NotiEn - A Newsletter on Energy Policy Issues in Latin America
August 30, 2011Vol 2, Issue 11

Brazil, Colombia Develop Strong Ethanol Industries, but Problems Abound;

Mexico Awards Oil-Exploration Contracts to Private Firms


Biofuels, and specifically ethanol, have a mixed history in Latin America. Countries like Venezuela and Cuba have been outspoken in their opposition to biofuels because they often require the use of raw materials used for food, including sugarcane and corn. It is not just the use of foodstuffs that is objectionable to these countries but the impact of the increased demand for these products on global commodity prices.


Some countries like Mexico, Argentina, and Peru have openly supported biofuels but have not made development of ethanol and biodiesel a high priority. Argentina has developed a small soy-based biodiesel industry, while Peru has been experimenting with jatropha, a drought-resistant plant found in Peru's deserts, to produce ethanol. The Mexican Congress approved a bioenergy law in 2007 that promotes development of ethanol with corn, sugarcane, and celluloid plants.


The two countries in the region that have made the strongest commitment to developing biofuels are Brazil and Colombia. Both countries view ethanol as a means to reduce greenhouse gas emission and create energy security.


Brazil built its ethanol industry in 1973 in response to the energy crisis that year. Ethanol production surged under former President Luiz Inácio Lula da Silva, primarily as an effort to create fuel for Brazil's new flex-fuel vehicles. In Colombia, former President Alvaro Úribe's administration made a big push to develop ethanol production, partly to take advantage of the country's ample supply of sugarcane and to boost the supply of cleaner gasoline on the domestic market.


While the two South American countries claim great success in developing a biofuel industry, they are also facing many challenges and criticisms. In Brazil, sugarcane supplies are no longer adequate to meet the growing demand for ethanol, and many cane producers would rather channel their output into sugar production. As a result, the price of ethanol has risen, prompting President Dilma Rousseff's administration to take steps to regulate the market. Read more...   


Carlos Navarro - Editor      

In This Issue...
A Note From the Editor
In Colombia, Blossoming Biofuel Industry Driven by Top-Down Targets and Incentives
Brazilian Government Attempts to Stabilize Ethanol Supply with New Regulation
State-run Oil Company PEMEX Awards First Exploration Contracts to British, Mexican Companies
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In Colombia, Blossoming Biofuel Industry Driven by Top-Down Targets and Incentives 
By Benjamin Witte-Lebhar     

In the span of just a few short years, Colombia--already a major oil and coal producer--has developed an entirely different energy industry: biofuels. The industry's pedal-to-the-metal production surge has attracted no shortage of admirers, who hail the biofuel bonanza as a model worth emulating. Others, however, question the social, economic, and even environmental implications of harvesting fuel from the country's fertile fields.


A decade ago, Colombia had no biofuel industry, nor was it apparent to many outside observers that it needed one. The region's fourth-leading oil producer after Mexico, Venezuela, and Brazil, Colombia also sits on major coal reserves. It is not, in other words, an energy-poor country desperate for alternatives.


Yet in 2001, then President Alvaro Úribe passed a forward-looking law stipulating that, by 2006, gasoline consumed in Colombia must contain 10% ethanol. At the time, Colombia did not produce ethanol, an alcohol fuel additive made from crops. But it did grow plenty of sugarcane, from which Brazil, South America's biofuel pioneer, has been producing ethanol since the 1970s. The world's leading ethanol producer, the US, uses corn as its primary feedstock.


Eager to capitalize of this comparative advantage, the Úribe government also saw ethanol production as a way to spur rural economic development and create sustainable new jobs. Energy security may have been a motivation as well. Read more... 


Brazilian Government Attempts to Stabilize Ethanol Supply with New Regulation - By Ana Cristina Powell   

For the past four decades, Brazil has moved to replace petroleum with highly efficient sugarcane-based ethanol, primarily to protect against recurring global oil crises and address concerns about the effect of greenhouse-gas emissions on the environment. Despite the immense promise of the ethanol industry, however, Brazilian drivers who choose to fill their tanks with the biofuel continue to face uncertain supplies and unstable prices.


Even before being sworn in on Jan. 1, 2011, Brazil's President-elect Dilma Rousseff met with her agriculture minister-designate Wagner Rossi to request that he confer with ethanol producers to inform them how dissatisfied the government was with the high prices of the product at the pumps. At that time, Rossi said Rousseff wanted him to express that the government was worried about producers' inability to keep prices stable."


The new president's dissatisfaction with the ethanol pricing structure is likely to trigger yet another change in the industry's long history in a country that is also the world's largest sugar producer.


Ethanol industry created in response to 1973 oil crisis

After the first oil crisis in 1973, the Brazilian military government moved to reduce the country's dependence on imported Middle Eastern petroleum. Government agencies started investing in technologies to produce alcohol as fuel, and in 1975 the Proálcool (Programa Nacional do Álcool) was implementedRead more...    


State-run Oil Company PEMEX Awards First Exploration Contracts to British, Mexican Companies 
By Carlos Navarro   

In what President Felipe Calderón's administration is calling a historic move, the state-run oil company PEMEX awarded its first-ever contracts to foreign and Mexican private companies to conduct oil exploration and extraction activities in the Carrizo, Magallanes, and Santuario fields in Tabasco state. The move to bring in private investors to primary activities was made possible by reforms the Congress approved in 2008 to overhaul PEMEX . But critics are suggesting that the contracts go beyond what is allowed under the 2008 changes and therefore violate the Mexican Constitution.


Even though PEMEX is venturing into new territory by offering contracts for extracting crude oil, there are precedents for the oil company to hire private companies for primary activities. During the administration of former President Vicente Fox, PEMEX awarded multiple-services contracts to private consortia to explore for natural gas in the Burgos Basin in northeastern.


The newly approved exploration and extraction contracts are built on incentives, with private companies risking their own capital for exploring and constructing infrastructure. Any oil that is extracted is sold exclusively to PEMEX at a price established during the bidding process. 


The new contracts involve some of PEMEX's smaller crude-oil fields, representing only about 1.5% of Mexico's proven reserves. The company said it plans to open up much larger projects, including exploring for deep-water reserves, sometime in 2012 or 2013. There has been no direct mention of opening bids for the Cantarell and Ku Maloob Zaap fields, which together account for more than half of Mexico's crude-oil reserves. Read more...    


Energy Policy, Regulation and Dialogue in Latin America


NotiEn is an original newsletter with breaking news that analyzes and digests relevant and contemporary information in energy, alternative energy and energy policies in Latin America. A complimentary service provided by the University of New Mexico as part of LA-ENERGAIA Project funded by the US TICFIA Program