ENERGY ADVISOR a WEEKLY PUBLICATION of the DIALOGUE February 26, 2021
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LATIN AMERICA ADVISOR ENERGY ADVISOR A WEEKLY PUBLICATION OF THE DIALOGUE www.thedialogue.org February 26, 2021 BOARD OF ADVISORS FEATURED Q&A TOP NEWS Nigel Blackaby Global Head, RENEWABLES International Arbitration Group, Freshfields Bruckhaus Deringer Will Oil Production Brazil Reaches Jeffrey Davidow Senior Counselor, 18 GW of Installed The Cohen Group at Vaca Muerta Wind Capacity Jonathan C. Hamilton The national wind energy Partner, association announced Brazil had White & Case Take Off This Year? reached 18 gigawatts of installed Raul Herrera wind power capacity. The country Partner, Corporate & Securities Practice, has 695 operational wind parks. Arnold & Porter Page 2 James R. Jones Chairman, OIL & GAS Monarch Global Strategies Jorge Kamine AMLO Plans Tax Partner, Corporate & Financial Services, Breaks, Injection Willkie Farr & Gallagher for Pemex Soon Craig A. Kelly The government of Mexican Senior Director, President Andrés Manuel López Americas Int’l Gov’t Relations, Oil production at Argentina’s massive Vaca Muerta, pictured above, reached record highs in Obrador is reportedly preparing Exxon Mobil December. // File Photo: Argentine Government. an injection of as much as $1.6 Jorge León Energy Economist, billion for the state oil company. BP As oil production in Argentina’s massive Vaca Muerta Page 2 Jeremy Martin reached record highs in December and oil prices surged this Vice President, Energy & Sustainability, OIL & GAS Institute of the Americas year, state-controlled oil company YPF on Feb. 7 reached an Mayya Novakovskiy Q agreement with creditors, avoiding a default on $6.2 billion Bolsonaro Taps Manager, Western Hemisphere, Chevron of debt. Are the recent events good omens for Argentina’s oil sector this Retired General to Larry Pascal year? How strongly are oil production and investments likely to recover Lead Petrobras Chairman, in 2021, and how significant is YPF’s deal with bondholders? What are Brazilian President Jair Bolson- Americas Practice Group, aro has named former Defense Haynes & Boone the main reasons for optimism in the period ahead, and what factors Minister Joaquim Silva e Luna to could become potential headwinds in the medium and longer terms? R. Kirk Sherr replace Roberto Castello Branco President, Clearview Strategy Group as chief executive of state oil Gerardo Rabinovich, second vice president at Instituto de company Petrobras. The move Mark Thurber comes amid tensions over fuel Partner, la Energía “General Mosconi” in Buenos Aires: “According Hunton Andrews Kurth price hikes. to Instituto Argentino de Energía General Mosconi’s Trends Page 2 Jose L. Valera Partner, Report, unconventional oil production in Vaca Muerta slightly Mayer Brown LLP A rebounded in December, with a growth of 4.1 percent as compared to Lisa Viscidi November. If we consider growth during 2020, it was an increase of 24.9 Program Director, Inter-American Dialogue percent for shale oil, which represents 24.4 percent of the country’s total Vanessa Wottrich production, that is, about 130,000 barrels per day (bpd). However, the Principal Analyst for Latin America, Equinor country’s total oil production fell by almost 12 percent. In the case of natural gas, shale gas production in Vaca Muerta fell by 2.9 percent in De- cember, and the country’s total production in 2020 was 8.9 percent lower than in 2019. Vaca Muerta shale gas production fell by 5.1 percent, which represents 42.8 percent of the country’s total production. These numbers are not encouraging. The industry is not optimistic about the recovery of production in 2021, although prices above $60/barrel give a positive sig- Luna // File Photo: Brazilian Continued on page 3 Government. COPYRIGHT © 2021, INTER-AMERICAN DIALOGUE PAGE 1 LATIN AMERICA ENERGY ADVISOR February 26, 2021 OIL AND GAS NEWS and common shares both plunged around 20 NEWS BRIEFS percent on Monday, wiping more than $10 bil- Brazilian President lion off the company’s value, on top of about $5 PDVSA to Receive 20 billion in value lost last Friday. Brazil’s Bovespa Shipments of Catalysts Taps Retired General stock index fell 4.87 percent on Monday, while the real currency also fell, closing down 2.4 From Iran: CRP Manager to Lead Petrobras percent at 5.43 to the U.S. dollar, Bloomberg Venezuelan state-owned oil company PDVSA is News reported. Interest rate futures surged expected to receive 20 shipments of catalysts Brazilian President Jair Bolsonaro last Friday on Monday to levels not seen since last May, from Iran in an effort to help its oil refineries appointed a retired general to take over as according to Reuters. The company recovered produce better quality fuel, Argus Media report- chief executive officer of Petrobras following some of its losses on Tuesday, rising as much ed last Friday, citing an unnamed manager at tensions over the state oil company’s move to as 8 percent, as the board met to consider Lu- the Paraguaná Refining Complex, or CRP. Iran hike gasoline prices, the Associated Press re- na’s nomination. Political interference in Petro- last year sent dozens of shipments of materi- ported. Bolsonaro tapped former Defense Min- bras over the company’s fuel pricing policy has als to alleviate production shortages at CRP in ister Joaquim Silva e Luna to replace Roberto been a longstanding concern for the market. western Venezuela, totaling around 1.2 million Castello Branco, who had led Petrobras since In 2018, Petrobras’ then-CEO resigned when barrels of oil and alkylate. PDVSA at one point Bolsonaro took office in 2019. Bolsonaro and the government intervened to artificially lower imported catalysts from suppliers in both the Castello Branco had been involved in a spat in fuel prices in response to a truckers’ strike United States and Europe until Venezuela was the past weeks over Castello Branco’s bid to that resulted in blockades and deadly violence subjected to U.S. sanctions in January 2019. raise fuel prices to be in line with international and also paralyzed the economy and crippled market hikes. Bolsonaro opposed the move as the country’s critical infrastructure for weeks. he sought to avoid a truckers’ strike, which in Last Saturday, Luna said Petrobras must find a Volkswagen, Audi to the past have paralyzed the country for several “balance” in fuel pricing, taking into account its days, Reuters reported. Petrobras has been impact on shareholders, investors, sellers and Restart Production in hiking fuel prices for a year. Petrobras’ board consumers, Reuters reported. “There is no way Mexico After Gas Shortage still has to confirm Luna, who would be the first to have interference in the pricing policy,” Luna Volkswagen and Audi are set to resume military man to lead Petrobras since 1989, the told the wire service in an interview. “We need production in Mexico after a severe winter AP reported. The change in leadership at the to find a balance, considering the shareholder, storm in Texas restricted Mexico’s natural gas company came after the president last week the market, oil prices, the currency, as well imports from the United States, Reuters report- declared a two-month reduction in federal as the people, because gasoline and diesel ed Monday. Volkswagen’s Mexico unit will con- diesel taxes starting on March 1 in an effort prices have an impact on the whole chain of tinue producing Tiguan sport utility vehicles, to compensate for the fuel price increases. production. We cannot ignore this reality,” he although an ongoing gas shortage prevents a “In these two months, we will study a way to added. Luna, who has little experience in the return to normal production levels. Meanwhile, permanently reduce to zero this diesel tax: oil industry, most recently worked overseeing Audi said it is set to resume standard proce- partly to help balance this increase by Petro- the state-run Itaipú hydroelectric dam on the dures after “the supply of hydrocarbons to the bras, which is excessive in my view,” Bolsonaro border with Paraguay and Argentina. industrial sector was guaranteed.” said during a weekly broadcast on multiple social media platforms last Thursday, Reuters reported. During the broadcast, Bolsonaro also Mexican Gov’t Plans said “something will happen at Petrobras in the Injection, Tax Breaks Brazil Reaches 18 GW of coming days,” though he offered no specific Wind Power Capacity, Set details about the change at the time, Reuters for Pemex: Source reported. The company’s shares plummeted to Hit 28 GW by 2024 nearly 17 percent in pre-market trading in New The government of Mexican President Andrés The Brazilian Wind Energy Association, or York on Monday following the announcement. Manuel López Obrador is preparing an injection ABEEólica, announced last week that the Credit Suisse, Scotiabank, Bank of America, of between $1.3 billion and $1.6 billion into country’s wind power capacity has reached 18 Bradesco and XP analysts all downgraded their state oil company Pemex this year, in addition gigawatts, or GW, Renewables Now report- recommendations on shares of the company, to tax breaks worth 75 billion pesos ($3.68 ed. According to ABEEólica President Elbia Reuters reported. In Brazil, financial mar- billion), a senior official told Reuters last week. Gannoum, Brazil has 695 wind parks and is kets fell sharply on Monday as they reacted Since taking office in December 2018, López on track to hit 28 GW by 2024. Rio Grande do negatively to the news. Petrobras’ preferred Obrador’s administration has injected billions Norte is the state with the highest wind capaci- ty, at 5.15 GW, from 182 parks. COPYRIGHT © 2021, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ENERGY ADVISOR February 26, 2021 of dollars in capital in a bid to strengthen FEATURED Q&A / Continued from page 1 Pemex, which is the world’s most indebted oil firm.