Energy and Development in South America

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Energy and Development in South America ( energy-and-development-south-america )

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14 | FRANCISCO ROJAS ARAVENA ENERGY INTEGRATION IN LATIN AMERICA | 15 In the absence of regional coordination on energy, there are various initiatives that are not connected one to the other. None of the initiatives being promot- ed as part of Plan Puebla Panamá, Petrocaribe, or the design of “energy rings”2 takes into consideration what is happening in other arenas; thus, each initiative appears to be competing with the others. This lack of inter-connectedness increases uncertainty and reduces trust among various actors, at the same time limiting opportunities for shared benefits. To create complementary or integrated systems, and for participants to engage in the process of creating them, all must obtain an economic or other significant benefit. In the case of energy, “the movement towards integration... implies complex strategic and political coordination and commitments by the participating countries. It is not enough to pay attention to geo-economic con- siderations alone; geopolitics and the strategic interests of the leading partici- pants are of paramount importance.”3 The Western hemisphere is a region of sharp contrasts regarding energy cooperation. There is wide-ranging cooperation as well as complementarities between the United States and Canada. In contrast, there is scant cooperation among the South American countries. It should be noted that government policy varies from case to case regarding the roles assigned to the state and pri- vate enterprise. Cross-border cooperation in all areas, including in energy of various forms, brings about important savings and cost reductions. Conflict, by contrast, increases costs across the board. The use of energy as an instrument of foreign policy is extremely sensitive and requires highly-skilled management of both politics and diplomacy. Miscalculation creates major opportunities for conflict and impacts the level of trust among different actors. Recovering trust is a lengthy and difficult process, at times more costly than the energy itself, given that the impacts of energy policy are global and extend beyond a particular country, region, or sub-region. There have been different kinds of linkages on energy matters in Latin America. Initial projects were associated with tapping the surpluses generated in one country to cover deficits in other nations. This was the rationale underlying major investments and the construction of large-scale hydroelectric projects in shared river basins. Examples include Itaipu between Brazil and Paraguay; Salto Grande between Argentina and Uruguay; and Yacyretá between Argentina and Paraguay. More recently, other types of linkages—between Colombia and Venezuela, Ecuador and Colombia, and Bolivia and Argentina—have been established for the sharing of both electricity and natural gas.4 The models of energy integration in Latin America put into practice over the last 15 years have varied with respect to their components, objectives, and expect- ed scope. Despite such efforts, however, there has been little progress toward estab- lishing and implementing an effective plan for energy cooperation and integration in the region. There have been limited advances, with ups and downs on a bina- tional basis, but there is no comprehensive proposal. At present, the region is experiencing the effect of the high prices for hydrocar- bons, something that is positive for producers but highly negative for importing countries. High prices have led to a renewed awareness of the impact of energy on the region as a whole. Latin America could be self-sufficient in energy if it were to combine and construct an energy market based on regional reserves and a scheme of investment in infrastructure for transport and storage, using appropriate tech- nologies that allow both for greater yields and environmental protection. This would mean coordinating the production of electricity with that of gas, oil, biofu- els, and other forms of renewable energy, all of which generate a market for pro- duction, supply, consumption, and demand within the region. Nonetheless, there are no energy integration policies in Latin America and the Caribbean. There are only “connections.” The great political challenge is to transform the energy needs of both producers and consumers into an instru- ment that fosters integration. For this to be possible requires high levels of trust among political, military, business, and civil society actors to guarantee supply and investment, reduce uncertainties, and establish an interdependent market. Interdependence is essential, as dependency gives rise to areas of tension. Interdependence contributes to agreements for mutual benefit; dependency opens up spaces for energy nationalism. Energy demand will continue to increase in the world, including in Latin America and the Caribbean. If economic development continues at its current pace, and especially if growth increases and becomes more stable, the demand for energy will only go up. This means it is necessary to increase the levels of invest- ment in the energy sector; such investment must necessarily have worldwide demand as a reference point. The International Energy Agency (IEA) estimates that Latin America will need $1.3 billion in new investment in the energy sector before the year 2030 in order to meet new demand. The regional outlook has changed in important ways in recent years. Brazil has discovered major oil and gas reserves that will make the country not only self-sufficient, but capable of exporting energy as well. The con- sequence will be that over time Brazil will have less of a need to import gas from Bolivia. Argentina is facing a major gas shortage which, at least initially, could be

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