Analysing The Landscape For Energy Transition In LatAm Region

AMI (Americas Market Intelligence) Energy Practice has recently published a report shedding light on the untapped opportunities, challenges, investment potential in energy transition in the Latin America region. The findings of the report are as under.

Lucrative Market For Operators & Investors In Suriname

David Abiamofo, Minister of Natural Resources of the Republic of Suriname, in an interview with AMI Energy Practice spoke about the key developments in offshore, “There have already been 6 significant discoveries made — 5 in Block 58 and 1 in Block 52.” He also sent out a word to investors looking to invest in Suriname, “We have a proven hydrocarbon province, and that the Suriname Government is supportive of the further development of the Petroleum Industry, and open/collaborative to implement the improvements needed to promote the sustainable/optimal development hereof.” Suriname is bullish on LNG, the Minister established, “Our current estimates are that Suriname has potentially enough volume for an LNG plant. Staatsolie is currently undertaking studies to assess the commercialization options for this gas which includes the potential to export it to regional and international markets as LNG.”

The Conflicting Landscape For Green Hydrogen In Chile

The Chilean market for Green Hydrogen is presented with several roadblocks vis-a-vis Green Hydrogen. In fact, it would not be an exaggeration to say that it is far from viable, given that there is negligible domestic demand for it, the exports costs are skyhigh. Hydrogen is hard to store and Chile lacks the transport and storage facilities that facilitate this. It does not help that the political landscape in Chile currently is very volatile and the Constitution is undergoing an overhaul, which has led to frozen investments at the moment. In the wake of these conditions, the new energy projects have been left high and dry until September 2022, when the rewriting of the Constitution is to be concluded.

Another peril presented before the Chilean Green Hydrogen market is the use of water in hydrogen projects. A decade-long drought that Chile is currently facing raises several questions here, subsequently having a bearing on hydro generation while also adding local competition and pressure for water resources. However, this is not to say that Chile’s Green Hydrogen market is a lost cause. It is noteworthy that Magallanes, Chile became home to the first industrial-scale plant of its kind in Chile last year under such conditions. This is also one of the largest in Latin America.

The country has set the most aggressive decarbonization targets in all of Latin America. In order to meet the country’s climate ambitions, sectors that depend on gray hydrogen are required to naturally transition towards green or blue hydrogen. H2 pilot projects in the mining sector, account for over 10% Chile’s GDP, thereby providing a lucrative opportunity for industrial players striving to decarbonize operations.  Chile is also the most advanced country in Latin America when it comes to low-carbon hydrogen development. The country has also kickstarted a National Green Hydrogen Strategy which looks to develop the local hydrogen sector while also transforming it into a world-class exporter by 2040. Through the adoption of a carbon tax, government-sponsored financing and an investor friendly regulatory framework, Chile believes it can produce the cheapest hydrogen in the world by 2030.

The Jigsaw Puzzle Of Frontier Markets Like Guyana & Suriname

Even though the frontier energy markets of Suriname and Guyana are lucrative, their future with regards to energy development is shrouded in uncertainty, the foremost cause of which is lack of access to affordable capital. Suriname is a major sufferer on this account since it defaulted on its debt payments last year. Additionally, it is witnessing inflation on a recurring basis, running into double digits. This has also held back bilateral foreign investors from investing in Suriname. The Surinamese banks, at the same time, are crippled due to undercapitilization. The stock exchange, which is almost inexistent, only adds to the challenges that seem unsurmountable at the moment. Startups are unable to script success stories due to insufficient capital.

As per IEA, an investor looking to invest in a solar farm in an emerging market as Suriname will have to shell out seven times more for the same amount of capital they would receive in the US market.

AMI, however, has suggested measures to plug these loopholes by improving fiscal policies to bring down inflation and rebuilding international reserves and make room for greater flexibility for interest and exchange rates. It has put forth the recommendation to an emerging market faced with capital crisis to become more transparent and less corrupt. Coming up with an investor-friendly framework to lure blended capital from Development finance institutions (DFIs) and institutional investors would be an important step in this direction, it has stated. Encouraging entrepreneurs by aggravating funding on higher education and training will allow for more and more energy companies to spring up.

Other Hiccups In The LatAm Energy Market

The energy market in each country of the LatAm region varies in resources, regulatory structures and capital access. Thus, the path to net zero makes for a bumpy ride that is riddled with hiccups.

While they have potential for Green Hydrogen, Chile, Brazil and Colombia, uncertainty looms large over the import of electrolysis technologies that are under development outside of the region since there is a high demand for them in other parts of the world.

When compared with Asian and European counterparts and the USA, the EV sector in LatAm region is relatively growing at a much slower pace. The sale of EVs in 2021 constituted less than 1 per cent in the total light vehicles category, thereby painting a dismal picture. Absence of EV incentives and protectionist tariffs make the atmospehere non-conducive for the EV sector to thrive. But Colombia, Costa Rica and Brazil are regions to look out for since they are putting in place EV-supportive infrastructure.

Countries in LatAm Region Paving The Way For Energy Transition

Most Latin American countries, specially in Panama, Puerto Rico, Brazil, and Chile have much to offer with regards to distributed generation. Chile and Brazil, the two mature markets, have promising regulatory frameworks, solar radiation that does not hurt the pocket. At the same time, they are also supportive of grid infrastructure. While Panama and Puerto Rico are not expected to grow at a similar rate, the rate they are expected to grow at is stull colossal.

LatAm stands to gain economically from the sanction of Russian supplies as an eventuality of the war. A vast expanse of renewable energy sources and abundant reserves of critical minerals, in additional to an expanding agricultural sector, are complemented by light crude and shale gas in the LatAm region. Peru, with its  increased LNG exports by 74% in Q1 2022 only affirm this. Vaca Muerta’s shale oil production, on the other hand, is breaking records.

The report has also stressed the importance of robust policies and framework, able leadership, foreign investment, industrial expansion and support in upping Latin America’s energy transition game.