On a path to growth - Part 1

According to the US EIA, Latin America registers a total of 340 billion bbls of proven crude reserves and production exceeding 7 million bpd.

While upstream sectors around the world are suffering from low commodity prices, consumer demand is still keeping pipelines full. How the midstream sectors within Latin American countries fare is far more dependent on how governments treat the energy sector; some are flourishing and others languishing.

Mexico

Mexico offers Latin America’s greatest potential for the pipeline sector. Under President Enrique Peña Nieto, federal reforms have eliminated monopolies in both the oil and gas sector and the electric utility sector. Oil firms are being allowed to participate in exploration and production, and pipeline companies can invest in the midstream sector.

Gas demand has been growing at 4% annually as the population and industrial base grows. By 2018, Comisión Federal de Electricidad (CFE) plans to expand and privatise its natural gas infrastructure network by 75%. The former monopoly has already contracted 19 cross-border or domestic pipelines, in order to more than triple current imports of approximately 3 billion ft3/d.

In February, Pemex announced that it was selling several crude pipelines. KKR, a US-based private equity firm, has agreed to purchase 11 pipelines, a natural gas compression facility and other assets for US$1.35 billion. Since the outlook for oil prices remains bleak, analysts predict many more asset divestitures are in the offing. In addition to asset sales, there is huge potential for liquids new-build.

Law firm Tudor, Pickering, Holt and Co. estimates Mexico will attract US$50 billion in capital spending on pipeline infrastructure and related assets over the next five years. Institutional investors from abroad are also looking at Mexican pipeline assets. Recently, TransCanada purchased Columbia Pipeline Group in the US for US$10 billion, and wants to lower its corporate debt by divesting a portion of its Mexican holdings.

Investing in Mexico is not without its risks; many states are dominated by cartels, and kidnappings and murders are rampant. Theft from refinery product pipelines has reached epidemic proportions, with thousands of incidents reported each year.

On the plus side, Mexico is taking corruption allegations seriously, putting in transparent oil and gas regulations and policies. The federal government is committed to reversing the downward production trend for both oil and gas, and increasing revenues.

Colombia

Two decades ago, a lack of investment, a civil war with FARC guerrillas, and an indecisive federal government had cut the country’s 990 000 bpd output in half. Under the Uribe government, a series of fiscal and regulatory changes were enacted in 2003 that opened up the sector to privatisation. Since then, international investments exceeding US$5 billion annually have resulted in a rise in production to 1 million bpd, with the majority of new production earmarked for export to the US, China and Europe.

A sound fiscal and regulatory regime has helped to bolster Colombia’s midstream sector. The country is rich in natural gas, with reserves totalling 6.4 trillion ft3. It produces almost 1 billion ft3/d and transports it to market on 5000 km of lines. For the last decade, the Antonio Ricuarte export pipeline (Trans Caribbean) has shipped up to 250 million ft3/d to Venezuela.

Resistance groups like FARC remain a problem for the nation’s energy infrastructure, however. Attacks upon pipelines have exceeded 100 annually for the last several years, eliminating approximately 45 000 bpd through unplanned production outages. In March, US Secretary of State, John Kerry, met with FARC representatives in Havana in order to facilitate talks, but until peace negotiations succeed, industry observers expect production growth in Colombia to slow significantly.

Written by Gordon Cope and edited by Stephanie Roker

Read the full length article here.

Read the article online at: https://www.worldpipelines.com/special-reports/23092016/on-a-path-to-growth-part-1/