Gas oil price rising

World energy demand is expected to soar 54% by 2025, according to the U.S. Department of Energy. In a recent energy use study, the Energy Information Administration (EIA), the statistical arm of the DOE, added that energy use in developing countries, led by China and India, would rise a stunning 91% over the next two decades due to robust economic growth.

By 2025, the developing world will see its share of world energy demand rise from 34% now to 43%, while the developed countries will see their share of world energy demand fall from 54% to 45%. There will be a continued reliance on fossil fuels and oil will remain the dominant fuel type with 39% of total world energy use, the EIA said. Natural gas will be the fastest growing source of primary energy, rising 2.2% per year over the next 24 years.

World oil demand will increase from 77 million barrels per day (b/d) in 2001 to 121 million b/d in 2025, with much of the increase expected in the United States and in developing Asia, the EIA said, which together will account for nearly 60% of the projected growth in world oil use.

The price of a barrel of oil has been consistently above the top end of the target range of US$22 to US$28 for more than a year now, with analysts predicting increases within the year.

Global demand for natural gas is projected to jump by 67% to 151 trillion cubic feet per year by 2025, with prices edging higher currentllyparticularly in the United States.

Latin American countries will benefit from these trends if they can overcome domestic energy policies that appear to stymie sector growth.

Because the Latin American states largely remain key players in the industries, the lines tend to blur between corporate business strategies and government policy objectives. This can cause uncertainty regarding their operation, according to Jason Todd, a senior director with Fitch Ratings who specializes in analysis of the energy sector in Latin America.

Despite the difficulties, analysts agree the outlook is bright for the region's energy companies due to high product prices and an open capital market that will allow them a positive environment for growth.

MEXICO

Mexico, which is the world's fifth largest oil producer, produces about 3.2 million b/d. Some of the country's most significant oil reserves are located in the deep waters of the Gulf of Mexico, making them expensive to exploit. The state oil monopoly, Petroleos Mexicanos (Pemex), has faced challenges in the past generating the capital for the necessary drilling and Mexican law forbids foreign companies from acquiring ownership rights to oil or gas.

Pemex employs a staff of around 137,000 engaged in the production of petroleum and basic petrochemicals. It is also involved in exploration, drilling and transportation as well as the distribution of related products.

Mexico has become reliant on oil profits to fund public initiatives, often at the cost of sufficient investments in Pemex. This lack of investment could cause Mexico's oil wells to begin drying up in 10 to 20 years, with some analysts estimating that Mexico needs US$50 billion over 10 years just to maintain supply.

Mexican President Vicente Fox said recently that he would not back down from a movement to allow private investment in the country's energy sector, despite opposition to the idea.

Currently, Pemex is set to open a chain of franchised petrol stations in Central America that will expose it to a competitive environment for the first time in its 66-year history. Preparations are already under way for the first stations to be opened in the former British colony of Belize.

Pemex is also expected to benefit from the Mexican government's decision to boost its investment in gas production with an initial infusion of almost US$1.6 billion into the Burgos Integral Project this year. This amount is 55% higher than that allocated in 2003 and will boost its production to 1.1 billion cubic feet of natural gas a day.

Mexico's Energy Secretariat said recently that the Burgos Integral Project developed by Pemex is part of the general strategy to increase gas production in the wake of growing demand. Total investment in this project up to 2018 is expected to be almost US$18 billion.

Pemex Exploracion y Produccion, a subsidiary of Pemex, is planning to invest almost US$1.2 billion in natural gas exploration and production projects in the state of Veracruz to boost output at new discoveries. These include Pleyuela, Copite, Vistoso and Madera.

Company officials have said the upgrade project was prompted by the need to explore and develop new gas discoveries in order to substitute for expensive gas imports.

ECUADOR

Another new gas-related project worth noting is the U.S.-based Noble Energy company's development of the Amistad natural gas field in the shallow waters off Guayaquil on the coast of Ecuador. The aim of the US$55 million project is to increase gas production in order to supply Noble's Machala gas-fired power station through the year 2010, company officials have said.

Within Ecuador's oil sector, change is expected at state oil company Petroecuador. Company president Pedro Espin recently resigned after new energy minister Eduardo Lopez was expected to bring "fresh faces" to the company to improve its efficiency: Petroecuador is widely seen as encumbered by its own bureaucracy.

VENEZUELA

More investment will maintain Venezuela as one of the world's most important oil producing countries. As the fourth-largest supplier of crude to the United States, Venezuela, produces about 2.6 million b/d, down from about 3.2 million b/d due to the effects of a general strike in late 2002. Analysts estimate the country needs to spend more than US$2 billion a year just to keep production from falling.

While some analysts believe that Venezuela's production number could drop to 2.4 million b/d by the end of 2004, due to a lack of investment in infrastructure, there has been a recent upward trend in the production of the government-owned Petroleos de Venezuela (PDVSA).

PDVSA is on the road to recovery after the strike and sabotage that the company faced in December 2002 and January 2003. The aim of its business plan for 2004-2009 is to add value to the country's considerable oil and gas reserves and to support the development of Venezuela with a US$37 billion medium term investment plan.

ARGENTINA

In Argentina, the energy crisis has become so severe, some analysts estimate that the country's economic growth could be cut this year by two percentage points. Analysts have blamed Argentina's energy shortages largely on the government's decision in January 2002 to freeze natural gas prices as the country's currency collapsed. The government allowed foreign gas companies to raise rates for the first time in early April, but they remain below international prices. Although Argentina has been an exporter of gas in the past, it recently broke its supply contracts with Chile.

Argentina is reportedly considering creating a state-owned company that would be charged with monitoring the performance of the country's private-sector oil companies. Under the plan, the entity would develop projects jointly with the private companies.

Government officials have said the creation of this national company is part of wider efforts to fight the energy crisis gripping the country, and could involve establishing links with Venezuela's PDVSA and Brazil's Petroleo Brasileiro SA (Petrobras). According to the officials, the government would look to own a golden share in the new company. Yacimientos Petroliferos Fiscales (YPF)--the former Argentine equivalent of PDVSA and Petrobras--is now part of the Spanish investment group Repsol.

Argentinian President Nestor Kirchner recently signed a contract with the Bolivian government for 4 million cubic meters a day of gas to help relieve the energy crisis in northeastern Argentina. The contract is for a maximum of six months beginning in May and is conditioned on none of the gas being redirected to Chile.

BOLIVIA

Chile could rely on Bolivia to replace its Argentine energy source, but that option appears to be a political non-starter. During 2003, several Bolivian politicians have resuscitated lingering bitterness over an 1879 war with Chile, and have blocked a pipeline project that would connect the neighboring countries.

Currently, Bolivia's government is in the process of deciding how to use its substantial natural gas reserves. Originally, plans were in the works to build pipelines to export the product via northern Chile or Peru with the participation of several U.S. companies. But the U.S. groups abandoned the project due to the uncertainty of Bolivia's political climate.