Should Latin American Countries Encourage Fracking?
Should Latin American Countries Encourage Fracking?
Regulatory measures are being developed throughout the region though access to capital and difficult political environments pose challenges, writes COA’s Christian Gómez in a Q&A for Latin America Advisor.
Q: Colombia cannot afford to stop fracking in the face of declining boil revenue, the head of Colombia's state oil company Ecopetrol said recently. Latin American countries including Argentina, Mexico and Venezuela contain some of the world's most accessible shale oil and gas resources, according to the U.S. Energy Information Administration. While fracking is at its most advanced stage in the region in Argentina, it is expected to start in Colombia and Mexico this year. Meanwhile, environmentalists across the region have called for the technique to be banned. Does it make sense for Latin American countries to encourage fracking considering today's low oil prices and the environmental opposition? What is the outlook for fracking in the region in the midterm? Are appropriate regulation in place to address environmental concerns?
A: Christian Gómez, director of energy at the Council of the Americas:
"Along with the United States and Canada, Argentina, Brazil and Mexico all rank in the top 10 countries worldwide in shale gas reserves. Nevertheless, outside the United States, actual drilling has been nascent. The drop in the price of oil has certainly been a factor in terms of economic viability. In addition, other factors are at play, including regulatory issues, infrastructure, access to capital, and environmental considerations. In the United States, many of the companies that are fracking are smaller and mid-sized outfits that are nimble, willing to take risks and relocate rapidly. This type of model is not feasible in Latin America, where mineral rights are allocated differently. Furthermore, accessing capital and operating in difficult political environments pose additional challenges to shale gas development. In Colombia, fracking was approved in September, but development has been stunted due to popular opposition on environmental grounds. In addition, regulations are strict in Colombia, given laws that mandate the technical requirements and procedures for the exploration and exploitation of unconventional reservoirs. Nevertheless, the Colombian government insists that revenue would be used to finance education, anti-poverty efforts and institutions for a post-conflict society. There are also environmental considerations to fracking, especially considering carbon emissions and water use. Regulatory regimes are being developed throughout the region, with consideration being given to opposition groups. Utilizing best practices to allow for transparency and efficiency in the sector is key to expanding production. Developing common regulations on a regional level should be considered in order to create larger internal markets and economies of scale."
