Call to liberalize Latin gas markets

Energy consultant Ron Hopper has noted that the liberalization of Latin America's gas markets are the only way for regional government's to reap the benefits of their natural resources.

Making the case for liberalization at the Natural Gas In the Americas Conference in Port of Spain Trinidad, Hopper argued that the increased competition in the industry can lead to higher government revenues through taxation and royalties and lower prices for domestic and export consumers.

He noted that it is always better to have the market regulate itself through competition rather than through Government's investment in establishing a regulatory body.

"Having more players in the market encourages both vertical and horizontal expansion as well as the development of downstream industries, adding significantly to the local economy.
He added that in a competitive environment, the industry will be in a better position to compete on the internationally.

He listed the major advantages as the development of a more integrated and diversified industry, the separation of the market into suppliers and distributors, easier risk management and effective market competition to minimise government involvement in regulation.

Hopper noted that liberalization leads to growth and industry restructuring as new and existing players in the market will begin considering investments in exploration, production, distribution, storage and the downstream uses of gas. "In some markets there can even be opportunities for futures trading in gas.

"Competitive markets and prices will lead to energy market penetration by new players who package energy and strategic joint ventures in gas, electricity, district heating and other projects.

In supporting the need for competition, researcher Jim Osten of Standard & Poor's Platt Analysis & Consulting Group said Latin America's natural gas demand is expected to jump by 30 percent by 2003.

He said the rapid growth will be fueled by the economic recovery in Brazil, increased urbanization, increased pressure from environmentalists and more competitively priced natural gas products.

Osten said Latin businesses have been investing in plant and equipment following dramatic cuts in interest rates from the double digit highs of the early 1990's, when the region was in recession.

"Real growth has stabilized, more effective monetary policies have subdued inflation and capital is flowing back into the region."

He said Latin America will rebound faster than Asia because much of the region was operating below capacity and the banking/financial problems that brought down far east economies are less severe. Even local governments seem more committed to reform, Osten added.

"The region is expecting to see negative growth in 1999, but projections suggest that economic growth in the region could reach as high as five percent by mid 2001. Fuel usage is also expected to rebound dramatically to support this growth.

"Currently the region uses about 13 bcf per day of natural gas. This is expected to increase to 17 bcf by 2003, with the biggest growth coming from the industrial sector."

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