Addicted to oil?: A Latin American perspective

Addicted to oil?: A Latin American perspective

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One of the central concerns in energy policy today is the high dependence on fossil fuels, not only because environmental problems associated with exploration and exploitation activities, but also the recent increase in international oil prices increased the «oil bill» in importing countries and, in producing countries generate interesting economic rents that often alter the political stability of that country.

In this regard, many countries in Latin America (LA), especially those oil and natural gas net importers, made extensive efforts in two areas: 1) use of renewable energy and; 2) energy efficiency policies. Within the first group, biofuels production and use of non-conventional energy sources (wind, solar, geothermal, etc.) are substantial part in energy policy agenda; Moreover, investment in the development of science and technology to develop new sources of energy, now has an interesting development «triggered» by high international oil prices.

Nevertheless, Latin American consumers behavior seems to be in the opposite direction. Figure 1 shows oil, oil derivatives and natural gas participation in total energy consumption for 1970 and 2009. It’s evident that such participation increased during this period from 54% to 62%, in fact the average consumption per capita in 1970 was 2.5 equivalent barrels, indicator that almost doubles to reach 4.3 barrels in 2009; which shows that consumption not only increases because a natural increase of the population, but also each person consumes more oil and natural gas.

1: Energy Consumption

Source: SIEE – OLADE

What we can expect in the future? The Latin American Energy Organization (OLADE) in 2009 conducted a prospective study to year 2032 for Latin America and the Caribbean region. One of the most striking results of this exercise is that, under a baseline scenario, the share of fossil fuels will represent in 2032 a 63% of total energy consumption and, in a scenario with high economic growth and active energy efficiency policies, such percentage drops to 62%. If we compare these figures with those observed in 2009, few changes are noted.

Where lies the central problem? According to statistics used for the construction of prospective scenarios, the main consumer of oil and oil derivatives is transport sector, in particular public transport systems.

What can be done? While it’s very difficult to decrease oil and oil derivatives consumption in short term, some alternatives could well be implemented:

Promote massive transport systems, where possible, using energy from alternative sources. Although this measure is difficult, since the public transport sector in Latin America is an important source of employment, maybe some joint actions between the state and the current workers, could generate some consensus and sustainable solutions, although the number of people employed under the new scenario would be lower.

Eliminate gasoline and diesel oil price subsidies. In many oil-producing countries, the temptation to subsidize the price of these products, associated with a price decrease vehicles prices, generated an explosive growth in public road transport. In this sense, fix internal prices according international oil prices could slow the growth of this sector.

The answer to the title of this post is an emphatic yes. During the past four decades, and if everything continues as before, in the next two, fossil fuels consumption represented and will represent more than 60% of the energy consumed in Latin America and the Caribbean, where transport industry consumption is perhaps one of the most important. Given this situation, it’s necessary to redesign pubic intervention, limiting its appetite for energy prices subsidies and increasing the provision of massive public transport systems.

Mauricio Medinaceli Monroy

La Paz, December 2010

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