The timeless struggles between “Liberals” and “Conservatives” in the books of Gabriel Garcia Marquez show Latin American politics moving in waves. One of those waves may be washing up on the continent’s shores now, and it comes from the left, with important implications for energy.
The run-off of the Brazilian elections comes on October 30. Although incumbent far right leader Jair Bolsonaro did better than expected in the first round, he still trails left-wing former president Luiz Inacio “Lula” da Silva, who should probably win as he picks up voters from candidates eliminated in the first round. But a strong showing for right-wing parties in congress and state governorships will limit his room for manoeuvre.
Andres Manuel Lopez Obrador (“Amlo”) in Mexico has just under two years to go before voters elect a new president in July 2024. Gustavo Petro came to power in Colombia in June, the first left-wing president in the country. Another left-winger, Gabriel Boric, 36, entered office in Chile in March. Autocrat Nicolas Maduro continues to cling on in Venezuela despite economic shambles and starvation.
Although all are described as “leftists”, the interesting thing is just how much their policies on energy vary. They all face a very different world from a previous leftwards turn in the early 2000s.
Inflation is high, living standards are under pressure, and communities resist new fossil fuel and mining projects. The continent’s oil exports are important for tackling the current global crises of war and inflation; its resources of critical minerals are even more so for new energy systems.
Oil prices remain quite strong. Only two Latin American countries are members of the Opec+ group — Mexico and Ecuador — and they do not comply very strictly with its production targets. But net-zero carbon goals and a darkening demand outlook mean oil output cannot be the long-term motor of growth, outside the smaller states of Guyana and Suriname which have enjoyed recent massive oil finds.
Latin American countries are largely importers of gas, or moderate net exporters, and thus are not benefiting much from the current high international prices for liquefied natural gas. Other than hydropower, renewable energy is quite small but growing strongly.
Mr da Silva’s first two terms were marked by a surge in Brazilian oil output and investment because of the massive discoveries by state company Petrobras and its international partners in the “pre-salt” deepwater offshore area. But they also saw huge corruption scandals, notably the notorious “Car Wash” scheme over contracts with Petrobras, and the corporation accumulated a massive and unsustainable debt burden.
This time, he would again turn to Petrobras as the engine of growth, requiring it to invest in renewables and international hydrocarbon projects. To cut high fuel prices, his campaign recommended buying back privatised refineries, including one sold last year to Mubadala as part of ending Petrobras’s refining monopoly.
Mr Bolsonaro fired a sequence of Petrobras chief executives for raising fuel prices, and has proposed privatising the company. While he has opened up the Amazon jungle to exploitation, Mr da Silva would attempt to reverse deforestation, as he did in his previous terms.
Meanwhile, after imposing strict sanctions on Venezuela and its national oil company, PdVSA, the US is tentatively warming relations again. The restrictions, and generalised mismanagement, lack of investment and outright looting, have collapsed output from more than 3 million barrels per day in 2009, and more than 2 million bpd as recently as 2017, to just 600,000-700,000 bpd.
Washington hopes to bring more oil to the market to ease the impact of its measures against Russia and the latest Opec+ production cut. After two decades of general hostility to foreign investment — except from Caracas’s ally in Moscow — Mr Maduro has now called for international partners from all major countries, including Europe and even the US. But the country’s carbon-intensive extra-heavy oil, and the rich biodiversity of the key Orinoco Belt, make this a race against environmental and climate policy.
Mr Lopez Obrador has pushed a return to the glory years of Mexican oil self-sufficiency during his childhood. This includes boosting output from the inefficient and indebted national oil company Pemex, building a massive, costly and uneconomic new refinery in his home state, and opposing foreign investment in upstream activities.
International companies who entered Mexico in a brief opening since 2013 have been successful in making new discoveries, but have struggled to develop them amid wrangles over Pemex's role. The record on gas and oil leaks from ageing facilities remains dreadful, and renewable energy has gone nowhere.
Mr Petro’s approach is entirely different. Colombia is a leading global coal exporter and ranks third among Latin American oil producers, but output has declined since 2013 as reserves run down.
Protests, guerrilla attacks and Covid-19 lockdowns have not helped. Mr Petro intends to phase out the industry: he has hiked taxes, and will stop new oil exploration, open-pit coal mines, fracking and offshore petroleum developments. Instead, he will develop solar and wind power, alongside agriculture and tourism. Currently, oil and mining provide more than half of exports — replacing their contribution will be a big challenge.
Chile is not a big oil and gas producer, but it is the world’s leading supplier of copper, crucial for electric vehicles and renewable systems, and a major holder of lithium for batteries.
Mr Boric has set a national net-zero 2050 target and floated the idea of a Latin American alliance that would condition the export of raw materials to wealthy countries on faster cuts in greenhouse gas emissions. But a radical new constitution, which would have limited mining and demanded climate action from the government, was heavily rejected by voters last month.
So the different leaders show a sharp divide between the “old left” of state-directed oil nationalism, and the “new left” of renewables and climate action. Mr da Silva is perhaps the one who could make the conversion. The continent’s resources are important to the energy transition — but its novel ideas may be even more so.
Robin M Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis