Economic Crisis Could Deepen Latin America's Energy Woes

LA JOLLA, Calif. -(Dow Jones)- The current economic crisis may exacerbate the slow growth of Latin America’s crude oil and natural gas output, which has lagged as the region has struggled to exploit its abundant energy resources.

Venezuela and Mexico missed out on the massive investment boom that flowed into the global oil patch following this decade’s ramp-up in energy prices due to regulatory roadblocks and fiscal regime uncertainty. Now that oil prices are hovering around $60 a barrel, well below their summer 2008 record of more than $ 145, both international oil companies and the state-run giants that control most of Latin America’s reserves are seeing their revenues plummet.

Latin America’s struggle underscores how shifting regulatory and political sands can dampen a region’s potential to produce energy despite the presence of massive oil and gas reserves. These untapped deposits could be key to quenching the world’s thirst for energy once the recession is over and economic growth resumes – and could fulfill international oil companies’ quest for reserves with which to replace their declining production.

Petroleos de Venezuela S.A., which owes billions to its service contractors, is acutely feeling the pinch, and observers and analysts fear that its oil output might suffer from delayed payments and obstacles to investment. The Mexican government’s bid to reform Petroleos Mexicanos, or Pemex, to lure foreign investment and stem a rapid decline in the country’s top fields is modest, and long overdue.

“Petropolitics don’t work anymore,” said Ali Moshiri, Chevron Corp.’s (CVX) president for Latin America and Africa. National governments should work more closely with international oil companies, he added.

Dow Jones