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. 


Colombia is facing different problems, including concerns about land use. The only way for ethanol and biodiesel makers to increase production is to grow more feedstock, which means occupying more land. Environmentalists worry that some of that land could be carved out of the Colombian rain forest. Another potential problem is that new sugar and palm-oil plantations will occupy land that would otherwise be used to grow foodstuffs.


Despite these challenges, the ethanol industries in Brazil and Colombia are expected to remain viable, especially in light of strong international pressure for countries around the globe to reduce greenhouse-gas emissions. Because of this, biofuel production is also likely to expand in many other countries in Latin America.


"Brazil is the most advanced in biofuels because of its experience in ethanol," Camila Ramos, head of Latin America research at New Energy Finance, a renewable-energy consulting company based in London, recently told The New York Times. "But we're also seeing opportunities and investor interest in many other parts of Latin America."


While Mexico is quietly making some strides in ethanol production, most of its attention remains focused on restoring its oil industry. Overexploitation of its oil resources since 2000 have caused Mexico's proven reserves of oil to decline rapidly. This prompted the Mexican Congress to overhaul the state-run oil company PEMEX in 2008 to allow limited participation of private companies in exploration and development activities.


In August 2011, PEMEX approved the first contracts under this scheme, which officials hope will lead to increased production from existing fields that have not been producing much in recent years. But critics are suggesting that the contracts go beyond what is allowed under the 2008 changes and therefore violate the Mexican Constitution. This tug-of-war over the direction and scope of PEMEX policies is likely to continue into the next presidential administration in 2012, as Mexico wrestles with how to boost reserves on a limited budget while complying with the constitutional provisions that stipulate that oil resources are the patrimony of all Mexicans.


Carlos Navarro - Editor