Energy Security in Latin America

1. Energy Security in Latin America Thoughts on the Brazilian experience

2. Dr. Edmilson Moutinho dos SantosAssociated Professor Instituto de Eletrotécnica e EnergiaUniversidade de Sao Paulo, Brasil. Dr. Dos Santos is engineer and economist from the University of São Paulo, Brazil. He is an expert on Energy Economics. He regularly consults for Brazilian government agencies, energy companies, and NGOs, and is the founder of the Brazil Energy Forum, a nonprofit Web site devoted to the open discussion of developments in the field of energy in Brazil and the world. Currently, he is a visiting professor at the University of Oklahoma's College of Earth and Energy, where he is focusing on the development of natural gas markets in Latin America.

3. Initial Thoughts on Energy Security How to define energy security? The elusiveness of a concept Some traditional definitions Broader view of the concept How to improve energy security?

4. Initial ThoughtsHow to define Energy Security? What is Energy Security? According to A.F. Alhajji (*): Energy Security is a vague concept. There are more than 15 different definitions in the literature. Real Issue: Leading to sound energy policies Empty Concept: Used to sustain bad energy policies. Opinions divided:

5. Initial ThoughtsHow to define Energy Security? What is Energy Security? Historically, Energy Security discussion was limited to: Petroleum – The most tradable energy The Consuming countries worried w/ energy supply Increasingly,Energy Security also affects: Other energies – Particularly NG and LNG The Producing countries worried w/ market access

6. Initial ThoughtsHow to define Energy Security? Energy Security X Energy Crisis Higher energy insecurity increases the risk of an energy crisis … …. But it is not necessarily an energy crisis. Energy Security or Insecurity = Energy Independence or Interdependence

7. Initial ThoughtsHow to define Energy Security? Examples: Chile experiences a NG crisis (import cuts). Brazil experienced a domestic hydroelectric shortage But just a growing NG insecurity with Bolivia.

8. Initial ThoughtsHow to define Energy Security? Energy Security X Energy Nationalism Real or potential energy crisis easily becomes a political issue – Politicians having to take difficult decisions regarding a complex and not very clear issue. Political statements addressing Energy Imports and proposing Energy self-sufficiency … Just another face of ENERGY NACIONALISM?

9. Initial Thoughts on Energy Security How to define energy security? The elusiveness of a concept Some traditional definitions Broader view of the concept How to improve energy security?

10. Initial ThoughtsHow to define Energy Security? Some tradition definitions – Narrow Perspective: • At a narrow perspective, energy security means having the energy resources available to protect the national security apparatus … • Fuel the nation`s military machine (Mainly consumers, but also producers – Access to final products – NOT A PROBLEM); • Protect energy facilities against terrorism or war (Consumers and producers – GROWING WORRIES REGARDING BOLIVIA);

11. Initial ThoughtsHow to define Energy Security? Some tradition definitions – Narrow Perspective: • Prevent from sudden, severe disruptions in the flow of energy to the country (Mainly consumers, but also producers considering the export channels – OUR PROBLEM). • Avoiding abrupt energy price increase and volatility (Concerns for consumers – OUR PROBLEM) or price collapses (Concern for producers), which may creates economic hardships.

12. Initial ThoughtsHow to define Energy Security? An economic definition of Energy Security: • “Reliable and adequate supply of energy at reasonable price”. • OK for: • Adequate = Uninterrupted supply (Almost OK from Bolivia, but operating with no reserve); • Reliable = Low perception of risk supply (Not OK from Bolivia).

13. Initial ThoughtsHow to define Energy Security? An economic definition of Energy Security: • BUT: • What is a reasonable price? Particularly for NG in an emerging market? • Consumers X Producers - Different points of view; • Too high price – A threat for consumers; • Too low price – A threat for producers … Which leads to insecurity to consumers as well.

14. Initial Thoughts on Energy Security How to define energy security? The elusiveness of a concept Some traditional definitions Broader view of the concept How to improve energy security?

15. Initial ThoughtsHow to define Energy Security? Energy Security embrasses different dimensions: TECHNOLOGY Social Security Foreign Policy DIMENSION Some technologies require specific forms of energy. The final uses consideration. Energy & Development Reduction of social tensions. Social equality and wealth distribution. Subsidies and long-term economic inefficiencies. Diplomatic and trade. Foreign investments and contracts. Important part of national power.

16. Initial ThoughtsHow to define Energy Security? Energy Security embrasses different dimensions: • Fears of oil shortage have always led Brazil to cooperate with its neighboring countries. • In the 1970s oil crisis – The construction of Itaipu. • In the 1990s Iraqi Wars – The construction of Gasbol. • Interdependence • = • More Energy Security.

17. Initial ThoughtsHow to define Energy Security? Energy Security embrasses different dimensions: • Today : • High dependence upon Bolivian gas = Energy insecurity • Gas dependence has limited Brazil`s Foreign Policy towards Bolivia in other important issues and principles. • Brazilian interests abroad were confiscated threatening Brazil`s investment outflow. • Bolivia`s partnerships with Argentina, Venezuela and now Iran do not help to increase Brazil`s perception of energy security. • Difficult choice: Bolivia / Natural Gas = USA / Ethanol Alliance

18. Initial ThoughtsHow to define Energy Security? Energy Security embrasses different dimensions: • Middle-and-high urban class felt threatened and betrayed by Bolivia … And not protected by President Lula. • Unilateral price increase = Rupture of long-term contracts. • Reduction of incomes for gas consumers – Mainly industries already struggling to keep global competitiveness. • Reduced competitiveness for gas-fired power generation - Need for electricity subsidies. • Subsidies leading to long-term economic inefficiencies.

19. Initial ThoughtsHow to define Energy Security? The Environmental and Social dimension: A secure source of energy must be Reliable, Affordable, Environmentally and Socially sound. ENERGY SECURITY X ENVIRONMENTAL SECURITY

20. Initial ThoughtsHow to define Energy Security? Secure THE FINAL USE of Energy: Discussing the energy security should not be only a question of guaranteeing the access to the energy resources, but also of making the political decisions about which resources to use, and how. Looking at the perspective of the Final Uses:Energy Security also requires the access to the best available technologies.

21. Initial Thoughts on Energy Security How to define energy security? The elusiveness of a concept Some traditional definitions Broader view of the concept How to improve energy security?

22. Initial ThoughtsHow to improve Energy Security? Market approach X Government intervention: • Market forces are always more cost-effective (economically, politically) to solve crises? • How much government intervention to increase competition in the energy markets? More competitiveness always leads to more security? • Market forces and private relations can survive without political back-up?

23. Initial ThoughtsHow to improve Energy Security? Reviewing the concept of INDEPENDENCE: The Brazilian National Energy Plan 2030 is a nationalistic project aiming to reduce Brazil`s energy dependence. President Lula already stated the goal of achieving natural gas self-sufficiency. Those policies may actually reduce Brazil`s energy options and compromise Energy Security in the long term.

24. Initial ThoughtsHow to improve Energy Security? Revisiting the concept of INTERDEPENDENCE: How to re-create more sustainable and trustable cooperation between producers and consumers in the South Cone? Reducing both sides opportunisms is essential. Maybe focusing on Energy Security not as a policy of its own, but rather as part of a stronger National Security and wider Foreign Policy.

25. Initial ThoughtsHow to improve Energy Security? THE PROMOTION OF OVERALL DEVELOPMENT: • The greatest source of National Security is the ability to use energy to promote … • A free society with high level of basic morality and entrepreneurship; • Produce wealth (with more equality and productivity) leading to more prosperity; • Spillover such prosperity towards allies, partners and friends; • Sharing social and geopolitical power.

26. Initial ThoughtsHow to improve Energy Security? Other angles of Energy Security CONTINOUS ADAPTATION TO NEW CIRCUSTANCES : • The pillars of a long-term Energy Trade are … • Continuous negotiation regarding the split of energy rents (mineral and technology rents) with suppliers; • The sharing efforts to adapt to more efficient sources; • The constant willingness to adapt to new circumstances, and especially to use technology to control those circumstances. 

27. Initial ThoughtsHow to improve Energy Security? How to approach CHILE and BRAZIL in Energy Security issues: • A Bi-national Nuclear Project? • Brazil`s current knowledge and technology; • Chile`s eventual immediate need for nuclear power generation; • Projecting the CHILBRAS Reactor (small-and-middle size) to compete in the international market.