$3 Trillion Worth of Oil Assets Puts Latin American In Danger

A number of oil-producing nations have been identified by the World Bank as particularly vulnerable in light of their high reliance on the oil and gas sector and a lack of other sources of revenue. These countries include Iraq, Libya, Venezuela, Equatorial Guinea, Nigeria, Iran, Guyana, Algeria, Azerbaijan and Kazakhstan. 

Given their high dependence on oil and absence of a comprehensive global energy transition plan, Latin American economies are not significantly better off.

Oil exports and profits are critical to the economies of Venezuela, Ecuador, and Colombia. Natural gas plays a major role in Bolivia and Trinidad’s economies.

While Argentina, Brazil, and Mexico may not be as heavily reliant on fossil fuels, oil and gas are still among the most important sources of national revenue, exports, and investments in each of these countries.

According to ExxonMobil and its partners, Guyana is set to become the world’s largest per-capita oil producer, in response to the company’s recent oil discoveries in the country.

As oil prices have risen, many countries in the region are attempting to produce their own fossil fuels in order to save their economies from collapse. As part of recovery efforts, far more money has gone to fossil fuels than to renewable energy sources.

Energy efficiency and reducing gas flaring have improved at some national oil companies, but the region’s energy sector is not on track to meet the Paris Agreement’s 2050 goal of net-zero emissions.

Latin American oil production would have to drop by 60 percent below pre-pandemic levels by 2035 if scenarios consistent with the 1.5 degree target are to be met, according to an Inter-American Development Bank report. This means that up to 81 percent of their proven, probable, and possible oil reserves will not be used by 2035.

Oil exporters in the region stand to lose as much as US$ 3 trillion in profits by 2035 if global climate action is not taken.

Latin American countries combined emit as much carbon dioxide (CO2) as Russia, the world’s fourth-largest CO2 emitter.

The urgent need for cheap imported fuel, coupled with outdated policies and resource nationalism in countries like Venezuela and Mexico have experts saying that Latin America is falling short in the energy transition.

Last year, Latin America imported 2.69 million barrels per day (bpd) of crude and refined products from the US, down 12% from the record 3.05 million bpd in 2019, but up 88% from a decade earlier.

Exceptions include Peru and Chile’s solar energy, Brazil’s large hydroelectric capacity and aggressive biofuel bet, and state-run Petrobras’ new drive to supply biofuels to the aviation industry. Meanwhile, Colombian President Ivan Duque has urged businesses to drastically reduce CO2 emissions while increasing non-traditional renewable energy sources.

The IDB claims that current power plants in Latin America and the Caribbean are not following the Paris Agreement. In fact, all planned and confirmed fossil fuel power plants in the region, most of them based on natural gas, would increase the established limit by 150 percent.

The IDB has also warned that sudden devaluation of financial assets could cause financial market instability, which could lead to macroeconomic instability. Stranded assets may also cause political instability by causing rapid wealth decrease among owners and workers.

If the Paris Agreement’s emission reduction targets are met, the global value of stranded assets associated with unprofitable projects is estimated to be US$304 billion in 2035, with the oil and gas industries accounting for US$180 billion.

Original source material for this article taken from here