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Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs Department Inter-American Development Bank Andean Development Corporation Washington, D.C. January 2002

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Page 1: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Towards Hemispheric

Hydrocarbon Cooperation

Ramón Espinasa

Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs Department

Inter-American Development Bank

Andean Development Corporation

Washington, D.C.

January 2002

Page 2: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States: Consumption and Production

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Page 3: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States: Consumption and Production 2020

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Page 4: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States: Consumption, Production and Imports

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Extra Hemispheric Imp.

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Page 5: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States: Consumption, Production and Imports 2020

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Page 6: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States Oil Balance - Overall

Page 7: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States Oil Balance - Overall

• United States oil imports have increased threefold over the last fifteen years, from 3.5 up to 10.5 MBD.

Page 8: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States Oil Balance - Overall

• United States oil imports have increased threefold over the last fifteen years, from 3.5 up to 10.5 MBD.

• United States oil imports may grow between 1 and 9 MBD if the consumption and production trends of the last thirty and fifteen years persist over the next twenty.

Page 9: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States Oil Balance - Overall

• United States oil imports have increased threefold over the last fifteen years, from 3.5 up to 10.5 MBD.

• United States oil imports may grow between 1 and 9 MBD if the consumption and production trends of the last thirty and fifteen years persist over the next twenty.

• United States extra hemispheric oil imports have increased fivefold over the last fifteen years from 1 up to 5 MBD.

Page 10: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States Oil Balance - Composition

Page 11: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States Oil Balance - Composition

• The composition of United States imports is as follows: 50% extra hemispheric sources; 30% NAFTA countries and 20% Andean Pact countries.

Page 12: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

United States Oil Balance - Composition

• The composition of United States imports is as follows: 50% extra hemispheric sources; 30% NAFTA countries and 20% Andean Pact countries.

• If exports from NAFTA and Andean Community countries into the United States were not to increase and the consumption and production trends remain constant, extra hemispheric oil imports will increase between 6 and 14 MBD and become between 55% and 75% of total U.S.A. oil imports.

Page 13: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC: Consumption and Production

Production

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Page 14: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC: Consumption and Production 2020

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Page 15: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Overall

• Net LAC oil exports have increased two fold over the last fifteen years from 2 to 4 MBD.

Page 16: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Overall

• Net LAC oil exports have increased two fold over the last fifteen years from 2 to 4 MBD.

• If consumption and production trends remain constant, LAC net exports are to increase 50% over the next twenty years up to 6 MBD.

Page 17: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Overall

• Net LAC oil exports have increased two fold over the last fifteen years from 2 to 4 MBD.

• If consumption and production trends remain constant, LAC net exports are to increase 50% over the next twenty years up to 6 MBD.

• This implies increasing production by 6 MBD, 4 MBD to supply domestic consumption in LAC countries and 2 MBD for additional exports.

Page 18: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Vis a vis the United States

• LAC exports are nowadays 30% of United States total oil imports.

Page 19: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Vis a vis the United States

• LAC exports are nowadays 30% of United States total oil imports.

• Assuming the totality of additional LAC exports were to supply the United States market LAC share of imports would increase to 50% in the slow import growth scenario and drop below 30% in the fast import growth scenario.

Page 20: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Vis a vis the United States

• If LAC countries were to increase their share of United States import market to at least 50% even in the fast import growth scenario, exports into the U.S. should increase by 6MBD.

Page 21: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Vis a vis the United States

• If LAC countries were to increase their share of United States import market to at least 50% even in the fast import growth scenario, exports into the U.S. should increase by 6MBD.

• To reach a 50% share in the United States fast import growth scenario, oil production in the LAC countries should increase twofold over the next twenty years from 10 MBD up to 20 MBD.

Page 22: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Scenarios

• Two oil production growth scenarios emerge for LAC countries:

Page 23: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Scenarios

• Two oil production growth scenarios emerge for LAC countries:– Trend Growth: The last thirty years trend remains constant and

production grows by 6 MBD over the next twenty. LAC will not be able to keep a 30% share if he U.S. import market keeps growing as it has been for the last fifteen years.

Page 24: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC Oil Balance - Scenarios

• Two oil production growth scenarios emerge for LAC countries:– Trend Growth: The last thirty years trend remains constant and

production grows by 6 MBD over the next twenty. LAC will not be able to keep a 30% share if he U.S. import market keeps growing as it has been for the last fifteen years.

– Fast Growth: LAC oil production grows faster over the next twenty years than the trend of the last thirty. Production grows by 10 MBD and the share of LAC exports in the U.S. import market grows up to at least 50%.

Page 25: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC and the United States: Reserves

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Page 26: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

LAC: Reserves 1970 - 2000

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Page 27: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Production Million Barrels per year

Reserves Billion Barrels

P/R

United States 2800 21000 13.3%

United States and LAC: Production, Reserves and P/R ratio

Page 28: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Production Million Barrels per year

Reserves Billion Barrels

P/R

United States 2800 21000 13.3%

LAC 3500 148000 2.4%

United States and LAC: Production, Reserves and P/R ratio

Page 29: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Production Million Barrels per year

Reserves Billion Barrels

P/R

United States 2800 21000 13.3%

LAC 3500 148000 2.4%

LACTREND Growth Scenario

5700 148000 3.9%

United States and LAC: Production, Reserves and P/R ratio

Page 30: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Production Million Barrels per year

Reserves Billion Barrels

P/R

United States 2800 21000 13.3%

LAC 3500 148000 2.4%

LACTREND Growth Scenario

5700 148000 3.9%

LACFAST Growth Scenario

7100 148000 4.8%

United States and LAC: Production, Reserves and P/R ratio

Page 31: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Reserves, Production and P/R ratio

• LAC oil reserves are seven times the United States reserves, 148 vs. 21 mMB.

Page 32: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Reserves, Production and P/R ratio

• LAC oil reserves are seven times the United States reserves, 148 vs. 21 mMB.

• LAC oil reserves have increased in 120 mMB over the last thirty years, from 27 up to 148 mMB, in the mean time the region has produced 74 mMB.

Page 33: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Reserves, Production and P/R ratio

• LAC oil reserves are seven times the United States reserves, 148 vs. 21 mMB.

• LAC oil reserves have increased in 120 mMB over the last thirty years, from 27 up to 148 mMB, in the mean time the region has produced 74 mMB.

• United States intensity of production is more than fivefold that of the LAC region (13.3% vs. 2.4%).

Page 34: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Reserves, Production and P/R ratio

• Trend Growth Scenario: LAC countries may increase production by 2/3 or 6 MBD and their P/R ratio will still be less than 1/3 that of the United States.

Page 35: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Reserves, Production and P/R ratio

• Trend Growth Scenario: LAC countries may increase production by 2/3 or 6 MBD and their P/R ratio will still be less than 1/3 that of the United States.

• Fast Growth Scenario: LAC countries may increase production twofold up to 10 MBD, and their P/R ratio will be slightly more than 1/3 that of the United States.

Page 36: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Investment

Expenditure

Billion $

Total

Expenditure

Billion $

Growth

Effect

% GDP

Trend Growth

Scenario

120 162 12%

Investment and Total Expenditures, and Growth Effect

Page 37: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Investment

Expenditure

Billion $

Total

Expenditure

Billion $

Growth

Effect

% GDP

Trend Growth

Scenario

120 162 12%

Fast Growth

Scenario

200 271 20%

Investment and Total Expenditures, and Growth Effect

Page 38: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Services Expenditure

Billions $

Growth Effect

% GDP

Trend Growth

Scenario

32 3.5%

Services Expenditure and Growth Effect

Page 39: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Services Expenditure

Billions $

Growth Effect

% GDP

Trend Growth

Scenario

32 3.5%

Fast Growth

Scenario

54 6.0%

Services Expenditure and Growth Effect

Page 40: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Investment Financing• Investment required to increase production capacity

between 6 and 10 MBD in the LAC region over the next twenty years fluctuates between 120 and 200 mM$.

Page 41: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Investment Financing• Investment required to increase production capacity

between 6 and 10 MBD in the LAC region over the next twenty years fluctuates between 120 and 200 mM$.

• Tapping into such financial resources requires a major effort in terms of developing mutual trust among governments, companies, local and international financial markets.

Page 42: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Investment Financing• Investment required to increase production capacity

between 6 and 10 MBD in the LAC region over the next twenty years fluctuates between 120 and 200 mM$.

• Tapping into such financial resources requires a major effort in terms of developing mutual trust among governments, companies, local and international financial markets.

• Multilateral agencies have a role to play managing country risk, increasing mutual trust between companies and governments and developing local capital markets.

Page 43: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Investment and Services Expenditures and Growth Effect

• Investment and operational expenditure to produce between 6 and 10 MBD together with the expenditure of oil fiscal revenue associated to that production, will induce a LAC region GDP growth of between 12% and 20% over the next twenty years.

Page 44: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Investment and Services Expenditures and Growth Effect

• Investment and operational expenditure to produce between 6 and 10 MBD together with the expenditure of oil fiscal revenue associated to that production, will induce a LAC region GDP growth of between 12% and 20% over the next twenty years.

• Oil services expenditure associated to both increasing capacity and producing between 6 and10 MBD in the LAC region will fluctuate between 32 and 54 mM$ over the next twenty years.

Page 45: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Investment and Services Expenditures and Growth Effect

• Investment and operational expenditure to produce between 6 and 10 MBD together with the expenditure of oil fiscal revenue associated to that production, will induce a LAC region GDP growth of between 12% and 20% over the next twenty years.

• Oil services expenditure associated to both increasing capacity and producing between 6 and10 MBD in the LAC region will fluctuate between 32 and 54 mM$ over the next twenty years.

• Oil services expenditures will have an overall GDP growth effect on the LAC region of between 3.5% and 6% over the next twenty years.

Page 46: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Towards Hemispheric Hydrocarbon Cooperation

• United States shows both a growing oil domestic supply deficit and a growing dependence on extra hemispheric sources of supply, with security of supply consequences.

Conclusions

Page 47: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Towards Hemispheric Hydrocarbon Cooperation

• United States shows both a growing oil domestic supply deficit and a growing dependence on extra hemispheric sources of supply, with security of supply consequences.

• LAC countries have the reserves to supply the United States oil deficit. Investment and operational expenditures to develop such reserves will have an important economic growth effect impact on the LAC region.

Conclusions

Page 48: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Towards Hemispheric Hydrocarbon Cooperation

• Deepening Western Hemisphere Energy Integration whereby LAC countries significantly increase oil supply to the United States and the U.S. exports oil producing goods and services and finances oil investment in LAC is strategy where both parties win. The United States win in security of supply and the LAC countries win in economic growth.

Conclusions

Page 49: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Key questions

• What are the obstacles to larger private investment in the oil sector in Latin America and the Caribbean?

Conclusions

Page 50: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Key questions

• What are the obstacles to larger private investment in the oil sector in Latin America and the Caribbean?

• Why market mechanisms on their own are not able to stimulate such investment? What is the role of Multilateral Institutions in solving this problem?

Conclusions

Page 51: Towards Hemispheric Hydrocarbon Cooperation Ramón Espinasa Consultant. Integration, Trade and Hemispheric Issues Division. Integration and Regional Programs

Key questions

• What are the obstacles to larger private investment in the oil sector in Latin America and the Caribbean?

• Why market mechanisms on their own are not able to stimulate such investment? What is the role of Multilateral institutions in solving this problem?

• How to organize the development of the oil sector in order to integrate both environmental and social development?

Conclusions