<article><p class="lead"><i>National oil companies (NOCs) in Latin America are reorienting to comply with energy transition goals and the environmental, social and governance (ESG) agenda. Luisa Palacios, senior research scholar at the Centre on Global Energy Policy at Columbia University and former chairwoman of the board of directors at US-based refiner Citgo, spoke to Argus in New York about NOCs' decarbonisation activities and the impact of the war in Ukraine on the region's energy sector. </i></p><p class="lead"><b>How are NOCs adapting their businesses to comply with decarbonisation goals and the ESG agenda?</b></p><p class="lead">The companies that are responding fastest are those that are listed on the stock exchange as they are exposed to the financial sector. For access to financing, to banks, to markets, they are realising that they must have a credible energy transition plan. [Brazil's] Petrobras is pretty much doubling down on pre-salt oil and gas production. It is betting that it will be one of the survivors [in the oil sector] because it says it can produce at $35/bl. It is decarbonising by optimising its portfolio, selling mostly onshore assets and concentrating on offshore pre-salt.</p><p>On the other hand, [Colombia's] Ecopetrol has adopted a model more like the European model, where they are moving from being oil companies to being energy companies. They understand that they do not have the reserves that Petrobras has, and they are reorienting their business model to be part of the energy transition. There is also [Argentina's] YPF, which is sitting on one of the biggest shale gas reserves outside of the US. Shale has two positive things within the energy transition framework — it is short-lived and it is much more flexible and more transition oriented. YPF, like Ecopetrol, has a subsidiary called YPF Luz that invests in renewable energy.</p><p class="lead"><b>What else is necessary to help NOCs diversify further?</b></p><p class="lead">It seems to me that [in Latin America] instead of seeing state companies as a problem, I think we must see them as part of the solution for the energy transition. State oil companies have the cash flow, the experience managing large-scale projects. So, you have the way to push the energy transition. </p><p>In Latin America, given how dependent these countries are on oil and natural gas, whether for exports or fiscal matters, this cannot be done overnight. This has to be done very carefully, so you have to go in the right direction by bringing the financial sector and the oil sector together, and trying to get the oil sector to generate the markets and the products that are going to be exported in the future, while at the same time, using some of the money you are raising from oil prices to finance that. </p><p class="lead"><b>How has the war in Ukraine affected the region's energy transition?</b></p><p class="lead">It is an opportunity for Latin America because it brings the issue of energy security to the discussion, and the issue that you must have reliable and ESG-friendly sources to buy your energy. It is an opportunity for Latin America that countries in Europe and the US must diversify away from Russia. The Middle East is one option but Latin America is another and so it is a way to attract capital. </p><p>What the war in Ukraine is showing us is that we do not have to forget the issue of security. In the very short term, we are trying to solve the problem of energy security with several exceptions. But these are exceptions that will last a year or a year and a half maximum, because while this is happening, what is this crisis showing? It is showing in Latin America that the cheapest electricity comes from renewable energies.</p></article>
