Contingencies forge South America energy ties

Author Patricia Garip, Senior Contributing Editor

Energy integration is a goal that has long eluded South America, notwithstanding decades of grand plans by governments, multilateral agencies and companies looking to monetise surplus hydrocarbons, electricity and other resources.

A pair of contingencies this week illustrates how quickly the hurdles can be swept away when acute needs arise.

Colombia has been engulfed in protests since the end of April, thwarting distribution of motor fuel and LPG. Propane shortages have forced many Colombians to cook with firewood instead. And without motor fuel, distribution of critical medical supplies and even Covid-19 vaccinations in some places have stalled.

Colombia’s embattled government and state-controlled Ecopetrol have coordinated logistics to replenish supplies in areas cut off by incessant roadblocks.

Neighboring Ecuador, already a source of electricity for Colombia and a conduit for Colombian crude exports, has now stepped in with emergency fuel supply as well. In recent days, state-owned PetroEcuador has coordinated wholesale supply of gasoline, diesel and LPG to distributors in Colombia, alleviating some of the shortages, particularly in hard-hit southwest departments.

While the governments and state-controlled companies have coordinated the supply, the private sector, including Chilean Copec’s Colombian distribution subsidiary Terpel, have been key actors in putting the plan into action.

More contingency-driven energy supply is emerging further south. The unplanned outage of Peru LNG’s 4.4mn t/yr Pampa Melchorita liquefaction terminal earlier this month prompted the government in Lima to authorize gas distributors to import LNG.

Enter Chile’s GNL Mejillones regasification terminal, which is now in preliminary talks with Peruvian distributors to supply their cryogenic trucks. It’s not a done deal yet, but the discussions could open the door to future supply between two neighbours whose political relations have tended to be thorny.

Although South America already boasts some energy integration, progress has been limited. Central America’s vaunted Siepac power grid, for instance, still has transmission bottlenecks. Venezuela abandoned its gas supply pledge to Colombia and power supply to northern Brazil.

And the distrust sown by Argentina’s cut-off of pipeline gas to its neighbours in the mid-2000s never really went away, no matter how plentiful its shale resources are.

Yet the promise of creating more efficient and complementary energy networks in a region awash in resources — from natural gas to solar rays— remains a commercial imperative. The pandemic-era focus on nearshoring and tighter supply chains only adds to the logic.

By their nature, the volumes and duration of emergency cross-border energy supplies are limited, and hard-to-crack issues such as regulatory dissonance, infrastructure bottlenecks and pricing will undoubtedly resurface when and if the parties revisit longer-term arrangements. But the synergies brought out by the crises could nudge some reluctant neighbors to give a second look next door.

Argus Latin America Energy
The Argus Latin America Energy service provides reliable, in-depth analysis and pricing information for a changing Latin American market.
This weekly business intelligence service includes news, prices and analysis of the Latin American oil, natural gas and electricity sectors.
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