By the end of 2017 Mexico was the sixth largest country by installed geothermal capacity after the United States, Philippines, Indonesia, Turkey and New Zealand. Across Mexico, geothermal was the 3% of the total energy supply, with significant upside for growth.
Wheeling and “banking” instruments played a fundamental part in the deployment of renewable generation projects in Mexico. The main strength of these structures is that they enable renewables to compete against conventional generation, without involving additional costs to consumers.
Energy auctions are a powerful instrument resulting from the Mexican Energy Reforms. These auctions incentive investment to achieve the national clean energy targets. The goal is to achieve a share of 24% of renewable energy by 2018, increasing to 35% by 2024.
Until recently, Mexico had a limited regulatory framework for private investment. Small generators with their own power supply were allowed to generate electricity either as Independent Power Producers (IPP) or Self-Supply Generators (SSG).
Uruguay’s power market is regulated and The National Administration of Power Plants and Electric Transmission (UTE) has a monopoly over power distribution. There are several independent power producers (IPP) in the market, which typically enter into long-term PPAs to supply energy to the grid.
Argentina has 11 refineries with a total refining capacity of about 640,000 barrels per day. YPF controls roughly half of the country’s refining capacity but other domestic players will have to expand to fill the supply shortfalls.
The new legislation limits the risk to further downside in the construction sector in Peru, though projects will be delayed longer than many originally expected. When you include the project delays stemming from the Odebrecht scandal, we don’t expect any meaningful recovery in the infrastructure sector until mid-2019.
Chile privatized its electricity sector in the 1980s and private capital owns all generation, transmission and distribution assets in the country. We are positive on the fundamentals for renewables, and negative on thermal power, leading to our stable outlook.
Several factors indicate that Venezuela’s crude oil production will continue to decline faster than many expect. We expect Venezuelan production to range between 900,000 and 970,000 b/d by mid-2019. Please contact us for more information about our consulting for Venezuela and distressed situations.
We think costs in the pre-salt are, and will remain to be, higher than expected. We actually think lifting costs for the pre-salt are 30%-40% higher than as reported. That said, we expect this region to continue to be the focus of Petrobras, and to drive long-term production growth in Brazil.
We expect real GDP in Ecuador to grow roughly 2%-3% over the next five years, which will lead to increased electricity consumption. Electricity usage in Ecuador declined by an average of 2%-3% from 2015 to 2017 due to the economic recession and the impacts of the earthquake.
Chile’s electrical grid is complicated and split into four different systems. The complex grid system creates inefficiencies across the network which causes bottlenecks and congestion. This hinders the integration of renewable energy projects.
Total renewables generation capacity is planned to reach almost 90% over the next decade. This dynamic will be driven by wind and solar, as hydropower loses share. Brazil has been pivoting towards wind projects (without subsidies) and away from hydropower as its fastest growing source of renewable energy.
Power prices for the industrial sector are typically priced “at the margin”, and natural gas is often the marginal fuel (meaning it is the fuel used to run the plants that submit the highest accepted offer and thus sets the spot market electricity price at a given time).
The most strategic of the recent finds are the resources in the Santander area. Ecopetrol holds a 50% interest and Parex Resources operates the field. The Santander discovery is close to two crude oil receiving stations, Payoa and Provincia, and the large Barrancabermeja refinery.
In general, the Brazilian power market permits developers to participate through different ways: auctions, PPAs, and wholesale market. Particularly, non-traditional renewable energy has dedicated auctions and are highly encouraged by the government’s desire to reduce its dependence on large hydro, which is strongly affected during drought periods.
YPF, the state-owned oil company, has initiated joint venture agreements with partners such as Chevron, Dow Chemical, and Petronas. As a result, there will be new opportunities for private companies with expertise in horizontal drilling.
We have acknowledged the willingness of Venezuela’s national oil company, PDVSA, to satisfy its obligations to bondholders. Consequently, we have recommended holding the short-term PDVSA bonds as they mature to par. However, as the capacity to pay becomes more tenuous, we could see a default over the next 12 to 18 months.
The country has seen its demand for power rise due to its vibrant industrial sector. Consequently, Mexico has continued to increase its imports of gas from the US to replace the more expensive LNG imports. Latam Energy Advisors believes some of the most promising investments are related to natural gas.
Petróleos Mexicanos carried out a liability management transaction to improve its financing structure. This transaction consisted of USD 1.5 billion repurchase of existing debt securities. This deal was focused on bonds with upcoming maturity dates, to improve the company’s amortization profile. The transaction also increased the average term of the debt.