outlook 2009 latin american energy markets

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Outlook 2009: Latin

American energy

markets: Bracing for a

tumultuous year

enero 2009

January 2009

Special Edition

Intelligence Series+ Year in review

+ Ranking top ten 2009

Out lOOk 2009

Introduction 2

Argentina 2

Bolivia 4

Brazil 5

Centroamérica y el Caribe 7

Chile 8

Colombia 9

Ecuador 10

Mexico 10

Perú12

Venezuela 13

Conclusion 15

Y ear in review

Not so splendid isolation 16

t Op t en 2009

Top TEN 2009 18

COnt ent



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Bracing for a tumultuous yearJanuary 2009

Introduction

Latin American countries that had hoped or a stable 2009 ollowing last year’s volatility

in the energy markets are in or a disappointment. The global economic crisis that sent

commodity prices crashing in late 2008 will continue to rock energy markets most o this

year, threatening margins o oil and gas producers, diminishing the availability o project

nancing and draining government coers.

State-run and a number o high-cost private-sector projects will ace delays as companies

and governments wait out the economic crisis, which is expected to last through much

o the year. State oil companies that ailed to save during last year’s pr ice bonanza will

be especially vulnerable, as w ill governments that rely on oil and gas export s to nance

scal policy.

More specically, renewable projects will have trouble drumming up nancing, while heavyoil and oshore E&P projects may take a hit. Argentina, Bolivia, Ecuador, Mexico and

Venezuela will suer the hardest rom lower oil prices and the global credit crunch.

But there’s room or optimism in 2009. Equipment costs will decline as demand or rigs

and vessels all s, while smaller countries that import energy supplies will enjoy low prices,

although currency fuctuations will cause headaches.

To make sense o Latin America’s energy industry in these tumultuous times, this report

will take an in-depth look at industries in the region’s biggest economies, ocusing on

upstream oil & gas markets, rening and power generation.

ArgentinaThe private sector or the most par t will not change course in 2009, as it is used to low

energy prices given government controls on power, natural gas and oil prices. As a result,

E&P majors will hold back on major investments, waiting or prices to increase beore they

tap into the more promising elds they hold.

The oshore E&P round could be a disappointment to the government, as ew companies

will be willing to invest heavily in high-risk, high-cost elds when promising geology is on

standby on shore.

Juniors may need to change course this year, however, as the credit crunch will make it

increasingly dicult to nance seismic and drilling programs. Provinces may decide to

hold back on new bidding rounds, while plans to develop tight sands will have to wait until

the global situation improves.

Meanwhile the government could come to regret its recent strategy to increase its role in

the power business, as the country ’s scal problems will make it dicult to und major

generation projects. Lower power prices have boosted demand, orcing the state to

implement mildly successul eciency programs and invest in new generators. While some

small and mid-size projects will advance, plans to build a 1GW coal-red generator, new

nuclear reactors and a regasication terminal may have to wait years. The LNG delay could

have serious repurcusions given that Bolivia has ailed to meet natural gas export deals

with Argentina.



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In sum, the uture could be bleak or Argentina’s energy industry, as majors are not

keen to reverse the country’s declining reserves and product ion (see Figure 1) while the

government may not be able to keep up with growing power demand. The government

has been able to avoid blackouts and may continue to do so, but only through industrial

rationing that could take a toll on the economy.

The government has shown signs o changing course in recent months, however. The Gas

and Renery Plus programs w ill provide some incentives to energy companies, while the

national and some provincial governments have been willing to increase energy prices.

Much more is needed, and it’s unclear to what extent companies will benet rom the price

increases, which could go to help und subsidies and raise revenues or the government.

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Argentina’s lackluster energy production

Oil production, thousands of barrels per day:

Figure 1



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Bolivia

Like Argentina, Bolivia has had trouble encouraging oreign operators to increase

investments in recent years. In Bolivia’s case, government intererence and civil unrest

has made companies wary about their long-term uture in the country. As a result, Bolivia’soil and gas production has not grown as quickly as planned, orcing the country to miss

export targets and complicating domestic uel supply (see Figure 2).

The Bolivian state has tr ied to ll the investment gap through government energy

company YPFB, which plans to buy eight new rigs and invest US$1bn in E&P this year.

Bolivia also has made str ides reaching out toward new operators, as Russian major

Gazprom and France’s Total together inked an MOU to invest US$4.5bn in gas projects. It

remains to be seen, however, how quickly the investments will materialize and whether

YPFB can come up with the unding.

I President Evo Morales can keep the peace in Bolivia and resist the temptation to urther

increase state intererence, oreign operators slowly could increase investments this year.

Ater all, Bolivia oers promising, underexplored geology that have resulted in some

impressive discoveries in recent years.

But the country must act ast due to low liquid uel prices and eorts to build LNG

terminals. Brazil cut back on imports early in 2009 upon improved hydrology, also

advancing with development o two LNG terminals. Argentina also set up a temporary

regasication terminal in 2007 and has been enjoying low-cost uel oil imports, which

in January were pr ice-competitive with Bolivian gas. And o course Chile and Uruguay,

which indirectly import Bolivian gas through Argentina, are stepping up eort s to achieve

natural gas independence. I Bolivia doesn’t increase production ast, it could nd itsel

with a much smaller market to supply.

Natural gas production and consumption, billion cubic meters:

Source: BP Statistical Review of World Energy June 2008

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Brazil

Federal energy company Petrobras will continue to be the region’s star this year despite

the act that the economic crisis took the wind out o its sales toward the end o 2008.

The company will suer rom declining oil prices and will have a harder time nancing its

capital expenditure program, especially or the high-cost but promising Santos basin.

Already signs are starting to emerge that the company will be ar less aggressive than in

2008, when it went on a buying spree by snapping up downstream assets in the US, Asia

and o course Latin America. Instead, the company will put plans to buy new downstream

assets on the backburner this year, when it will ocus on assets that can provide short-

term cash fow.

Petrobras in January scrapped contracts to build the P-61 and P-63 platorms or the

Campos basin’s Papa Terra eld, cit ing the high price o tender oers. The vessels

eventually will get built, but not according to the original timerame. As E&P general

Bolivia: Natural gas proven reserves(trillion cubic feet)

Figure 2

Source: Gas Energy Latin America, base don data from the sector’s companies

4.1 4.0 4.2 3.9 4.23.8 4.2 5.3

18.3

23.8

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manager José Jorge de Moraes Júnior put it in November: “The idea is to postpone what we

can, waiting or oil prices to stabilize in the midterm so we can have a better vision o our

uture investments.”

That does not mean, however, that Petrobras will hold o on Santos development, which

hands down is the company’s fagship project and main ocus or 2009. There is no talk o

postponing the Tupi area’s long-duration tests this year, nor has Petrobras said it would

extend the 2011 deadline to begin ull product ion in the pre-salt area.

Meanwhile the pre-salt is orcing the government to rethink its oil and gas ramework,

which is not well suited or the Santos basin’s low-risk, high yield geology. As a result, the

government in 2009 will push through reorms making it more expensive or companies to

acquire and develop Santos blocks. All eyes are on the government, which has not come

out with a decision that could entail increasing royalties or creating a new state rm to

control the mega basin.

1,6%

3,0%

9,6%

6,0%

12,6%

14,6%

14,8%

37,7%

Hydropower

Firewood

Sugar cane

Other renewable

Oil & oil products

Natural gas

Coal

Uranium

Renewables 45.1%Non renewables 54.9%

Brazil: energy supply by source

Figure 3

Source: Brazil energy balance, 2007



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Santos will orce planners to rethink other aspects o Brazil’s energy policy as well. For

example, the basin’s natural gas potential could turn the country into a net exporter o

the uel, reversing the latest trend to increase imports via LNG terminals. Santos’ light oil

will prove lucrative, allowing the country to export the high-value oil while processing its

heavier variety at domestic reneries. The government already has boasted o plans to join

OPEC sometime next decade.

On the power ront, Brazil will continue to develop its new generation o mega hydro

dams. Works will get underway at the 3.15GW Santo Antônio and the 3.3GW Jirau plants,

although the latter could continue to suer legal setbacks due to last year’s controversial

auction. The government, however, is committed to the project and will push or its

development. Meanwhile, energy planners aim to launch bidding this year or the 11.2GW

Belo Monte hydro plant, which is sure to att ract protest rom environmentalists.

The government will promote additional projects to diversiy the country’s energy matr ix,perhaps extending renewable energy program Proina or another ew years. Biouels will

take a hit as the pr ice o gasoline dips. Meanwhile plans are underway to expand Brazil’s

nuclear park beyond the three Angra reactors.

Central America and the Caribbean

Central American and Caribbean countries learned some hard lessons in 2008, as high oil

prices threatened the economic health o the countries - most o which are net importers.

As a result, government planners tried to develop indigenous oil and power supplies and in

some cases eyed CNG as a means o ensuring natural gas deliveries.

Countries like Guatemala, Honduras, Suriname and Trinidad & Togabo in 2009 will launchor advance existing E&P licensing rounds, while countries like El Salvador, Guatemala,

Jamaica and Nicaragua will tr y to advance eor ts to develop renewable resources,

although the credit crunch may complicate plans. Jamaica could make progress with plans

to import natural gas v ia CNG, while Toronto-based Pacic Rubiales could hold an auction

to supply countries with gas through the same technology.

Venezuela’s Petrocaribe will be under the microscope this year, as President Hugo Chávez

has downplayed speculation that low oil prices will orce his country to curtail the

program, which supplies cheap uel to Caribbean and some Central American countries

at attractive rates. I oil markets stay weak, it will be increasingly dicult or Chávez to

continue the program, which also will become less attractive as uel prices all.

Meanwhile Trinidad & Tobago is a unique case in the Caribbean, as the island countryis worried about sustaining natural gas exports, not sel-suciency. Previous reserve

audits have rightened the country into thinking that the end o exports could be near,

motivating the government to design new bidding rounds and to create new incentives or

oreign operators. As a result, the company will continue with at least one new bidding

round this year and will continue to analyze ways to sweeten o shore exploration or

oreign operators.



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Investment (2008 2012)

Chile

The Pacic Coast country had reason to celebrate the 2009 New Year, as it made it through

2008 without major power outages or rationing. Through solid central planning and a

little bit o luck, the country survived a year marked by dry weather, natural gas supply

restrict ions, high energy prices and plant malunct ions.

This year will be easier or Chile thanks in large part to lower energy prices and the

startup o the country’s LNG terminal in the central region. The imported natural gas will

go a long way in ensuring energy security in the winter months o July and August, when

gas demand tends to increase. Meanwhile generators in the copper-rich north will enjoy

lower diesel prices as they wait or their LNG terminal to re up in 2010. Boosted by new

legislation, renewables will make a small impact on the energy matrix as well.

This year also will be a time or planning as energy authorities in the public and privatesector work to prevent another year like 2008. The government will push to create an

energy ministry and will continue to study nuclear options. Chile’s new generation o

mega hydro dams down south will advance, although environmental concerns very well

could delay their schedules, while government ocials will look or ways to mitigate CO2

emissions rom the series o coal-red plants that w ill emerge in coming years. And state

oil company Enap, which is expected to end 2008 deep in the red, will come under pressure

to cut costs and increase eciency in 2009.

Chile: Project investments by sector (2008-2012)

30.000

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Energy Mining Real State Public

Works

industrial Others

US$ million

Figure 4

Source: Energy Ministry, based on fgures provided by CBC

The energy sector accounts for 43% of total investment in 2008-2012

Energy sector:

US$24.45 billion

Total:

US$57.37 billion



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Colombia

The oil industry is relat ively well poised to conront the year’s economic crisis largely

thanks to reorms carried out last year at state oil company Ecopetrol. The company

foated shares on the New York Stock Exchange, emulating Petrobras in hopes that it could

raise nancing, improve its oversight and eventually boost output to 1Mb/d by 2015 rom

457,000b/d in 2009.

Cash raised rom the IPO w ill come in handy this year as credit markets remain tight.

Ecopetrol aims to invest US$4.62bn in 2009, with US$1.05bn going to exploration and

US$2.72bn to production. A majority o E&P dollars will go to the Eastern Llanos and

Middle Magdalena basins to continue development o heavy crude and mature elds.

The credit situation could complicate matters or the country ’s myriad o juniors, however,

who will have a hard time accessing unding during the crisis. Mid-size players such asGran Tierra and Pacic Rubiales are in a better posit ion to continue and perhaps increase

production in the year.

Meanwhile production at the La Guajira gas project will continue to decline, putting

upward pressure on domestic gas prices. That in turn could increase the popularity o coal

as a backup source or hydro, which will continue to dominate the power grid. Colombian

power companies will advance plans to grow beyond the country’s border, studying new

Andean connections while expanding interconnections with Central America.

Source:: Asociación Colombiana del Petróleo

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Colombia: Number of exploratory holes drilled

Figure 5



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Ecuador

The global economic crisis will hit Ecuador hard this year, expanding the country’s t rade

decit and draining government coers. The government’s scal problems have been

exacerbated by low oil pr ices, complicating plans to increase the state’s role in everything

rom oil production to hydro generation.

State oil company Petroecuador has missed oil production targets in recent months in part

because o trouble securing rigs. Although rigs are becoming increasingly available, the

country may be hard pressed to invest in the equipment or import them rom Venezuela,

which has its own scal problems.

Meanwhile oreign operators are in no mood to increase investments in the country ater

the government pushed them last year to sign service provider contracts. Although some

o the larger companies like Petrobras and Repsol YPF stalled the dec ision by signing one-year transition deals, ongoing negotiations could continue to sour relations throughout

2009.

Likewise the government’s plan to build a new generation o hydro projects and a Pacic

coast renery could ace roadblocks as the state has trouble coming up with unds. Foreign

operators will not rush to help out, as memories o Brazilian engineering rm Odebrecht’s

expulsion rom the country l ast year will be resh in their minds. The projects will have to

wait until oil prices improve government nances in coming years.

Mexico

State oil company Pemex aces daunting tasks in 2009 that include no less than reversingmajor production declines (see Figure 2) and coming up with unds to build a multibillion-

dollar renery. The 2008 energy reorm package will be a help, as it will ree up company

unds and starting this year will allow Pemex to oer more attract ive contracts. But the

state behemoth is not known or its eciency and agility, meaning the reorms likely will

have minimal impact this year.

At the top o Pemex’s list o problems is how to deal with the Cantarell eld’s decline,

which is putting the country’s overall oil production in a nosedive. According to some

o the latest gures on Cantarell, Pemex’s E&P subsidiary PEP produced an average

862,059b/d there in November, down a whopping 48.4%, or 415,274b/d, rom November

2007. Compared to October 2008, output was down 4.4% rom 901,796b/d. Although Pemex

believes improved recovery techniques can squeeze another 450Mb o reserves out o

Cantarell, the company is looking elsewhere or replacements.

The most likely candidate is Chicontepec, an onshore eld in Veracruz and Puebla states.

The eld is at an early stage o production, as it churned out only some 23,000b/d in

2007 and 33,000b/d in 2008. But Pemex is investing aggressively in Chicontepec, which

it believes could produce 737,000b/d o oil and 968M3/d o gas by 2017. The eld is

controversial, with some saying its low pressure and permeability make it cost prohibitive.

By Pemex’s own estimations, PEP will need to drill 12,038 development wells in 2009-2017.



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Meanwhile, the Ku-Maloob-Zaap (KMZ) project is a steady supplier or Pemex, which saw

output exceed 800,000b/d or the rst time just beore New Year. But the area soon will

pass its prime: KMZ production is expected to average 712,000b/d rom 2009-17, peaking

at 839,000b/d in 2011.

Deepwater supposedly will ll KMZ’s void, although more than a ew analysts have doubts

about Pemex’s capacity to tap into its potential reserves. Laws still block Pemex rom

teaming up with oreign operators with much-needed o shore expertise, although 2008

reorms slightly reed up Pemex’s budget or the high-cost exploration. Pemex, which has

drilled seven deepwater drills to date, aims to drill 27 exploratory wells through 2012 in

the deepwater Gul o Mexico basin, where success may be limited.

On the power ront, Mexico is in no great rush to develop new capacity due to its healthy

generation reserve margin. As a result, the country is ocused on modernizing existing

inrastructure and expanding renewables, which have been slow to take o. The opensource transmission model has given some hope to wind developers down south who have

had a tough time o late securing turbines and nancing or ambitious projects.

In the longer term, Mexico will continue to depend heavily on natural gas or new projects,

as large-scale hydro initiatives like La Parota have aced signicant civil resistance. The

country may need to sweeten incentives to boost natural gas product ion, which has not

met targets, or continue building and expanding LNG terminals.

Mexico’s declining crude output, Millions of barrels per day

Figure 6

Source: Pemex

Annual production

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PeruPeru’s energy problems will ease up considerably in 2009 as new pipeline capacity comes

online, opening the bottleneck that has orced generators to burn diesel. The government,

eager to convert the country’s natural gas into higher-margin petrochemicals, will

rethink ways to create incentives or development o hydroelectricity, which has trouble

competing with articially low gas prices. New renewables laws have created a furry o

requests or w ind concessions, although it’s unclear how ast developers will be able to

build projects given the global crisis.

The E&P industry, however, will continue to fourish as developers try to supply the

country’s ast-growing demand or natural gas. Companies are due to invest US$1.27bn

this year, including US$943mn or production and US$328mn on exploration. Pluspetrol,

perhaps one o the most aggressive companies operating in Peru, will invest US$130mn

to drill blocks 1-AB and 8 and US$273mn to develop the Cashiriari eld, which eventually

is expected to bring Camisea production up to 1.80B3/d rom today’s 1.22B3/d. Majors

like Petrobras and Repsol YPF aggressively will go ater the country’s promising, relatively

unexplored geology.

One the other hand Petroperu’s plans to expand in the upstream sector may ace delays in

2009 in the atermath o last year’s Petrogate scandal, which suraced ater a consort ium

ormed by the state oil company and Discover Petroleum aced allegations o bribing

ocials in a bidding round. The state company will continue with plans already underway

to upgrade reneries but may be reluctant - and ace public cr iticism - i it goes ater new

blocks in upcoming rounds.

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Peru: Investments in the hydrocarbon sector

(US$ million)

Figure 7

Source: Peru Mining and Energy Ministry



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Meanwhile producers may put work in the Marañón basin on the backburner, as current

prices make the area’s heavy crude and high transport costs uneconomic. Early-stagedevelopers, however, may continue with plans with an eye on higher oil prices in

coming years. Perenco or example plans to invest US$350mn in 2009 to develop a heavy

crude project in block 67 that will include drilling six development wells and initial

inrastructure to begin production in 2011.

Venezuela

President Hugo Chávez’s high-cost petro-diplomacy may come back to haunt him in 2009,

when low oil pr ices will make it increasingly dicult to develop his country’s economy,

not to mention those o his allies. State oil company PDVSA took on a host o new, non-

energy-related duties in 2008 - and more than US$12bn in debt - while Chávez donated

billions to his allies. No longer bolstered by high pr ices, the company - and more generally

the government - will have a dicult t ime unding new development programs in the

energy and other sectors throughout Venezuela.

As a result, Venezuela may need to rely more on private-sector partners than in previous

years. Developing the Orinoco belt’s Carabobo blocks will depend heavily on whether

oreign bidders step up in the bidding round currently underway. PDVSA won’t have the

unding needed to help build LNG export trains, meaning at least until pr ices increase it

will rely on oreign partners to get the project rolling this year.

It remains unclear whether oreign operators will bail out Venezuela’s oil industry this year.

On the plus side, Venezuela oers vast oil and gas reserves that are just about unmatched

in the region. But Chávez has not made lie easy on the private-sector, which now may

bear the brunt o OPEC cuts. And besides, oil companies everywhere may be hurting,

making them increasingly reluctant to invest in high-cost Venezuelan projects. That goesdouble or the NOCs Venezuela has teamed up with on its Magna Reserva program designed

to urther develop the Orinoco.

I companies decide to hold back on Venezuelan investments, the Carabobo tender

could all fat and the LNG project could ace major delays. Production is likely to suer

regardless (see Table 1), as it will become increasingly dicult or PDVSA to secure

operating equipment without enough cash on hand (see Table 2). Reneries could continue

to suer problems as PDVSA delays long-needed upgrades.

In addition, PDVSA will have to curtail oreign investments. Already there’s speculation

that PDVSA will hold o on commitments to help Ecuador and Nicaragua develop rening

capacity, while Petrobras has said it could go it alone on its Abreu e Lima renery given

PDVSA’s reluctance to commit.

On the power ront, the government - which now dominates the industry ollowing

Chávez’s nationalization o the industry - will have a hard time investing the billions it

promised ollowed by widespread blackouts in 2008. Venezuela’s T&D network desperately

needs attention, as it oten is to blame or the country’s requent outages.

In a worst-case scenario, Venezuela will be plagued by requent blackouts, scal

shortages, lower oil product ion and project delays this year. I prices increase, conditions

could improve in some areas, relieving pressure on a government that is coming under

increasing re or running the country last year as i US$100 a barrel oil was a given.



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Tmeframe Rgcount

2004 55

2005 67

2006 81

2007 76

2008 80

1Q08 82

2Q08 81

3Q08 77

November 2008 80

December 2008 78

Venezuela’s declining productionFigure 9

Source: OPEC

Average dal output,

Tmeframe mllon barrels per da

2007 2.392

2008 2.342

2Q08 2.360

3Q08 2.339

4Q08 2.286

October 2008 2.321

November 2008 2.301

December 2008 2.237

Venezuela’s declining productionFigure 8

Source: OPEC



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ConclusionIt should come as no surprise that 2009 will be a challenging year or Latin America’s

energy industry. Low oil prices will orce a number o high-cost projects on the

backburner. Producers will suer rom thin margins while junior explorers will have a hard

time raising capital. Exporting countries that ailed to save or the downturn will su er as

well and will be orced to delay fagship projects.

Power markets, on the other hand, could benet rom low pr ices, although the strong

dollar will mitigate gains. Although industrial and even perhaps residential demand or

power will slow, companies will keep their eye on the long-term market. Renewables will

suer rom the credit crunch; only the strongest projects will continue this year.

A number o economists are condent that markets will start returning to normal late this

year, leading into a 2010 marked by recovery and growth. I that holds true or the oil,

gas and power industries, projects delayed during the cr isis should start back up again,

especially on the renewables and heavy crude ront. Exploration would pick up again,

particularly in Colombia and to a lesser extent Argentina, and exporting nations would

have a chance to recover and rethink how to operate during the boom times - and the

inevitable busts.



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Year in review January 2009

Not so splendid isolationby Randy Wood

The dream o integrating Latin American energy markets ell fat in 2008, as political

tensions and poor government planning isolated markets. Countries paid dearly as a

result, as shipments o high-priced diesel increased to the region and some major cities

suered rationing or outages. Dry weather early in the year didn’t help, increasingmarginal generation costs in hydro-dependent grids.

The isolation o energy markets will shape the region’s power markets or years, as the

public and private sector have started designing and implementing long-term strategies

to adapt to the new reality. Countries are putting a premium on indigenous power

sources like hydro and renewables to reduce imports while some are avoring coal, LNG

and nuclear as reliable generation sources.

For outsiders it’s oten a mystery why a region so rich in natural resources would turn

to Australian coal, US diesel or Indonesian gas to re generators. But the answer is

quite simple: regional tensions have blocked development o bilateral pipelines and

transmission networks while populist policies have slowed the rate o production in gas-

rich countries.

Politics continued to isolate Chile rom Bolivian and Peruvian gas grids. International

trade could have been a win-win as the copper-rich, energy-starved country is willing to

pay a premium or reliable imports.

Meanwhile Bolivia’s move to nationalize its hydrocarbons industry slowed the growth o

production, as companies have become nervous about expanding investments. Argentina

suered lower-than-expected imports as a result and had a tough time increasing

its own production due to price caps. Brazil saw an occasional disruption o Bolivian

supplies due to civil unrest in the landlocked country’s east.

And Venezuela still hasn’t tapped into its vast gas reserves, as the country’s state oil

company PDVSA has not been quick enough to adapt to changes in the gas market,

although the company made progress in 2008 in inking deals to develop LNG trains.

Mexico’s natural gas production has increased, but not enough to meet local demand.

Flaring continues to be a problem in the oil-rich country. And Peru suered rom

pipeline bottlenecks that orced some generators to import diesel to continue operating.



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Year in review January 2009

Chile arguably suered the most during the year rom the region’s ailed integration, asit struggled with major gas import restrictions rom Argentina. As a result, Chile turned

to a host o saer generation sources by planning a new wave o mega-dams in Patagonia

and studying plans to introduce nuclear reactors to the country, as well as progressing

with LNG plants. The miners up north also are keen on coal given the dearth o hydro

capacity and natural gas imports in the copper-rich desert.

Brazil had a tough time o it in 2008 as well, as the dry weather caused ears o

rationing and prolonged gas restrictions rom Bolivia. The Portuguese speaking country

got through it all , however, by dispatching coal and gas generators and swapping power

with Argentina. In the longer term, the country is planning to revitalize its nuclear

program and develop a new generation o mega hydro projects in the Amazon. And i the

Santos pre-salt discoveries hold as much natural gas as some think, the country couldwave goodbye to its uel supply problems and minimize plans to import LNG.

Argentina also started LNG imports in the year and tried to stimulate new investment

by gradually increasing power and gas prices. Peru worked to expand gas pipelines and

upgrade gas-red generators to cogeneration plants, while congress passed new laws to

introduce renewables to the grid. Mexico also jumped on the renewables bandwagon by

pushing development o wind projects down south, where a shortage o turbines seems

to be delaying plans. And Venezuela, which suered massive outages due to weak T&D

and generation systems, promised billions in new investments or coming years.



www.BNamericas.com

Ranking Top TENJanuary 2009

Petrobras: in the major leagues

The ambitions o Petrobras’ reormers in the 90’s have been more than ullled. The

revenue o Brazil’s partially state-owned oil company exceed US$100 billion per year,

making the company one o the stars o the industr y thanks to its deepwater dr illing

know-how. In addition, Petrobras’ discovery o the large pre-salt elds o Tupi and Jupiter,

despite doubts raised by its technical complexity and high-cost o operation, has led

Brazil to become a country with major gas potential. For 2009, despite the crisis and the

nosedive o oil prices, the company plans to invest US$28.6 billion, which is part o the o

US$174 billion investment plan announced or 2009-2013.

Top TEN 2009A selection o companies that will be in the spotlight in coming months:

Sales Sales Varaton

RK Compan Countr Sector Jan-Sept 07 Jan-Sept 07 08 %

1 Petrobras Brazil Oil and Gas 87,369 109,524 25

2 Pemex Mexico Oil and Gas 75,497 96,974 28

3 GDF Suez (consolidated) 1/ France Electric Power 52,420 62,317 19

4 Ecopetrol Colombia Oil and Gas 7,785 11,690 50

5 Enersis Chile Electric Power 6,979 8,277 19

6 CPFL Energía Brazil Electric Power 5,655 5,613 -1

7 Brasiliana Energia Brazil Electric Power 4,900 4,996 2

8 ISA Colombia Electric Power 1,072 1,087 1

9 Pacifc Rubiales Canada Oil and Gas 26 456 1654

10 Brasil Ecodiesel Brazil biofuel 141 191 35

Top TEN

1/ Six-month fgure to June 30, 2008

(in US$ million)

Source: BNamericas, based on companies’ balance sheets



www.BNamericas.com


Pemex: paying the billsThe other Latin American oil giant, Pemex, is still struggling unsuccessully against the

deadly ate o being the Mexican treasury’s cash cow. The company was unable to take

advantage o high prices to replenish reserves, investing barely US$16.3 billion a year over

the past three years. The e ect o Pemex’s chronic underinvestment has resulted in alling

production (output dropped 10% in 2008, ater diving 5% in 2007) and declining reserves,

which at the beginning o 2008 were estimated to cover nine years o production. The shy

liberalization o the oil sector approved with the 2008 reorm and the manner in which

private capital will participate in the Mexican oil industry will put Pemex in the spotlight

this year.

GDF Suez: the new kid on the block

By mid-2008 the merger between two French energy giants, Gaz de France and Suez,

nally took place. The result is a conglomerate with annual o sales exceeding US$120

billion, which has a growing presence in the Latin American energy scenario, even though

the region, where sales are little over US$3 billion a year, doesn’t have a huge impact

on the company’s nancial results. GDF Suez this year will increase its presence in Latin

America thanks to its role in the LNG regasication plant being built in northern Chile.

The company also will play a lead role in the development o unconventional renewable

sources in the region, ollowing the October 2008 acquisition o US company Econergy

International, which has plants and projects in Brazil, Bolivia, Costa Rica, Chile and

Mexico in its portolio, as well as in the United States.

Ecopetrol: developing metamorphosis

Colombia’s Ecopetrol is in ull t ransormation ater the partial opening o its capital to

the private sector. The company - the ourth largest Latin American state oil company

that runs ar behind PDVSA, Petrobras and Pemex - wants to be a mid-size global player

by 2015. For that, in addition to its investment in Colombia, Ecopetrol has gone abroad to

develop partnerships with oil companies o the likes o BP and StatoilHydro to explore in

the US Gul o Mex ico.

Enersis: success and expansionEnergy holding company Enersis, controlled by the Spanish company Endesa, is closing a

successul 2008 and is headed or ur ther growth in the region. Its generation subsidiary,

Endesa Chile, reported record prots in 2008 (US$722 million), more than doubling those

o 2007. Endesa Chile plans to invest US$1.64 billion in the coming years in Chile, Colombia

and Peru to expand its generation capacity.



www.BNamericas.com


CPFL: the green bet

Brazil’s CPFL, one o the largest elect ric conglomerates in the country, has gone through

some dicult quarters. Sales and prots ell over the rst nine months o 2008, mainly

due to higher nancial costs. The company, which has several hydropower projects in

development, is making a bet on non-conventional renewable energies. Late last year the

company announced the start o construction o biomass plant Baldin in the state o Sao

Paulo. The project calls or a US$44 million investment and will be ueled by sugarcane

bagasse. Its commissioning is set or April 2010.

Brasiliana Energy: the eternal brideIt didn’t happen in 2008, as many expected. And with the nancial crisis unleashed in

the last quarter o the year, the sale o the 49.9% share that Brazil state development

bank BNDES has in the Brasiliana Energia holding power won’t happen until the second

hal o this year at best. There are several companies interested in this package, including

majority shareholder AES o the US, which has said that it plans to exercise its preerential

right to acquire BNDES share in Brasiliana.

ISA: Brazilian avor

Colombian power company ISA has became one o the most international companies

in Latin America. In the rst nine months o 2008, 53% o its revenues and 58% o its

EBITDA came rom its operations in Brazil. The company will continue to make headlines

this year, especially in the north o the region. ISA and Panama sister company ETECSA

have started with the nancial engineering o the plan that will allow Colombia to

interconnect with Central America transmission grid through a 300MW, 614km line.

Pacifc Rubiales: at ull throttle

The Pacic Rubiales history is an emblematic one, o a small oil company that has

succeeded in emerging areas such as Colombia and Peru. In current market conditions, the

Canadian company is taking advantage o its status as low-cost producer and is reshaping

its investment plan or this year, with the idea o investing US$1.18 billion in 2009-2012,

largely unded by cash fow.



www.BNamericas.com


Brasil Ecodiesel: test year 2009 is a year that will test the ull capacity o Brasil Ecodiesel to address the deep all

in uel prices and to survive in the short term. The company, the largest biouel producer

in Brazil, has seen the market collapse beore its eyes just when it was beginning to take

o. The company reported a US$12.8 million loss in the third quarter due to a combination

o high debt and lower sales. Company eorts are now placed on achieving a successul

restructur ing o its liabilities.



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Energ DAiLyWrtten and researched b Randy Woods

Edtor, intellgence Seres

Raúl Ferro

Subedtor, intellgence Seres

Henriette Iraçabal

BNamercas Energ Group

Edtor, Energ

Randy Woods

Santago, Chle

Nathan Crooks

David Casallas

Mexco Ct, Mexco

David Biller

Río de Janero, Brazl

Fábio Palmigiani

outlook 2009 latin american energy markets

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