A Modern Day Gold Rush in The Andes

Fergus Fishburn
April 26, 2022
6 min

A Modern Day Gold Rush in The Andes

The Andes - A symbol of energy diversification and transition

The last few years have been some of the most fruitless for energy investment in recent memory. A pandemic caused lower profit margins and increased risk, whilst events in Eastern Europe have wreaked havoc with the global supply chain.

However, the fluctuations and turmoil has offered some key lessons; the need to diversify our hydrocarbon supply and to invest in a cost-effective transition. One historic corner of the world offers a beacon of light to power this drive.

For millennia, the Andes have provided a home to some of the most advanced civilisations in history.

From the ancient Incan city of Cuzco, to the Spanish colonial port of Cartagena de las Indias onto the modern-day capital of La Paz, comfortably the highest in the world, the Andean region has supported some of the world’s greatest technical and infrastructural projects. Today, it offers yet a new set of opportunities.

Bolivia opens its doors to FDI, breathing fresh life into the energy sector

Bolivia, a nation nestled between the vast Amazon rainforest and the boundless Andean coastline, offers diverse hydrocarbon and renewable opportunities. The southern salt flats of the Salar de Uyuni boast 17% of the world’s lithium reserves, yet remain undiscovered, whilst the nation produces 92 times the gas that it uses annually. However, to harness this natural gift, Bolivia needs FDI to kickstart the process and, more importantly, produce local content.

Bolivia has been focusing on exporting natural gas to its neighbours throughout the last few years, with notable deals surfacing within the last few months. Natural gas accounts for 28% of Bolivia’s exports, but has remained firmly in the hands of the state owned Yacimientos Petroliferos Fiscales Bolivianos (YPFB). As a concept, the company forms joint ventures, ensuring that internal demands are met first, whilst surplus heads towards the external market.

Since the violence surrounding gas laws in the early 2000’s, Petrobras, Brazil’s NOC & several Argentinian firms have exclusively done business with the state-run firm, but this has begun to change. Brazilian private investment firm, Teneder, has acquired a two year multi-million dollar deal with YPFB, paving the way for future investment. Similarly, a recent deal was struck between Canacol Energy Colombia and YPFB to begin exploration for oil & gas in 2023. The foreign investment could lead to profits of up to $500m, fuelling further energy development in the region and powering Bolivia’s growing economy. Armin Dorgathen, YPFB CEO, highlighted that this investment, combined with the prior Brazilian investment and bilateral talks with neighbours Peru, demonstrated “investor confidence” in the nation.

Indeed, in February, YPFB expressed its desire to acquire $500m of FDI to fund exploration in the vast, mineral rich Tarija region. Bolivia is worried by the decline in exploration and investment in extraction of its gas, and the nation is struggling to feed its burgeoning demand at home, never mind abroad. This worry is worsened by the increasing reliance on oil imports, as the price skyrockets following the decrease in international supply. Consequently, a more open model could drive the Bolivian economy and socio-economic development across the country, whilst providing opportunity for international investors.

Opportunity for the nation is enviable, neighbours Argentina need more than double the 7.5 million cubic metres a day that it receives from Bolivia to heat their nation during the cold stretch between May and September. Similarly, events in Eastern Europe have sent shockwaves through international gas markets and E&P’s will be scouring the planet for opportunities, they will have to look no further. Investment in Bolivia will also symbol a nod to the future as the nation’s vast lithium resources could drive an international transition away from hydrocarbons. Potosí, once the world’s 5th richest city, could return to its glory days due to lithium’s pivotal role in the energy transition, making it a viable commodity.

Ecuador - The Andean nation turns to black gold for economic development

Ecuador’s president, Guillermo Lasso, is gathering momentum as he advocates for the goal of doubling oil exploration and production in Ecuador to combat an economic depression and fuel the nation’s development.

Canadian E&P Frontera’s second discovery of the year, 7km from its first, has highlighted the potential within the Perico region.

However, opportunity is not constrained to terrestrial projects as PetroEcuador, the state owned national oil company, is aiming to double its offshore development. Reuters has reported that the company is seeking private investment, in the region of $12bn to fuel this advance.

This news, combined with the international markets' need to diversify their sourcing of oil, has propelled Ecuador firmly onto the world’s stage. PetroEcuador has held several meetings with Shell, who are by no means the only company looking to secure contracts in the business-friendly enclave. Above ground risk is at its lowest for decades in Ecuador, as the nation’s government seeks to retreat from intervening in private contracts. The future looks bright from the Guayaquil basin across the Andes and into the Amazonian tributaries.

Colombia - The birth of a hydrocarbon titan

Colombia’s consistent economic growth since the troubled years of the 1990’s have turned the birthplace of ‘magical reality’ into a genuine continental giant. Indeed, the nation looks to set an example in the transition towards green energy, but it remains a comparative pipedream.

Although an abundance of hydro potential has led to significant investment in this particular energy source, generating 65% of Colombia’s electricity, there is opportunity elsewhere too.  The desolate La Guajira region has been classified as a Class 7 region, whilst biomass in the agricultural regions of Santander and Valle de Cauca could take advantage of the significant gap in the sector.

Even so, it is Colombia’s investment friendly policies that have cemented the nation as a jewel and have promoted its opportunity worldwide. Entailed in Law 633, that was passed in 2000, was the Fund for Non-Conventional Energies (FENOGE), which offers palpable tax breaks for those who invest in non-renewable infrastructure and development. This has produced a successful legacy of local content within the nation enabling energy development and securing economic development across the nation. Indeed, in La Guajira, Latin America’s most northerly point, the Jouktai Wind Farm, has produced thousands of jobs in one of the most impoverished regions, and will soon power the Northern region. This reliable energy security is the key to economic development. Colombia has taken the first steps towards a low cost energy transition that provides incentives and development.

Peru - The De-radicalization of Pedro Castillo’s policies open doors

Nestled along the Andean coastline, boasting a diverse wealth of natural resources onshore and offshore, Peru’s geology permits sustainable foundations for energy development. Recent discoveries of oil & gas across the nation have made Peru an attractive destination for foreign investors. This position has been buoyed by the global necessity to diversify and the growing demand of the population making opportunity effervescent in the nation.

The vast Northern Peruvian jungle offers USD $44bn in hydrocarbon reserves, whilst its topography could ensure it becomes a big hydrogen player, if infrastructure is made available.

In the aftermath of the turmoil surrounding the election of Pedro Castillo and the response from competitor Keiko Fujimori, the Peruvian Sol plummeted to its lowest rating this century. Combined with a pandemic-induced economic contraction on the continent, Peru’s economic future looked bleak. However the economy grew by 13% in 2021 and surpassed pre-pandemic levels. This, combined with a forecast growth of 3% for this fiscal year, has made the nation an attractive destination for investment and dramatically reduced risk.

Energy security within the nation has and will continue to be a fundamental talking point within the nation. Since the turn of the century, projects such as the ‘Seven Regions Project’ and the SITGAS pipeline have increased Peru’s electrification rate to above 80%. Indeed, 900,000 rural families have benefitted from the ‘Seven Regions Project’, which has given stimulus for further projects in the Southern Region. However, there remains a significant population without access to electricity, a tool that will drive development in these regions. Foreign investors will target and drive this development to expand the infrastructure in the region.

Mining policies have been a contentious issue across the last decade. Pedro Castillo’s government has relaxed and receded from their boisterous election campaign, highlighting the importance of energy in the national economy.

Last note on the Andes' four nations

These four nations' geology and policies have put themselves at the forefront of world development and forged themselves a new position in the global market. However, the Andean nation needs further investment to secure long-lasting development and return the region to former glory. The Andes can once again become a global leader and power a legacy of energy security.

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