La Jolla Energy Conference: Pandemic, Reality and Hubris?



The 29th La Jolla Energy Conference ended last week.  Given the current COVID19 emergency, the event faced unprecedented challenges.  Up until March, the plan was for the annual 3-day meeting to take place in La Jolla with energy executives, analysts, academics and US/Latin American officials and experts in the hundreds gathering and sharing the beauty of Pacific shores and sunsets.  Obviously, everything changed quickly and the Institute of the Americas, through its Vice President for Energy Programs, Jeremy Martin and staff, made a quick pivot taking the conference not only tieless but totally remote and online.  The Americas, Europe and the Pacific Rim were all connected in an almost flawless virtual setting.  The Conference moved from a full 3-day format to a Monday through Friday with sessions occurring typically from 8:00 am Pacific time to early afternoon.  Handshakes, hugs, cocktails and dining with views will have to wait until 2021 or?

Here is the link to the full program:

Over the years, this conference has been unique in that it is set in one of the most attractive sites in the US and, most importantly, because it focuses on the evolution and potential of the energy sector in Latin America.  Over the years, the spotlight has been on oil and gas but with a notable shift to renewables.  With the worldwide public health crisis and fall in energy consumption, the conference began by addressing two questions: “Will the changes from the pandemic be permanent or temporary?” and “Is oil dead?”.

In reflecting on the conference answers to these questions, I won’t fully review the whole five days but instead focus on specific regions or countries, specific promises and challenges in the sectors and finally the larger political and economic panorama.

In pre pandemic times, political leaders and the markets expected, if not smooth sailing due to the US versus China trade conflict, at least fairly decent growth and a year of recovery especially in Latin America.  COVID19 reversed optimistic forecasts and brought the energy sector and the larger scale economy to a quick full stop with a total reversal in gains in investment, employment and income.

By Country

In Latin America, all the different countries have gone into emergency mode.  However, those countries such as Venezuela, Ecuador and Argentina which were already having substantial problems are in much worse shape.  Argentina has missed it bond payment and is negotiating a new bail out with the IMF.  Without resources, it cannot develop the Vaca Muerta fields and, as the joke goes, make it Vaca Viva.  Ecuador, with dollarization, finds its treasury empty as there is no demand for its oil.  At the same time, indigenous communities and the poor have pressured the government due to oil spills, environmental disasters and the need for wealth redistribution.   Venezuela’s tragic saga continues with the impasse between Maduro and Guaido while neither side shows any capability in restoring or building institutions and business.  As a result, the massive reserves sit and the Venezuelan oil company (PDVSA) may well be forced out of business within a year or two.

Brazil, on the other hand, was looking to a potentially good year for Petrobras and a year of less anemic growth in the national economy.  Like all oil producing companies, Petrobras (PBR) has been forced to idle much of its production but was still able to export a record amount of oil in April.  The immediate future does not look promising, but PBR has resources and lower levels of international debt.  Its expansion programs will be put on hold, but long term the company will survive and could even thrive with its technical competence and past investments in the pre-salt offshore fields.

Mexico, in turn, is a rather unique case in the international oil business.  PEMEX, the national oil champion, continues to produce in spite of low demand and even with the cost of production outstripping the sale price of a barrel of oil.  President Andres Lopez Amador (AMLO) is doubling down on his bets and his attempt to revive national production.  The conference participants and the market seem skeptical, so much so, that an overwhelming number of participants see PEMEX bankruptcy in the short term.  AMLO seems intent on denying reality and putting a nationalist face on things at least until Mexico’s midterm elections in 2021 where he hopes to be able further legitimize his presidential mandate, halfway through his term.  If AMLO can maintain control of the Mexican Congress, it will be interesting to see if the economic realities of production costs will bend ideological commitment.

Guyana, one of South America’s smallest countries with less than 1 million people, now attracts major interest because its offshore oil reserves are now calculated at over 8 billion barrels.  Exxon Mobil is the major player but with great wealth comes great greed and the country is currently in the throes of a political and presidential succession crisis.  Institutional weakness and corruption threaten the country’s attempt to achieve substantial wealth and economic growth.


Before COVID19 and over the past decade, the talk has been about energy transition, wind, solar and other alternative source in accord with the Paris agreement to reduce carbon emissions.  The dilemma is that the world infrastructure and energy costs all favor fossil fuel.  With the pandemic, the oil sector has become increasingly cost competitive not only because of diminished demand but also due to increase in supply with fracking and new discoveries. With renewables, there is a dearth of distribution infrastructure and the high cost of financing.  Petrobras for example continues to flare off gas from its offshore wells.  PEMEX has doubled its flaring to over 500 million cubic feet per day and this waste was described as an “atrocity”.  In the case of Mexico, panelists agreed that a pragmatic approach (meaning market rational) cannot be an option due to the President’s ideological commitment to making PEMEX great again by using it in promotion of AMLO’s Morena philosophy.  Given the prospective worsening of the fiscal crisis, the question arises:  Can the mayor of CDMX (Mexico City), opposition governors, politicians, and businesspeople unite in the promotion of a different energy policy?

Political instability and shifting rules of the game add to the technical uncertainties inherent in oil exploration and production to make investing in Latin America fraught with risks.   High risk, in turn, makes financing more costly even in a low interest environment.

The Political Economy of Energy in Latin America

The La Jolla Energy Conference completed its 29th annual meeting and there is something of value in longevity.  Through good times and bad, there is still reason to meet and attempt to understand and interact with the different players in an ever-changing market.  It is amazing to remember that in the 90’s, the discussions often centered around “peak oil”, OPEC control and loss of oil from the Middle East, especially Iraq and Iran.  Today, in Latin America there are recent discoveries, the possible success of fracking, and a concern about being able to extract a resource while it is still valuable.  Everyone hopes that the COVID19 pandemic will run its course over the next year and that there will be a “new normal”.  For the Western Hemisphere, this means trying to use hydrocarbon resources in a world that is addressing climate change and environmental issues through renewables.  At the conference, there was serious pessimism about the future of national oil companies (NOCs), especially PEMEX, PDVSA, and YPF.  In addition, there was uncertainty about Ecuador, Guyana and PBR in Brazil.  The world public health crisis certainly put a spotlight on the political economy of the sector.  The hydrocarbon reserves are physically available in known and abundant quantities.  The demand crisis threatens values and makes extraction unprofitable in many cases and certainly places question marks around the viability of the state-owned models.  The political realities of the day and the market pressures the NOCs as they cannot operate profitably due to the political intervention of the national governments.  YFP, PEMEX, and PDVSA will continue to fail as long as the politicians attempt to use these entities as cash cows and nationalist political support mechanisms.  Even Brazil’s Petrobras is being forced to change its model for pre-salt exploration and production as last year’s auctions failed to attract international interest.  If this pressure was obvious before the pandemic, it is even more present now.  If production costs are higher than the market will accept and if profit is not readily apparent, the international oil companies will prefer to leave the oil and gas in the ground until they are able to develop a new model and negotiate the terms of presence and “partnership” in Latin American countries.

Back in the last century in the late seventies, there were long lines for gas, high interest rates and something called “dependency theory” as the vogue for explaining authoritarian governments and the role of the US and multinational corporations.  Of course, the shift has been to democracy, regular elections, the opening of markets and the globalization of trade.  However, a populist president in the USA and imitators such as Jair Bolsonaro in Brazil or AMLO, on the left, in Mexico once again show the limits.  With the prospect of world depression and the looming bankruptcies of many companies including NOCs, the Latin American countries and their business elites are once again dependent, and perhaps more than ever on Washington, but not only DC, but also China.  The world’s second largest and fastest growing economy has replaced or is replacing the USA and other western countries as the leading destiny for oil and is the main new source for foreign direct investment (FDI).  China is looking long term at investments in energy distribution, alternative energy, and lithium for the electric car industry and for energy storage.

Going back to the opening questions: Oil is not dead.  Hydrocarbon have a long future especially at low and moderate prices say in the 35 to 40 dollars per barrel range.  The world needs the “lights on” and because fossil fuels they are cheap and available, they will slow alternatives for a period.  However, it remains to be seen how much Latin America can take advantage of this window.  Brazil, for example, lost time in the past two decades due to its back and forth policies on the development of its offshore oil.  Now it lacks funding to move ahead and it is questionable as to what accommodations have to be made to entice China or the western international oil companies to actually enter and produce.  Other Latin American countries are behind Brazil both in diversity of resources for the energy matrix as well as in resources for investment.  So, the future appears disheartening.

Amazingly though, the conference speakers were all relatively upbeat given the gravity of the situation.  There was no firm consensus on if changes would be temporary or permanent, but there was the sense that the changes and challenges could be met.  I would not call it hubris but then again the industry does not have a reputation for humility.

The Conference will hopefully be back live and in person next year in La Jolla and there will another opportunity to evaluate the changes post pandemic and see what the new normal might look like.

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La Jolla Conference speaker and lithium expert, Emily Hersh, illustrates how to go “tieless”.









Institute of the Americas: XXVI La Jolla Energy Conference



Since the early nineties, the Institute of the Americas at the University of California, San Diego campus has promoted an energy dialog bringing together top level executives, academics, consultants, hands on practitioners and journalists.  The exchange of information is always enlightening and the President and the staff of the Institute, especially Jeremy Martin, deserve kudos for promoting and organizing this important two-day meeting.

Here is the link to the event with the list of topics and of the distinguished speakers and panelists:

This year’s meeting could hardly have taken place at a better time.  The political economic crisis in Venezuela is ongoing, Brazil is in the midst of its second impeachment or presidential change in less than a year, Argentina’s new administration is seeking a more open and market oriented path for the use of its extensive oil/gas resources and suddenly, the small and often neglected Guyana is facing a surfeit of riches with the recent discovery of major offshore reserves.

The picture at the beginning of this text is of the panel: Brazil’s Energy Reset. On the left is Paulo Sotero, a journalist by trade and the Director of the Brazil Institute at the Woodrow Wilson International Center in Washington, D.C.  Seated with him are Rafael Ferreira of the state sponsored Energy Research Office and Andre Regra of Brazil’s regulatory ANP (Agencia Nacional do Petroleo).  Jay Thorseth, a Latin American Director for British Petroleum is between Andre and Rafael.

The perspectives from Brazil panel were quite representative of the other discussion at the Conference.  While each country has its particularities, representatives of the public sector, the private sector and academia or journalists showed unique perspectives.  Both Andre and Ricardo, for example, emphasized the reset of Brazil’s energy sector and hued pretty much to the government narrative.  Implicit in their presentations was the shift from a nationalistic PT (Brazilian Labor Party) perspective to greater market openness.  Both noted Brazil’s resumption of oil field auctions and the reduction of local content requirement that had previously put off many international investors and oil companies.  Jay Thorseth of BP, while polite and diplomatic, presented the private sector’s perspective, emphasizing the need for market realism.  Thorseth said governments need to favor foreign companies to be competitive and to access to capital, technology, knowledge and skills.  Auction and participation terms need to take into account Brazil’s need to be an attractive destination world-wide in terms of cost, profit and royalty payments.  If there are better deals elsewhere, then it is likely that the big oil companies or the so-called majors will favor these over a restricted Brazilian market.

Paulo Sotero started by remembering his previous writing on the major crisis and downfall of Brazil’s economic and political system.  This reminder, while obvious, became something of the elephant in the room.  Presenters with government ties were loath to recognize that their initiatives toward opening the energy sector depend not only on technocratic criteria but also on politics.  Thus, when Brazil’s President Temer departs, his replacement will reorder the chairs in the oil sector and in public companies like Petrobras and others in energy production and distribution.  Likewise in Mexico, President Pena Neto is in the last year of his term and essentially a lame duck.  If AMLO (Andres Manuel Lopez Obrador), a popular figure on Mexico’s left, is elected, Mexico’s energy reset will also certainly have a different orientation.   Representatives from Mexico’s public companies emphasized change in legislation in the hope of ongoing modernization and expansion of both oil and gas exploration and distribution in partnership with the private sector.  Optimistically speaking, resource nationalism is seemingly buried, but in Latin America it often rises phoenix like.  Private sector players must always be worried about institutional weakness as regulations and norms or the lack thereof thwart intentions.  Governments and businesses want to mobilize Latin America’s ample energy resources but this depends on the modernization, increased transparency, and durability of the rules of the game.  And these rules, in spite of promised advances, are still being negotiated.

The Conference provided a lot of detail on resources, processes, government action and private company plans.  The major discovery of oil in Guyana certainly will impact markets and already directly affects Venezuela and Brazil.

Finally, the presenters noted that even for traditional oil and gas players, alternative energy is now mainstream and has great significance and unlimited potential for development.  Nevertheless, petroleum and its derivatives will be the major source of energy for their economies for at least another generation.


Teotihuacan, Mexico e Brasil


Acabo de chegar do México e como mostra a foto tive a oportunidade de escalar as Pirâmides do Sol e da Lua. São monumentos que testemunham a civilização pré-colombiana e ao mesmo tempo lembram do ocaso e declínio. No topo, onde piso na foto foi local de sacrifícios. Os sacerdotes arrancavam o coração e outra partes do corpo de guerreiros conquistados na tentativa de agradar os deuses.

Pisando no México, não podemos deixar de fazer comparações com o Brasil e o momento brasileiro me parece que tem uma mistura de antropofagia e sacrifício. Ha agora uma espécie de corrida para entregar e sacrificar. As delações tomaram um ritmo próprio e não ha um freio ate que chegue a um fim que ainda falta definir.

Não acreditava no impeachment da Dilma, mas a partir de hoje já temos sua renuncia branca em favor do Lula. Lula, por sua vez, assume um ministério, segundo a oposição para safar da justiça, ou de acordo com sua própria justificativa para defender as conquista sociais que sustentaram sua popularidade durante dois mandatos. Como em tudo uma mistura de justificativas “lógicas”.

Talvez não convém entender o momento no Brasil. Os fatos, as surpresas, e as interpretações estão chegando com uma rapidez que vamos precisar de muito tempo para desenroscar. Só nas últimas 3 semanas, passamos por 3 Ministros de Justiça e parece me que o Nelson Barbosa não vai emplacar nem um semestre como Ministro de Fazenda.

Se Dilma sair ou se Lula for preso, temos que esperar para ver. Sou totalmente contra uma ruptura institucional ou qualquer solução casuística. E’ muitas vezes preferível para as instituições e a nação que cheguemos as eleições de 2018. Entretanto, se houver uma mudança antes, a mudança tem que respeitar o processo legal baseado na Constituição sem as soluções nefastas que os militares e civis golpistas impuseram em 1964. Não enxergo,como o PT, uma nefasta e vasta conspiração de golpista “pero que hay brujas las hay”.  Todo cuidado e’ pouco.

Economicamente e talvez socialmente, o México no momento esta’ conseguindo superar seu passado um pouco melhor do que o Brasil. O Presidente Enrique Pena Nieto não e’ popular mas tem bem mais respaldo do que a Dilma. A economia, embora dependente da economia americana, avança ao poucos mas o México já supera o Brasil em quase todos os indicadores econômicos e sociais.   É’ curioso o vai e vem das duas maiores economias da America Latina. Todavia, `a Pena Neto falta legitimidade e forca da sociedade civil para enfrentar os narcos e crime organizado. Embora a recaptura de El Chapo ajudou um pouco, os cartéis dominam áreas significativas e seus tentáculos afetam muitos locais no interior e ate’ na Cidade do México. Grave também, Pena Nieto não consegue ou não quer desvendar o caso da chacina dos estudantes. Falando em chacina, fiz questão de passar em Tlalteloco para lembrar o massacre de 68 quando na véspera das Olimpíadas o governo Mexicano massacrou dezenas de estudantes e civis e depois tentou, sem êxito, encobrir o evento.

Graças a Deus, o Brasil normalmente não tem tantos assassinatos num só dia igual aos perpetuados pelos soldados mexicanos em 68 mas vejo que o Beltrame esta reforçando o policiamento no Rio diante o aumento de crime na rua. O resultado será a continuidade de fins de semana com invasões nas favelas e o recolhimento de cadáveres e vitimas. Brasil, Rio e São Paulo são geralmente mais violentos do que a Cidade do México embora quando as gangues mexicanas organizadas querem matar não tem receio de usar requintes de tortura e matar em grandes números. Todavia isso não acontece no Brasil. O que dizer: um empate. Esperamos que antes ou durante as Olimpíadas não ocorre nenhum desastre, principalmente provocado pela forcas do Estado. E’ a primeira vez que as Olimpíadas são realizadas na America Latina depois de 1968.   Será que o México estava melhor preparado ha 48 anos atrás? Ou o mundo mudou?

Fora um relativo equilíbrio na violência, México esta com um quadro institucional um pouco mais estável. Ha escândalos mas são menos “calientes” comparado com o Brasil. Talvez porque a justiça brasileira conseguiu gradativamente em algumas áreas um quadro de profissionais respaldados pela lei e pelo respeito aos procedimentos legais. A imprensa também embora dominados pelos grandes monopólios da mídia brasileira e’ ainda mais independente e menos intimidado do que a Mexicana. Matam mais jornalistas no México todo ano do que em 10 anos no Brasil.

America Latina, Brasil e México regiões de tantas aspirações e tanta possibilidade continuam aquém da expectativa. Adianta culpar as elites? Resolve algo culpando o capital e os banqueiros. Deve-se acusar a classe media? E’ a falta de educação e cultura ou herança do passado? São os problemas geopolíticos e o imperialismo? Muito pano para manga e muitas discussões a resolver.  Mas onde esta o quadro para ações coerentes e legitimas.

Vamos conseguir entender o mistério da realidade e do misticismo, do Sebastianismo, do Lulismo? Só os grandes autores tipo Gabo conseguem desvendar? Não sei se e’ possível. O Brasil de hoje demonstra como “gênios políticos” como Lula e muitos assessores inteligentes estão acabando de se enroscar. O triste final que pinta no horizonte, talvez seja uma bela alvorada mas falta tempo e paciência para aqueles que esperam.

Brazil and Mexico: Back and Forth but Still the Same

Brazil and Mexico have traded places over the years as the main topic of interest and dynamism in Latin America.  As recently as 2001, Mexico’s economy had passed Brazil’s in terms of overall economic production (GDP).  Brazil regained its leadership again in 2005.  But recent reports state that Mexico will overtake Brazil again by 2022 or in less than a decade.

Mexico’s advance over the next years is supposedly due to its close association with the USA through NAFTA (North American Free Trade Agreement) and because of favorable developments in Mexico’s manufacturing and service sectors.  Industry in Mexico stands to benefit as production, shipping and labor costs rise in China and certain types of manufacturing move to Mexico as it offers more efficient use of the factors of production.  Brazil’s secondary sector, on the other hand, is seen as slipping in the absence of a coherent industrial strategy.  Protectionism in Brazil only favors certain cosseted companies and not manufacturing as a whole. A closed nature of the economy inhibits competition, further dragging down industries that cannot penetrate international markets and wind up making goods of secondary quality for the domestic market.  State interventionism, mainly through selective tax incentives and the picking of so called “champions” by the national development bank (BNDES), has not delivered as overall industrial production is shrinking in its contribution to national wealth.

Brazil is now hosting the World Soccer Cup and the Olympics two years later. These events have drawn severe criticism both inside Brazil and abroad for the associated cost overruns and perceived corruption.   However, they are driving major investments and give the country a new visibility.

Mexico, with President Pena Nieto, has passed major reforms in the energy sector which are also expected to attract major domestic and foreign investment.  Brazil, in turn, has reversed its opening of the energy sector making it less attractive to foreign investors.  As the US becomes a net exporter of energy (oil and gas), it is feared that Brazil may have lost it best opportunity to take advantage of the much publicized pre-salt oil discoveries off the coast of Rio de Janeiro.

Brazil and Mexico are a generation past free trade agreements.  NAFTA (Canada, Mexico and the USA) is just completing 20 years while Mercosul is approaching its 24th anniversary.  While the benefits of free trade have been lauded mainly by multinational corporations and their allies in government, as the agreements have been successful in advancing trade and investments – NAFTA much more so than Mercosul.  But it is clear after 20 years, that trade policy is just trade policy and does solve the larger institutional problems related to underdevelopment. The promises by some in the 90’s that trade would solve many of these problems have not been fulfilled.  Job creation in Mexico and Brazil remains a problem and migration continues to be a major issue for Mexico and the USA.

My conclusion is that economic growth alone is important, it is insufficient.  The big problem of Mexico and Brazil is the precarious nature of basic institutions; i.e. the educational system, the justice system, the political system.  Without predictability and institutional confidence, economic growth is stunted.  A gradual reordering of societal priorities is taking place but until people are better educated, better informed and more capable of holding their local, state and national institutions accountable, change will take place only slowly and in an incremental fashion.

Spying Reaction: Mexico vs Brazil

Brazil’s president formally postponed her state visit to Washington scheduled for October.  Dilma is beginning an election campaign and her popularity has fallen significantly since the June protests.  Standing up to Big Brother USA spying is certain playing well with Dilma’s supporters.

Mexican President Enrique Pena Nieto, on the other hand, is only at the beginning of his six year term.  As such, his indignation has been more muted.  He has no state visit to cancel and Mexico’s nationalism, traditionally stronger than Brazil’s, has been eroded on the right by the success of NAFTA.

About 80 percent of Mexico’s exports go the the US.  But less than 20% of Brazil’s foreign trade is with the US.  It has already been three years since China overtook the US as Brazil’s largest trading partner.  Still, the US is Brazil’s main source of foreign investments and as the country is currently facing a decline in Chinese demand for commodities, US direct investment has become more significant in maintaining the balance of payments.

There is a curious mixture of pride, hubris and politics in the whole spying scandal.  On the US side, Brazil and Latin America have never been at the top of Obama’s priority list.  At the same time, the President Obama has been inept at gaining control over the U.S. security apparatus. The NSA and other U.S. intelligence agencies seem to be operating autonomously based in part on the successful assassination of Osama Bin Laden and the prolonging of the so-called war on terrorism.  In such a scenario, all macro snooping and meta data become confused and anything goes.  I don’t think Obama has any personal stake in spying on Petrobras.  This actually wounds Obama and hurts relations with Latin America.  But, who cares?  It is not a top priority.   The NSA scandal was tremendously amplified in Brazil and Latin America because the Guardian journalist reporting on Snowden happens to live in Rio de Janeiro and has a Brazilian boyfriend who was stupidly mistreated by British security agents (perhaps at the behest of the US).

Brazil and Mexico should certainly take offense but neither country should feign naivete about espionage.  Dilma is playing to her supporters.  Pena Nieto is as well in his complaints.  Dilma has been more strident but her careful postponing of the state visit to Washington D.C., rather than outright cancellation, gives her room to backpedal.

Overall, I think the whole episode is much ado about very little.  The main issue is atmosphere and distrust and here Brazil has more to lose than the US.  It is true that Dilma might instruct the military not to buy US fighters but the Brazilians also know that the French Rafaeles aircraft fighters or other options will not match up in the long run.

Both Brazilian and US business people already in the game will not be put off by the ideological loggerheads.  However, it is bad for new business and only reinforces the image of Brazilian petulance and recalcitrance, which many see manifest in the challenges of doing business in Brazil.  Mexico stands to gain as it appears more welcoming and less put off by the inefficient and fairly irrelevant NSA activities.

Brazil, Mexico, California

Brazil and Mexico are the leading economies in Latin America.  Usually, Brazil has been number one but Mexico has moved ahead of Brazil several times only to fall back again.  Such was the case in the half of the previous decade.  Now, many predict that as Brazil’s economy flounders, Mexico again will forge ahead and overtake Brazil in the next few years.  A major part of Mexico’s growth has been driven by its free trade pacts and, mainly its participation in the North American Free Trade Agreement (NAFTA).  Today Mexico’s foreign trade is almost 3/4 of a trillion dollars.  Brazil, on the other hand, did 465 billion in foreign commerce in 2012.  Now, close to 80 percent of Mexico’s trade is within NAFTA, in spite of the fact that Mexico has over 40 free trade agreements in place.  Brazil’s trade is more spread out with China having surpassed the US as its largest trading partner.  Argentina is in third place.

California exported over 26 billion dollars of goods to Mexico in 2012 and only some 2 billion dollars to Brazil.  Of course, geography plays a major role but it should be clear that the potential for trade between Brazil and California is great.  Between Mexico and Brazil, there was only 10 billion dollars of exchange in 2012.  The auto industry and its supplier represent some 65 percent of the total in trade between Brazil and Mexico.