2023 outlook for energy in Latin America

Another country that will likely have a change of direction is Argentina. An election this coming October will define a new President and a new set of representatives, under yet another episode of high inflation and impending devaluation. Vaca Muerta has been steadily increasing production, but still the country’s shale oil and natural gas production remains untapped.

Argentineans without subsidy will suffer increases up to 120% in natural gas prices in their homes, and the flow of money to contain new increases will dry up. This will likely cause a further tightening of currency control and impose more limitations to the energy sector, severely limiting the number of projects in either Vaca Muerta or other fields (shale or not).

In Colombia, with Gustavo Petro as the first leftist president in the country’s history, 2023 will see adjustments to the strategy of Ecopetrol and analysts expect a drop of 30% in investment, led by a lower budget for E&P from the SOE.

President Petro has publicly said that the transition to green energy “should have defined dates” and since the first days of his administration stopped issuing new E&P permits. It is a challenge for a country in which oil exports represent roughly 12% of GDP, but the rhetoric is one that may spread in Latin America this year for political gains.

On the other hand, Brazil and Venezuela, in spite of their heads of state and their geopolitical standings (Maduro and the recently appointed Lula da Silva), are expected to continue incentivizing E&P activities as well as production.

Venezuela in particular, has now aligned to the global energy strategy led by the US to counter the effects of Russia’s denial to supply Europe through Nord Stream I and the sabotage of Nord Stream II.

In terms of green energy, 2023 is expected to be a good year for renewable projects in countries like Costa Rica, Chile, Paraguay, Ecuador, Colombia and Brazil. Argentina and specially Mexico, with all their potential, remain absent in creating the conditions for these projects, being two opposite cases. Argentina wants these projects, but they don’t presently have the economic conditions to do it in a feasible way; Mexico already has the economic conditions, but the government is simply not interested.

As governments in Latin America are still fighting the effects of high inflation and also suffering from political unrest (as is happening in Ecuador, Peru, Argentina and Brazil), energy projects will remain as a second-tier priority, and companies operating in this region should focus on value and consolidation more than growth and expansion.