Pipe Dreams in Latin America

The Washington Times (Washington, DC), April 25, 2004 | Go to article overview
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Pipe Dreams in Latin America


Byline: THE WASHINGTON TIMES

Energy policies in Latin America will, at best, make it difficult for countries to maintain stable production and, at worst, are causing full-blown crises. This is unfortunate for U.S. consumers. Although, Latin American producers are dwarfed by OPEC - except for Venezuela, which is part of the international oil cartel - the region's production is still sizeable. Having a robust supply-source in America's backyard bolsters our energy security.

Argentina's energy crisis has become so severe, some analysts predict it could cut economic growth this year by two percentage points. The country's energy shortages were caused, primarily, by the government's decision in January 2002 to freeze natural gas prices as the country's currency collapsed. The government allowed foreign gas companies to raise rates for the first time earlier this month, but they remain below international prices. While Argentina has been an exporter of gas in the past, it recently broke its supply contracts with Chile.

Chile, in turn, is having difficulty replacing this energy source. Chile's needs could be covered by Bolivia, but that is politically unfeasible. Over the past year, some Bolivian politicians have resuscitated lingering bitterness over a 1879 war with Chile, and have blocked a pipeline project that would connect the neighboring countries. Interestingly, the politicians reawakening this old-belligerence are not associated with military factions, as might be expected, but rather with political parties that claim to support the country's poor. If attempts to reroute the project through Peru prove unfeasible, Bolivia will have lost the only foreseeable opportunity for generating significant revenue for social services.

Mexico is the third largest supplier of crude oil to the United States and produces about 3.2 million barrels of oil a day. It could also have significant oil reserves in deeper waters, but the state-oil monopoly, Pemex, doesn't have the capital for that expensive drilling or to outsource it. Mexican law forbids foreign companies from acquiring ownership rights to oil or gas.

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