 when Trabuco became in American countries have often been among Wednesday reported a decline in adjusted net CEO. The bank requires its executives to retire the most vocal critics of Israel’s policies income for the third quarter of 2.88 billion at age 65, and Trabuco reaches that age next toward Palestine, and some South American reais ($766 million), from 2.89 billion reais for October. Rossi had worked for the bank for countries broke ties with Israel during last the same quarter last year, missing analysts’ 34 years. He is survived by his wife and four year’s war in Gaza. estimates, Bloomberg News reported. In a children.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ENERGY ADVISOR is published weekly by the Inter-American Dialogue Copyright © 2015 LNG as a maritime transport fuel. Canal operate generation plants for LNG, which authorities are studying the possibility of would diversify its energy matrix and would Erik Brand provide easy access to the fuel. This would Publisher [email protected] help increase the region’s energy security and would also provide environmental and Gene Kuleta Alongside Panama’s Editor economic benefi ts in the region and directly [email protected] boom, the global LNG to Panama through public-private partner- Nicole Wasson industry has thrived.” ships. Placement of a Latin American hub Reporter, Assistant Editor — Jeremy Martin for natural gas in Panama would allow it [email protected] to interconnect with the Northern Triangle (Guatemala, El Salvador and Honduras) and Mexico. The outlook for the use of natural Michael Shifter, President building an LNG receiving terminal both for gas in the region is promising. For example Genaro Arriagada, Nonresident Senior Fellow local power generation and with the aim of El Salvador has planned to import 500,000 Sergio Bitar, Nonresident Senior Fellow providing LNG for ship-borne propulsion. The tons of fuel per year starting in 2019 to Joan Caivano, Director, Special Projects move would further entrench Panama’s role generate electricity with the fi rst plant of its Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program in the new LNG market, both in the region kind in the region. Guatemala also has to Maria Darie, Director, Finance & Administration and the world.” build LNG plants, and Honduras is interested Ramón Espinasa, Nonresident Senior Fellow in the trend as well. The United States can Ariel Fiszbein, Director, Education Program Carlos Boj, energy consultant benefi t not only from capturing the natural Alejandro Ganimian, Nonresident Fellow at the Central American Bank gas market in Central America, but also from Peter Hakim, President Emeritus for Economic Integration: “The creating a central offi ce with access to the Claudio Loser, Senior Fellow disadvantages for liquefi ed Pacifi c and the Atlantic, overshadowing oth- A Nora Lustig, Nonresident Senior Fellow natural gas in the region include a lack of er offers from Canada, Trinidad and Tobago Margaret Myers, Director, China and past experience in the use of natural gas and and the Middle East to become the controller Latin America Program the fact that there are no local or regional of the market price for the LNG sector in the Manuel Orozco, Senior Fellow rules and regulations for this fuel. Also, the region.” Jeffrey Puryear, Senior Fellow region has almost no individuals specializing Lisa Viscidi, Director, Energy Program in human resources in the fi eld of liquefi ed The Advisor welcomes comments on its Q&A natural gas. There are advantages, however. section. Readers can contact editor Gene Latin America Energy Advisor is published weekly, with the exception of some major Central America could have easy access to Kuleta at [email protected]. U.S. holidays, by the Inter-American Dialogue 1211 Connecticut Avenue NW, Suite 510 Washington, DC 20036 Phone: 202-822-9002 Fax: 202-822-9553 www.thedialogue.org ISSN 2163-7962 LATIN AMERICA ADVISOR Subscription Inquiries are welcomed at [email protected]

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