Latin America peers warily into US election mirror
The region's recovery from Covid-19 will depend heavily on who is dictating US policy, writes Patricia Garip
Waves of political chaos that recurrently engulf Latin America were not supposed to wash up on stable US shores. Yet days before the 3 November election, the US is convulsed by claims of ballot meddling, threats of violence and a leader questioning the electoral process. This scenario is familiar to Caracas, not Washington.
Because Latin America relies heavily on US trade, investment and monetary policy, the turmoil is unsettling. Whether incumbent Donald Trump wins another four years, or loses to Democratic former vice-president Joe Biden — as the polls predict — the result will shape the pace and direction of Latin America's economic recovery from the disproportionately harsh impact of Covid-19.
The IMF forecasts that Latin American and Caribbean GDP — coming off zero average growth in 2019 — will shrink by 8.1pc in 2020, before rebounding to 3.6pc next year. If Trump prevails, this tentative recovery is more likely to be driven by traditional commodity exports, reinforcing the mandate of national oil companies such as Mexico's Pemex and Brazil's Petrobras, while promoting US oil investment in hotspots such as deepwater Guyana and Colombia's fledgling shale play.
But Trump's isolationist "America First" strategy could also usher in higher trade barriers, more explicit pressure on Latin America to spurn Chinese investment and financing, and a deeper rejection of the multilateralism that has long underpinned the region's economic and institutional development. With the election behind him, Trump's loud but ineffective "maximum pressure" campaign on Venezuela would further unravel, leaving a potential void superficially cloaked by Monroe Doctrine sentiment. More consequentially, his climate denialism would make it easier for Latin America to avoid a greener path to economic growth.
In contrast, a Biden administration would incorporate climate goals into foreign policy, encouraging the region to accelerate its energy transition and step up environmental standards. Similarly, Biden's labour commitments would raise the trade bar. Strategic minerals exporters such as Chile would be well-positioned to supply the raw materials needed to fulfil Biden's green manufacturing plan. Others such as Ecuador and Colombia that remain glued to oil for most of their foreign earnings would have incentives to diversify.
Biden's plan to re-engage with multilateral organisations, return to the Paris climate accord and realign with EU allies would seek to restore US global leadership and send more consistent transatlantic policy signals to Latin America. But his climate focus would also risk antagonising oil-focused neighbours such as Mexico.
Who's on first?
They got off to a rocky start, but relations between Trump and Mexican president Andres Manuel Lopez Obrador warmed up once a revised US-Mexico-Canada (USMCA) free trade deal was agreed in 2018. The two nationalists have a common disdain for climate policy and an affinity for oil and coal. But energy ties are inexorably lopsided, with Mexico by far the top importer of US oil products and natural gas — a structural dependence that Lopez Obrador's anachronistic greenfield Dos Bocas refinery project will not erase (see chart). By the same token, US refiners exporting products will continue to rely on Mexico and other Latin American markets whatever the election result, while US demand lags pre-Covid levels.
Despite their energy interdependence, US-Mexico relations in a second Trump term would probably remain shallow, as long as co-operation on immigration — a key issue for Trump voters — stays on track. Trump threw Lopez Obrador an unexpected lifeline in April with a nominal pledge to reduce US oil production so that Mexico could fulfil a commitment to Opec+. Lopez Obrador's rollback of Mexico's 2014 energy reform — and the Trump administration's tepid response to US investors' recent complaints of Mexican regulatory bias — show that the White House is even willing to tolerate Mexico First.
A Biden administration would press Mexico to fulfil USMCA investment commitments, with added environmental and labour expectations. It would offer incentives for Mexico to reopen the energy sector, but with a greener accent aligned with US climate goals, implicitly recognising that investors will have less appetite for oil assets by the time Mexico elects its next president in 2024.
Brazilian president Jair Bolsonaro is another nationalist, but unlike Lopez Obrador he boasts a reform agenda crowned by the downsizing of Petrobras. While Mexico is building a refinery and propping up Pemex, Petrobras is divesting refineries and retrenching into its core pre-salt business, opening US investment opportunities. As in Mexico, the US is Brazil's leading foreign investor. But China has emerged as an increasingly relevant commercial partner because of its resurgent pre-salt crude demand — a strategic relationship that belies the rhetoric of Bolsonaro and Trump.
Under a Trump or Biden presidency, China's oil buying spree in Brazil would remain intact. But another Trump term would likely see more tariff flare-ups with Brasilia, as happened with steel and ethanol this year. Biden's plan to incorporate environmental commitments into trade relationships would pressure Brazil into tackling runaway Amazon deforestation.
Lost cause
One place where Biden's green agenda would not immediately resonate is Venezuela, where the Trump administration's years-long quest to topple President Nicolas Maduro in favour of opposition leader Juan Guaido has already started to fade. While Maduro has overcome US sanctions that he blames for Venezuelan hardship, Guaido's popular support has slumped. His nostalgic oil-based reconstruction plan for Venezuela looks obsolete, and many of his exiled advisers who helped draw it up have abandoned him. Even his mentor, Leopoldo Lopez, has left the country. Many US allies no longer accept Guaido as the exclusive democratic option, and December legislative elections that the mainstream opposition has vowed to boycott could end his leadership for good.
In a desperate two-for-one strategy this year, the White House is playing up threats posed by Maduro's ties to Iran, with few adherents beyond hardline opponents still believing that Trump is committed to "all options".
If Biden succeeds Trump, US sanctions on Venezuela would not disappear. And even if they did, Venezuela's oil industry is too far gone to meaningfully rejoin the market in the way that Iran's could (see chart). But Biden would broaden the sanctions exit route to give Maduro and his military backers more incentives to hold credible elections. In parallel, Biden would move closer to the EU's diplomatic approach, and resume a thaw with Cuba that was spearheaded by Trump's predecessor Barack Obama. Overall, Biden would "de-Venezuelanize" policy toward the region, and offer temporary US protection for Venezuelan immigrants.
Whether Trump wins or not, come November he will no longer need to beat the drum over Venezuela and Cuba to win over conservative Latino voters in Florida. He could let Wall Street bondholders execute their claim to Venezuelan state-owned PdV's US refining subsidiary Citgo. Disillusioned with Guaido, Trump could even meet Maduro in a dramatic sequel to his North Korea summit.
For now, hopes for a peaceful transition are better applied to the US than to Latin America, where Bolivia and Chile are the latest countries to celebrate orderly elections. But even after the US votes are counted, the surging pandemic will force the man in the White House to look inward before looking south.
Related news posts
Oil firm ReconAfrica agrees to class action settlement
Oil firm ReconAfrica agrees to class action settlement
Cape Town, 18 April (Argus) — Africa-focused, Canada-based upstream firm ReconAfrica has agreed to pay $10.8mn in total to eligible shareholders to settle class action lawsuits lodged in different jurisdictions over allegations that the company made misleading statements. The company will pay $7.05mn to investors who bought its shares on the US over-the-counter (OTC) markets and $3.7mn to shareholders who bought securities in the firm on Canada's TSX Venture Exchange and the Frankfurt Stock Exchange within specified class periods. In Canada, parties reached the proposed settlement after a full-day mediation in October 2023, without any admission of liability by ReconAfrica. A hearing has been scheduled on 20 June for the British Columbia Supreme Court to approve the settlement. The plaintiffs allege that between May 2020 and September 2021, ReconAfrica released misleading statements, including its plans to undertake hydraulic fracturing of "unconventional" resources and "shale" deposits within Namibia. The firm failed to disclose that Namibia has never before allowed fracking. The plaintiffs further claim that ReconAfrica did not disclose data from its test wells that revealed poor prospects for achieving commercially viable oil and gas production. The company also stands accused of undertaking unlicensed drilling and illegal water usage, as well as other environmental and human rights violations. It denies all these allegations. ReconAfrica has a current market capitalisation of C$204.7mn. Earlier this month, it raised C$17.25mn in a public share offering. The firm plans to undertake a multi-well drilling campaign this year, with the first well in Namibia's Damara Fold Belt scheduled for June. The company controls the entire Kavango sedimentary basin, which spans over 300km from the northeast of Namibia to northwest Botswana. Early estimates claimed the basin could hold as much as 31bn bl of oil, of which 22.3bn bl are in Namibia and 8.7bn bl in Botswana. ReconAfrica has a 90pc stake in the PEL 73 licence, which extends 25,000km² across northeast Namibia. The remaining 10pc is held by Namibian state-run company Namcor. The Kavango basin includes part of the ecologically sensitive Okavango Delta, a Unesco World Heritage site. The Okavango watershed consists of the Okavango river and a network of shallow, interlinked aquifers, which is a vital water source for more than a million people. The delta also serves as a habitat and migration path for many endangered animal species. Last year, ReconAfrica received environmental approval to drill 12 more wells in the Kavango. The firm recently completed a technical review of its entire exploration inventory in Namibia and now expects to find a mix of oil and gas. ReconAfrica announced an updated prospective resource estimate for Damara last month, indicating an unrisked 15.4bn bl of undiscovered oil initially-in-place. This compares with a previous estimate that pointed only to prospective natural gas resources amounting to 22.4 trillion ft³. The change "is the result of in-depth analyses of all geochemical data, including cores, cuttings, mud logs, seeps and additional basin modelling studies," ReconAfrica said. The firm has made the updated estimates available to potential joint venture partners and expects to complete this month a farm-out process that it started in December 2023. By Elaine Mills Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Canada furthers investment in GHG reductions
Canada furthers investment in GHG reductions
Houston, 18 April (Argus) — The Canadian government plans to have C$93bn ($67.5bn) in federal incentives up and running by the end of the year to spur developments in clean energy technology, hydrogen production, carbon capture utilization and storage (CCUS) along with a new tax credit for electric vehicle (EV) supply chains. The Canada Department of Finance, in its 2024 budget released on 16 April, said it expects to have the first planned investment tax credits (ITCs), for CCUS and renewable energy investments, in law before 1 June. The ITCs would be available for investments made generally within or before 2023 depending on the credit. The anticipated clean hydrogen ITC is also moving forward. It could provide 15-40pc of related eligible costs, with projects that produce the cleanest hydrogen set to receive the higher levels of support, along with other credits for equipment purchases and power-purchase agreements. The government is pursuing a new ITC for EV supply chains, meant to bolster in-country manufacturing and consumer adoption of EVs with a 10pc return on the cost of buildings used in vehicle assembly, battery production and related materials. The credit would build on the clean technology manufacturing ITC, which allows businesses to claim 30pc of the cost of new machinery and equipment. To bolster reductions in transportation-related greenhouse gas (GHG) emissions, the government will also direct up to C$500mn ($363mn) in funding from the country's low-carbon fuel standard to support domestic biofuel production . Transportation is the second largest source of GHG emissions for the country, at 28pc, or 188mn metric tonnes of CO2 equivalent, in 2021. But the province of Alberta expressed disappointment at the pace of development of ITC support that could help companies affected by the country's move away from fossil fuels. "There was nothing around ammonia or hydrogen, and no updates on the CCUS ITCs that would actually spur on investment," Alberta finance minister Nate Horner said. The incentives are intended to help Canada achieve a 40-45pc reduction in GHG emissions by 2030, relative to 2005 levels. This would require a reduction in GHG emissions to about 439mn t/yr, while Canada's emissions totaled 670mn in 2021, according to the government's most recent inventory. The budget also details additional plans for the Canada Growth Fund's carbon contracts for a difference, which help decarbonize hard-to-abate industries. The government plans to add off-the-shelf contracts to its current offering of bespoke one-off contracts tailored to a specific enterprise to broaden the reach and GHG reductions of the program. These contracts incentivize businesses to invest in emissions reducing program or technology, such as CCUS, through the government providing a financial backstop to a project developer. The government and developer establish a "strike price" that carbon allowances would need to reach for a return on the investment, with the government paying the difference if the market price fails to increase. CGF signed its first contract under this program last year , with Calgary-based carbon capture and sequestration company Entropy and has around $6bn remaining to issue agreements. To stretch this funding further, the Canadian government intends for Environment and Climate Change Canada to work with provincial and territorial carbon markets to improve performance and potentially send stronger price signals to spur decarbonization. By Denise Cathey Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Scotland abandons 2030 climate target to focus on 2045
Scotland abandons 2030 climate target to focus on 2045
Edinburgh, 18 April (Argus) — The Scottish government is abandoning its 2030 target to reduce greenhouse gas (GHG) emissions after the UK's Climate Change Committee (CCC) said last month Scotland would not be able to meet it, but reiterated "unwavering commitment" to its 2045 net zero goal. Scotland had an ambitious interim target to reduce GHG emissions by 75pc by 2030 from a 1990 baseline and its legally binding 2045 net zero goal date is ahead of the rest of the UK. The CCC said in March that the nation was unlikely to meet its 2030 climate goals as "continued delays" in plans and policies mean the required actions to hit targets are now "beyond what is credible". And today, Scotland's cabinet secretary for net zero Mairi McAllan said that the government "accepts the CCC's recent re-articulations" that the "2030 target is out of reach". "We must now act to chart a course to 2045 at a pace and scale that is feasible, fair and just." She said that the government will bring forward "expediting legislation" to remove the 2030 target, calling it "a minor legislative change". McAllan said climate actions are backtracking at the UK level and blamed "severe budget restrictions" by the UK government and the "constrains of devolution". Scotland is a member nation of the UK, and the Scottish parliament has some devolved powers. But energy, for example, remains a reserved matter in the UK, and decisions — including licensing, regulation and policy — are taken by the UK parliament. She said that Scotland was trying to achieve societal and economic transformation with "one hand tied behind our back". Scotland's first minister Humza Yousaf said there was no intention to "roll back" on the target to achieve net zero emissions by 2045, saying that Scotland has made faster progress than any other nation in the UK during 2019-21, but that 2030 was a "stretched" target. McAllan said annual reporting on progress will be kept but by introducing a target approach based on "five-yearly carbon budgets" — a cap on the amount of GHG emitted over a five-year period — in a similar way to the rest of the UK. Scotland missed its annual emissions-reduction target in 2021, for the eighth time in the last 12 years. The CCC's interim chair Piers Forster said today that the removal of the 2030 target was "deeply disappointing". "We are reassured that the net zero target remains in place but interim targets and plans to deliver against them are what makes any net zero commitment credible," he said. McAllan announced a series of measures that the government wants to introduce, including reducing methane emissions in farming, a Scotland-wide integrated transport ticketing system, and the quadrupling of electric car charging points. But it is unclear what will happen to Scotland's delayed climate strategy, which was due at the end of 2023. By Caroline Varin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Uganda aims for net zero energy sector by 2062
Uganda aims for net zero energy sector by 2062
Kampala, 18 April (Argus) — Uganda has brought forward its target for net zero carbon emissions from its energy sector by three years, to 2062, energy ministry permanent secretary Irene Batebe told an oil and gas conference in Kampala. This new deadline is still lagging some way behind a 2050 "net zero operations" target pledged by 40 oil and gas firms , including African state-owned ones such as Libya's NOC and Sudan's Nilepet, at the UN Cop 28 climate summit. Signatories to the Cop 28 charter also pledged "near-zero upstream methane emissions" by 2030. Uganda's CO2 emissions from fuel combustion were 5.7mn t in 2021, according to most recent IEA data, but this will probably increase with the development of a 230,000 b/d crude project in its western Lake Albert region. The crude project had been scheduled to begin production in late 2025 — although the head of TotalEnergies' Ugandan operations recently said the company may miss this long-standing target. Batebe said the Ugandan government has plans to increase hydroelectricity capacity to around 52GW by 2050, to increase use of solar wind and nuclear power, and has a budget of $8bn by 2030 to finance these. The IEA estimates hydroelectricity accounts for around 90pc of Uganda's generating capacity. But this installed capacity is only around 1.5GW currently. The country's nuclear ambitions remain at the planning stage, and biomass — wood and charcoal — dominates energy consumption. "We want to phase out use of coal, but… countries that produced oil and gas should get out first and we shall follow," she said. "We cannot afford to remain poor. We shall produce our oil and gas responsibly, use LPG from the [planned] refinery and then connect more than the current 57pc of our population to electricity with affordability to use it for cooking and other uses other than lighting then meet our emissions targets." Batebe said the world's longest heated crude export pipeline, which will connect its oil fields with to the port of Tanga on Tanzania's Indian Ocean coast, will be insulated to "three layers" to limit emissions. TotalEnergies' Ugandan general manager Philippe Groueix said the two Lake Albert projects, Tilenga and Kingfisher, are designed to produce crude at 13kg of CO2/bl, far below the world average of 33 kg/bl. TotalEnergies is developing the 190,000 b/d Tilenga field and and Chinese state-controlled CNOOC the 40,000 b/d Kingfisher. By Mercy Matsiko Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more