[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




 
                 ENERGY OPPORTUNITIES IN SOUTH AMERICA

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         THE WESTERN HEMISPHERE

                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 17, 2017

                               __________

                           Serial No. 115-24

                               __________

        Printed for the use of the Committee on Foreign Affairs
        
        
        
        
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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey     ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida         BRAD SHERMAN, California
DANA ROHRABACHER, California         GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio                   ALBIO SIRES, New Jersey
JOE WILSON, South Carolina           GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas             THEODORE E. DEUTCH, Florida
TED POE, Texas                       KAREN BASS, California
DARRELL E. ISSA, California          WILLIAM R. KEATING, Massachusetts
TOM MARINO, Pennsylvania             DAVID N. CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina          AMI BERA, California
MO BROOKS, Alabama                   LOIS FRANKEL, Florida
PAUL COOK, California                TULSI GABBARD, Hawaii
SCOTT PERRY, Pennsylvania            JOAQUIN CASTRO, Texas
RON DeSANTIS, Florida                ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina         BRENDAN F. BOYLE, Pennsylvania
TED S. YOHO, Florida                 DINA TITUS, Nevada
ADAM KINZINGER, Illinois             NORMA J. TORRES, California
LEE M. ZELDIN, New York              BRADLEY SCOTT SCHNEIDER, Illinois
DANIEL M. DONOVAN, Jr., New York     THOMAS R. SUOZZI, New York
F. JAMES SENSENBRENNER, Jr.,         ADRIANO ESPAILLAT, New York
    Wisconsin                        TED LIEU, California
ANN WAGNER, Missouri
BRIAN J. MAST, Florida
FRANCIS ROONEY, Florida
BRIAN K. FITZPATRICK, Pennsylvania
THOMAS A. GARRETT, Jr., Virginia

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director

               Jason Steinbaum, Democratic Staff Director
                                 ------                                

                 Subcommittee on the Western Hemisphere

                 JEFF DUNCAN, South Carolina, Chairman
CHRISTOPHER H. SMITH, New Jersey     ALBIO SIRES, New Jersey
ILEANA ROS-LEHTINEN, Florida         JOAQUIN CASTRO, Texas
MICHAEL T. McCAUL, Texas             ROBIN L. KELLY, Illinois
MO BROOKS, Alabama                   NORMA J. TORRES, California
RON DeSANTIS, Florida                ADRIANO ESPAILLAT, New York
TED S. YOHO, Florida                 GREGORY W. MEEKS, New York
FRANCIS ROONEY, Florida

                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Jorge R. Pinon, director, Latin America and Caribbean 
  Program, Jackson School of Geosciences, The University of Texas 
  at Austin......................................................     4
Ms. Lisa Viscidi, director, Energy, Climate Change, and 
  Extractive Industries Program, Inter-American Dialogue.........    13
Mr. Jason Bordoff, professor and director, Center on Global 
  Energy Policy, School of International and Public Affairs, 
  Columbia University............................................    20

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Mr. Jorge R. Pinon: Prepared statement...........................     7
Ms. Lisa Viscidi: Prepared statement.............................    16
Mr. Jason Bordoff: Prepared statement............................    22

                                APPENDIX

Hearing notice...................................................    56
Hearing minutes..................................................    57


                 ENERGY OPPORTUNITIES IN SOUTH AMERICA

                              ----------                              


                        WEDNESDAY, MAY 17, 2017

                       House of Representatives,

                Subcommittee on the Western Hemisphere,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The committee met, pursuant to notice, at 10:00 a.m., in 
room 2172 Rayburn House Office Building, Hon. Jeff Duncan 
(chairman of the subcommittee) presiding.
    Mr. Duncan. Okay, a quorum being present, the subcommittee 
will come to order. I would like now to recognize myself for an 
opening statement.
    This is the third hearing that we have had on energy in the 
Americas since I have begun my chairmanship. I am passionate 
about this topic because I firmly believe that energy is an 
important key to creating more jobs for the Americans and to 
helping our hemisphere achieve a better quality of life via 
electricity coverage, energy production, and benefitting from 
the resulting economic growth.
    In the past, the U.S. supported energy initiatives in the 
region through investment and the exploration and production of 
traditional energy resources, providing regulatory and 
technical guidance and under the Obama administration renewal 
energy projects. In fact, a congressional delegation led by me 
and Ranking Member Sires visited an extensive solar energy 
project in Chile.
    Today, I believe that the U.S. could do much more to 
prioritize hemispheric-wide energy security in our approach to 
the region. After all, the discovered and reportedly 
undiscovered energy potential alone is enormous.
    South America is home to a vast wealth of natural resources 
including nearly 20 percent of the world's proven crude oil 
reserves and 4 percent of proven natural gas reserves. An 
effective use of such energy resources could result in more 
people having a higher quality of life through receiving 
electricity coverage, a higher number of jobs in needy areas, 
and greater investment from international companies into the 
communities where they do business.
    In addition, the energy landscape is diverse. Venezuela has 
the largest proven oil reserves in the world and the second 
largest natural gas reserves in the Americas. Significant oil 
and natural gas production is also occurring in Argentina, 
Bolivia, Brazil, Colombia, Ecuador, and Peru.
    Furthermore, the hemisphere produces the largest amount of 
hydroelectric power. Brazil is the world's second largest 
producer of ethanol and third largest liquid fuel producer. And 
Colombia is the world's fifth largest producer of coal. Chile 
also has the world's largest lithium reserves and Argentina 
possesses one of the world's largest potential markets to 
produce unconventional hydrocarbons.
    Similarly, Argentina is also the only Latin American 
country that is producing commercial quantities of oil from 
shale deposits. According to the U.S. Energy Information 
Administration in 2015, Argentina was second of 46 countries in 
terms of its undiscovered shale gas resource potential, and 
fourth in its undiscovered shale oil potential. Such prospects 
offer multiple areas for greater partnership with our country, 
given the U.S. experience with shale and with the U.S. energy 
technology.
    In addition. Brazil's offshore pre-salt basins may be one 
of the world's largest oil finds, recoverable volumes of oil 
reported are estimated at over 40 billion barrels. Combined 
with Brazil's other 18 on-shore basins, Brazil's energy market 
offers huge promise for the country, the region, and expanding 
energy ties with the U.S. Likewise, Colombia and Ecuador and 
Peru also have significant oil and gas production. And Guyana 
reportedly possesses substantial amounts of oil offshore. This 
is in addition to what Paraguay hopes to do in the northern 
part of the country; and to what Chile hopes to do with 
furthering other energy sources such as solar in their vast 
sunny areas.
    Today's robust energy landscape in South America is made 
even more compelling for deeper U.S. engagement given recent 
political shifts in the region. Countries seem to be waking up 
to the realization that status economic policies simply do not 
generate the kind of economic growth that they need. A change 
appears to be underway and countries are now making reforms to 
advance free market friendly energy policies and attract 
foreign investment.
    Argentina, Bolivia, Brazil, Colombia, and Peru, have all 
made some effort to improve their respective regulatory 
structures. Moreover, South America has become a growing market 
for U.S. oil and natural gas exports. Over the past decade, 
U.S. petroleum product exports to the region have grown by over 
400 percent and last year for the first time ever U.S. exported 
liquefied natural gas (LNG) to the region. Argentina, Brazil, 
and Chile were the first three South American countries to 
become LNG importers.
    Furthermore, under U.S. law, the Department of Energy must 
prioritize exports of U.S. LNG to countries with which we have 
free trade agreements. This creates additional opportunities 
for expedited U.S. LNG exports to Colombia and Peru, as well as 
to the Caribbean.
    Although the price of oil may remain low, energy prospects 
in South America are plenty. At a time when Venezuela continues 
to grow more unstable, threatening countries that depend on 
PDVSA for energy security, and as countries in the Middle East 
and North Africa continue their volatility, it is critical that 
the United States work with other energy-producing countries in 
South America to increase our energy security.
    The Western Hemisphere has vast energy potential. The U.S. 
and South America, along with our neighbors in Canada and 
Mexico, just need to build on those opportunities and create 
hemispheric-wide energy security effort using our respective 
countries' strengths.
    I will never forget the experience that Ranking Member 
Sires and I had last year when we visited the binational dam at 
Itaipu, the world's second largest hydroelectric plant jointly 
operated by Paraguay and Brazil. The spillways were open and it 
was an incredible display of hydroelectric power. The region 
has an amazing opportunity right now with energy and I look 
forward to what our witnesses will have to share on the subject 
and with that, I will turn to the ranking member, Albio Sires, 
for his opening remarks.
    Mr. Sires. Well, good morning, everyone. Thank you to our 
chairman for holding this important hearing and to our 
witnesses for taking the time to be here with us today.
    Today's hearing looks at both the opportunities and 
challenges toward enhancing our energy cooperation with South 
America. I believe integrating our energy interests in the 
region have been ignored for far too long.
    Although we often focus on the resources of the Middle 
East, it is worth noting that there are significant energy 
resources right here in our hemisphere. South America is home 
to vast oil and gas reserves and possesses tremendous renewable 
energy potential. Venezuela is home to 88 percent of the 
region's proven oil reserves. In regards to nontraditional 
source of energy, Brazil is the world's second largest producer 
of ethanol after the United States.
    Engaging with the Caribbean is critical, especially with 
the petro dollars from a crumbling Venezuela are drying up and 
the entire country is on the verge of collapse. Unfortunately, 
Maduro and his cronies have squandered the opportunity this 
could have brought to the Venezuelan people. Every day, we see 
the situation becoming more dangerous with the Venezuelan 
people suffering at the hands of Maduro's authoritarian 
tactics.
    That is why I hope this new administration will build on 
some of the bipartisan initiatives Congress worked on during 
the last few years. In 2016, Congress passed H.R. 4939, the 
U.S.-Caribbean Strategic Engagement Act. With the leadership of 
Ranking Member Engel and Congresswoman Ileana Ros-Lehtinen, 
this bill mandates that the State Department develop a strategy 
to support enhanced engagement with the Caribbean region.
    Moreover, the growing presence of anti-democratic actors 
such as Russia and China whose self-interests are counter to 
the strategic concerns of the U.S. should not be taken lightly. 
China pledged to increase trade with the region by $500 billion 
and foreign investment to $250 billion by 2025, seeking to 
boost their influence in the resource-rich region.
    Immediately following the election of President Trump, 
China released a white paper calling Latin America and the 
Caribbean a land of vitality and hope. The U.S. cannot fall 
behind as the Western Hemisphere plays a critical role in our 
energy security. Our national security requires that energy 
policy be a central component of our foreign policy. 
Furthermore, we should build upon and expand our energy 
diplomacy efforts, mitigate Caribbean dependence on subsidized 
Venezuelan oil and support the economic growth of the region in 
ways that are both relevant and practical to the needs of 
everyday people. No one single project or initiative is a cure-
all for our energy security needs and no proposal will satisfy 
everyone's need or alleviate every doubt, but we must continue 
to work with our neighbors to develop a beneficial energy 
policy for the region.
    I look forward to hearing from our panel on how we can 
address these critical issues. Thank you.
    Mr. Duncan. I want to thank the ranking member and I want 
to thank the witnesses as well for being here. I look forward 
to your testimony.
    Before we get started, there is a lighting system in front 
of you. You are given 5 minutes for your opening statements and 
the lights will change from green to yellow to red. When it 
gets to yellow, start trying to wrap up. I will be a little 
lenient with that, but we will try to stay on schedule.
    Also, when we finish your testimony, we will recognize 
ourselves and I will recognize other members for 5 minutes to 
ask questions. And I ask that we try to stick to that 5-minute 
rule.
    So with that, the bios are in your information provided. I 
will not read those. I will just introduce the witnesses. We 
are going to start with Mr. Pinon for 5 minutes. You are 
recognized. If you will, there is a button that says talk, cut 
that microphone on until it is red. There you go.

 STATEMENT OF MR. JORGE R. PINON, DIRECTOR, LATIN AMERICA AND 
     CARIBBEAN PROGRAM, JACKSON SCHOOL OF GEOSCIENCES, THE 
                 UNIVERSITY OF TEXAS AT AUSTIN

    Mr. Pinon. Thank you. I would like to thank you, Mr. 
Chairman, and Ranking Member Sires for giving me the 
opportunity to underscore South America's energy potential and 
its contribution to a broader energy integration within the 
Western Hemisphere. My oral comments will be summarized in my 
written statement.
    The Western Hemisphere holds approximately 35 percent of 
the world's proven oil reserves, 49 percent of the world's 
undiscovered conventional oil resources, and 38 percent of the 
world's technically recoverable shale oil resources.
    Not as large, but very important and strategic within the 
regional context are the Western Hemisphere's natural gas 
reserves representing 10 percent of the world's proven natural 
gas reserves, but 42 percent of the world's technically 
recoverable natural gas shale resources.
    It is the ability to monetize and produce these natural gas 
reserves that gives the Western Hemisphere a competitive 
advantage by being the second largest natural gas producing 
region in the world, as its Liquefied Natural Gas, LNG, trade
    demonstrates.
    The challenge in Latin America, Mr. Chairman, is not the 
lack of oil and natural gas resources, but the host countries' 
onerous contractual and fiscal terms and conditions, regulatory 
environment, and the lack of political stability and continuity 
that international oil companies need in order to invest and 
sustainably monetize and commercialize those resources.
    A good example is Venezuela, the world's largest holder of 
oil reserves surpassing those of Saudi Arabia, but who is 
unable to develop its potential as its production has declined 
from a high of over 3 million barrels per day to less than 2 
million barrels per day.
    It is also important to highlight that these oil and 
natural gas resources are concentrated in unconventional 
deposits and frontier areas making its sustainable and 
economical extraction challenging as advance technology, high 
capital requirements, and operational know-how are critical for 
their development.
    The region's energy potential is not only in hydrocarbons, 
as was stated. More than a quarter of primary energy in Latin 
America today comes from renewables, mainly from hydropower and 
biofuels. However, all countries in the region are developing 
other renewable energy sources, such as wind, solar and 
biomass-based electricity.
    I would like to address, Mr. Chairman, the importance of 
regional energy integration as the cornerstone to the energy 
security of the United States. Please note that I avoid 
mentioning the idealized concept of energy independence since I 
am deeply concerned that the use of the term would lead us to a 
state of complacency which would prevent us from recognizing 
external threats and risks to our energy security, a much 
broader and strategic concept.
    The United States needs to support the building of 
infrastructure and logistic assets which would allow us to 
monetize and commercialize the Western Hemisphere's crude oil, 
natural gas, refined products, and electric power potential.
    We should look at the Western Hemisphere as an integrated, 
interdependent, and self-sufficient energy market which would 
provide the United States uninterrupted performance of our 
energy infrastructure and the ability to react quickly to 
changes in supply-demand disruptions.
    Despite a 70 percent increase in domestic crude oil 
production since 2008, the United States still imports 49 
percent of the crude oil it refines. Canada and Mexico 
constitute approximately half of all U.S. imports with an 
additional 18 percent coming from South America. In 2016, the 
United States exported over 5 million barrels of crude oil and 
refined products of which nearly 50 percent were destined to 
Latin America.
    The U.S. largest fuel customer in the region is Mexico with 
approximately 33 percent of total U.S. refined product exports 
to Latin America; followed by Brazil, Colombia and Ecuador. 
This new regional trade pattern is expected to continue, since 
declining refining capacity in Latin America makes it unable to 
meet its growing demand for clean transportation fuels. U.S. 
Gulf Coast refineries, operating at 90 percent of utilization 
today, have become the de facto oil refining center for Latin 
America.
    In conclusion, Mr. Chairman, I would like to briefly 
address the current situation in Venezuela as I believe that 
U.S. imports of Venezuelan crude oil and the operations of its 
U.S. refining subsidiary Citgo could be threatened by external 
and internal events as a result of the political and economic 
crisis that Venezuela faces today.
    The U.S Government should be ready with contingency plans 
on possible short-term alternatives on how to replace 
Venezuelan imports until the free market find its own solutions 
just like it did during the 2003 Venezuelan oil strike. Also, a 
casualty from the possible collapse of the Venezuelan 
government is Cuba who depends on Venezuela to meet its oil 
imports. The island already is beginning to identify and 
diversify its oil supply sources and it seems that Russia could 
play the same supplier role as it did during the Cold War 
period.
    Thank you very much, Mr. Chairman, and members of the 
subcommittee. I look forward in answering any questions that 
you might have.
    [The prepared statement of Mr. Pinon follows:]
    
    
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                              ----------                              

    Mr. Duncan. Thank you so much. And now, Ms. Viscidi will be 
recognized for 5 minutes.

   STATEMENT OF MS. LISA VISCIDI, DIRECTOR, ENERGY, CLIMATE 
   CHANGE, AND EXTRACTIVE INDUSTRIES PROGRAM, INTER-AMERICAN 
                            DIALOGUE

    Ms. Viscidi. Thank you. I would like to thank the committee 
and subcommittee chairmen and ranking members.
    Mr. Duncan. Pull that microphone over just a little bit. 
Thank you.
    Ms. Viscidi. Thank you and I would like to thank the other 
committee members for the opportunity to be here today.
    My testimony will focus on the energy landscape in South 
America, the importance of U.S. investment in oil and gas, and 
clean energy in the region, and opportunities for energy policy 
engagement between the U.S. and South American countries.
    South America is an important destination for energy 
investment due to abundant natural resources, growing markets, 
and favorable policy frameworks in several countries. The 
continent holds massive oil and gas reserves, from the Orinoco 
heavy oil belt in Venezuela to the Vaca Muerta shale play in 
Argentina. There is also abundant potential for renewable 
energy including hydro, wind, and solar.
    South America has large domestic markets with rapidly 
growing consumption of oil for transportation and soaring 
demand for electricity. Many countries have recently become 
more open to energy investments, enacting market-friendly 
policies and regulatory reforms to attract private capital and 
international expertise. For example, administrations in Brazil 
and Argentina have removed long-standing barriers to investment 
in the oil and gas sector; and Colombia, looking to maintain 
current levels of production and reserves despite the drop in 
prices has revised its investment terms.
    Several South American countries also offer strong 
incentives for renewable investments such as wind and solar 
auctions, renewable portfolio standards, and favorable 
financing. Chile joined Brazil as one of the top ten renewable 
energy markets globally in 2015, almost doubling its share of 
renewables investment from 2014. And Argentina held its first 
two renewable energy auctions late last year.
    There are, however, exceptions to this generally more 
favorable investment climate in South America. Venezuela, 
marred by political upheaval in an economic crisis, has seen a 
sharp decline in production and investment. Oil output declined 
by 235,000 barrels per day in the first three quarters of last 
year. And it will likely drop below 2 million barrels a day by 
the end of this year.
    As a result, countries in Latin America and the Caribbean 
that have relied on imports of crude oil and refined products 
from Venezuela, have turned to alternative oil suppliers and 
replaced oil with natural gas and renewable energy. Exports of 
Venezuelan oil to key partners like Jamaica, the Dominican 
Republic, and even Cuba have declined considerably.
    U.S. investors and companies are key partners in developing 
energy resources and supplying markets in South America thanks 
to the human, technological, and financial resources of rapidly 
growing oil and renewable energy industries here, as well as 
proximity to other countries in the hemisphere.
    U.S. investment in energy brings multiple benefits to the 
U.S. and South America. For South American Governments, oil 
exports to the U.S. market provide a critical source of 
revenue, and the development of energy resources is an economic 
driver for prosperity in the region. Investment in renewable 
energy also brings environmental benefits. South America has 
the cleanest electricity matrix in the world, although several 
large cities face severe local air pollution due to heavy 
traffic and weak fuel efficiency and fuel quality standards. 
For the United States, energy investment in South America also 
has the potential to generate investment revenue and employment 
in the country.
    Foreign investment also facilitates energy trade 
integration between the U.S. and its neighbors in South 
America. U.S. relies on South America for almost 20 percent of 
crude oil imports and South America is emerging as a key market 
for U.S. LNG.
    However, U.S. companies are by no means the only players, 
and if the U.S. cuts energy ties with South America countries, 
other actors will likely gain influence. China is a leading 
investor in oil and gas in many countries and is making inroads 
into hydropower and other renewable energy development. Russia 
is also increasing its stake in Venezuela's oil industry. 
Chinese and Russian engagement in the region is driven by 
geopolitical, as well as commercial interests.
    While most U.S. investment in South America's energy 
sectors has been market-driven, policy has also played a role 
in promoting energy integration and cross-border investment. 
U.S. Government initiatives have helped improve investment 
climates, create commercial opportunities for U.S. companies 
and facilitate clear and consistent investment rules.
    Collaboration on energy issues in turn helps bolster 
broader economic, political, and security relations with South 
American countries, many of which serve as key allies for the 
United States and cooperative on a range of issues from 
immigration to counter-narcotics.
    Therefore, it is important that the U.S. Government engage 
with Latin America on energy policy issues as part of broader 
bilateral relations. Strong diplomatic and economic ties, 
including free trade agreements, are most important and provide 
the foundation for energy trade and investment between the 
United States and South America. Within the energy sector I 
would highlight two areas of potential and important 
engagement.
    In the oil sector, the U.S. should support reforms that 
enable private investment and continue to engage in regulatory 
cooperation including for shale development in Argentina and 
offshore in Brazil and Colombia.
    And in clean energy, I think the U.S. should support clean 
transportation with countries like Colombia, Brazil, Argentina, 
and Chile, because sustainable transport is a major challenge 
for these countries, given the large degree of urbanization, 
rapidly growing transportation needs and air pollution issues.
    In conclusion, given the importance of U.S. energy 
relations with South America and the rest of the hemisphere, it 
is critical to maintain energy policy engagement with U.S. 
allies in the region. That concludes my oral testimony. I look 
forward to the opportunity to respond to any questions or 
comments you may have.
    [The prepared statement of Ms. Viscidi follows:]
    
    
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    Mr. Duncan. Thank you so much. Mr. Bordoff, you are 
recognized for 5 minutes.

STATEMENT OF MR. JASON BORDOFF, PROFESSOR AND DIRECTOR, CENTER 
  ON GLOBAL ENERGY POLICY, SCHOOL OF INTERNATIONAL AND PUBLIC 
                  AFFAIRS, COLUMBIA UNIVERSITY

    Mr. Bordoff. Thank you, Chairman Duncan, Ranking Member 
Sires, and members of the committee. Thanks for the invitation 
to be here today.
    It is certainly hard to survey all of South America in 5 
minutes and so you have somewhat lengthy written testimony 
given the importance of this issue. I hope that will be helpful 
to the committee. But let me just summarize a few points in the 
5 minutes that I have.
    As you have already said, Mr. Chairman, and the other 
witnesses have said, South America plays a key role in global 
energy supply, trade, geopolitics. It is a net exporter of 
hydrocarbons. Venezuela has what may be the largest crude oil 
reserves in the world. Brazil alone could add well over 1 
million barrels a day of oil supply over the next 5 years which 
may be crucial to keep a lid on oil prices, notwithstanding the 
low price environment that we are in today. And Argentina, as 
you have said, may be best positioned to replicate the shale 
revolution that we have seen in the U.S. South America also 
plays a leading role in clean energy technologies. The region 
produces more than 60 percent of its electricity from 
hydropower, along with rapidly growing solar and wind in 
different parts of the region.
    Although the impacts of climate change, it should be noted, 
including more frequent droughts are actually threatening that 
clean energy resource of hydropower. So South America is acting 
to scale up its clean energy sources in lots of different ways.
    South America is especially important I think for the U.S. 
because it is such a key energy trade partner with the U.S. and 
that is only growing. Two of the five largest sources of crude 
oil imports to the U.S. come from South America. It is also a 
growing market for U.S. energy exports as we have heard. Over 
the last decade, the U.S. has gone from the largest importer of 
refined petroleum products in the world to the largest exporter 
of refined petroleum products in the world. And about a quarter 
of that goes to South America. Because South American countries 
have failed to invest in refining, in effect, despite their 
very large oil reserves in effect, South America is sending its 
oil to the U.S. for us to turn into the useful products people 
want like gasoline, diesel, and then we send that back to South 
America.
    We are also sending some oil to South America after the 
U.S. lifted its crude oil export ban, often used for blending 
as diluent with the heavier crudes that they have. And then 
Latin America has emerged as a key market. This was unexpected, 
a key market for U.S. LNG exports with a quarter of U.S. cargo 
so far making their way to Latin America, South America, about 
half if you include Mexico.
    As for the oil and gas outlook, there are many 
opportunities, as well as challenges in the region. Jorge 
talked about the onerous regulatory and other terms. The pain 
of the oil price collapse I think has helped catalyze serious 
reform efforts to liberalize South America's energy sector, so 
countries are now taking steps to make themselves more 
competitive, more attractive to foreign investment which can 
help increase regional political stability, economic growth, 
global energy market stability. I talk about those in some 
detail in my written testimony.
    Brazil, with some of the largest offshore resources in the 
world implementing reforms to reverse the damage done by years 
of resource nationalism and political turmoil and the 
corruption scandal at Petrobras. Argentina, pursuing reforms to 
attract technology and foreign investment for their shale. 
Venezuela, on the brink of complete collapse with really 
frightening potential implications for the health and safety of 
the people there, as well as regional political stability, not 
to mention the global oil market. Jorge mentioned that, too. 
The only point I would add I think that is an important 
reminder of why given the potential for disruptions like 
Venezuelan supply, it still remains a critical national 
security asset that we have a well-supplied strategic petroleum 
reserve, which I know there have been some efforts to reduce 
the size of recently in Congress.
    And Colombia is working to attract investment and address 
environmental and indigenous concerns as they think about shale 
development. And that is not just oil and gas, obviously, but 
renewables. We see a lot of potential for further hydropower 
although it faces some opposition. Countries like Chile, 
Brazil, and Argentina have adopted regulatory reforms to boost 
renewables like solar and wind and these efforts, along with 
efforts to curb deforestation and land use related. Land use 
change related emissions I think are key to reducing greenhouse 
gas emissions and addressing the urgent threat of climate 
change.
    So lastly, I would just note, I think, how important it is 
for the U.S. to continue to engage deeply and collaborate with 
South American countries as they pursue many of these efforts 
on economic diversification, to reduce their vulnerability to 
the inevitable boom/bust cycles that we have always seen, and 
will always see in oil markets. We need regulatory reform to 
attract much needed technology and foreign investment; safe and 
responsible energy development regulations to make sure 
production happens safely, not only to protect the environment, 
but also to build public trust and confidence and social 
license to operate so industry can go to work; more robust 
climate action, given how important it is to move more quickly 
with that; and then reduced energy demand and subsidy reform to 
reduce both fiscal strain on governments as well as reduce 
energy consumption and carbon emissions.
    And with the right policies, I think the U.S. and South 
America have worked well together and can work even better 
together moving forward to develop the regions' energy 
potential and help meet our share of economic security and 
environmental goals.
    So members of the committee, thanks again for inviting me 
today and I look forward to your questions.
    environment.
    [The prepared statement of Mr. Bordoff follows:]
    
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    Mr. Duncan. I thank the gentleman. I am going to go out of 
order here. The ranking member has a T&I hearing going on he 
would like to get over to, so I am going to yield to him right 
out of the chute and come back to me. So ranking member.
    Mr. Sires. Thank you, Chairman, for your courtesy. Last 
year, we took a trip to South America and we were in Chile. We 
saw what they are doing with solar energy which was pretty 
incredible what we saw. Then we took a trip over to Paraguay 
and we saw the dam.
    What bothers me is that for years we have known that there 
has been a lot of resources in South America. For example, a 
couple of years ago we took a trip to Petrobras. How is the 
scandal that has been going on in Brazil going to impact going 
forward with this energy giant? And obviously, what is going on 
in Venezuela is also very troubling. And most troubling for me 
is that you have Russia and China waiting in the wings to see 
how we approach our energy situation in South America.
    So can anybody talk about that? Especially with the 
security of China and Russia?
    Mr. Pinon?
    Mr. Pinon. The challenge, I think, like all of us, all 
three of us here with you, is not in the resource base. In 
fact, I will even venture to say that the challenge sometimes 
is not in the fiscal and contractual terms that the host 
countries put before the international oil companies.
    The problem is the lack of continuity and stability in the 
region. The oil industry sector is an industry in which the 
capital investment goes up front. I mean when the industry 
develops a big water project, we are talking about hundreds of 
millions, if not billions of dollars that are going to be 
invested in that development period that could be between 5 and 
7 years. That is why the industry then needs a return of 25 to 
30 years to recover that capital investment.
    So it is just like if you go to Vegas and all of a sudden 
you are sitting at a poker table and the dealer in the middle 
of your hand with a pot decides to change the rules of the 
game. That is the biggest challenge. That is the challenge in 
Brazil. That is the challenge in Venezuela. That is the 
challenge in many of the countries that we, or the industry 
risks is capital. It is that maturity and political stability 
and continuity that we need in order to run our business.
    By the way, Brazil might very well have a very good end 
result because I think the situation in Brazil at one time I 
have gone to the head of the Brazilians and thinking that they 
were ahead and they were able to do everything themselves. And 
now they find themselves in a situation that they need outside 
help, not only from capital investment, but even technology; 
which, by the way, they are probably one of the best in the 
world.
    The issue of China, for example, one of the things that 
many people have missed is that in the December concessionary 
rounds in deep waters of our own Gulf of Mexico or in the Gulf 
of Mexico by Mexico, the largest winner in the deep waters was 
China. CNOOC won two blocks right off of south of the U.S. 
maritime border in the Perdido Fault. So you are going to have 
China drilling just a few miles from our own maritime border in 
the U.S. deep water Gulf of Mexico here in the next 2 or 3 
years.
    So but again, to yield to the rest of the panel, I think 
the challenge is political continuity and stability that we 
need in order to run our business.
    Ms. Viscidi. Well, I think in response to the question 
about Venezuela, it is definitely true that China and Russia 
are both increasing their stakes. China has been a big investor 
in Venezuela for many years. Russia has been more recent. They 
recently--Rosneft recently acquired a bigger stake in an oil 
project from PDVSA. There is discussion about acquiring other 
assets from other companies in the country.
    The issue is that there is some shortage of cash flow. So I 
think that both those countries are looking to increase their 
access to the resources, but they are also pulling back a 
little bit on the Russian side because of lack of cash, and on 
the Chinese side, because of concern about throwing more money 
toward loans that they can't recover, because Venezuela is not 
able to produce the oil it needs and it is not even meeting the 
terms of its oil for loan deal with China.
    But I think that there is certainly a geopolitical 
motivation there and it is something that remains, they remain 
very big players in that country.
    I think in terms of Brazil--corruption is a huge problem in 
all of Latin America. It is becoming clearer and
    clearer. I think that from the industry's point of view, 
the corruption scandal is really not, just speaking in kind of 
technical terms, is not the biggest issue. The real problem for 
Brazil is that Petrobras has massive debts, limited managerial 
capability, and had too much responsibility just to manage so 
many projects and it really needs investment from the private 
sector.
    Mr. Sires. The two other you would think that they were 
ahead of everybody else in managing a project.
    Ms. Viscidi. In Brazil?
    Mr. Sires. In Brazil. Can you just talk a little bit before 
my time is up.
    Mr. Bordoff. Yes, I don't have too much to add. I agree 
with what has been said. So it certainly is true that Brazil 
has had onerous regulatory rules like local content 
requirements and other things and Petrobras is finally crippled 
by the largest debt burden in the global oil industry.
    It is worth nothing that Petrobras' new CEO has developed a 
strategic plan to restructure the company and reform its 
policies, deliver more accountability and transparency. And the 
government has introduced wide-ranging regulatory reforms to 
attract more foreign investment. So these are promising and 
they are helping to increase investment, but more certainly 
needs to be done. I think the U.S. can help with that. And this 
is important not only for economic development and for the 
financial stability.
    Mr. Sires. My time is up and I don't want to abuse the 
privilege that the chairman gave by letting me go first.
    Mr. Bordoff. Okay.
    Mr. Sires. I thank you.
    Mr. Duncan. I want to thank the ranking member and now 
recognize myself for 5 minutes.
    We talk a lot about quality of life and opportunity for 
improving the quality of life that electricity brings. And I 
think we missed that as a talking point, especially on the 
Republican side, but how electricity can improve the quality of 
life of so many people--whether that is through just being able 
to heat and cool their homes, being able to have screens on the 
windows and windows in the windows that aren't open at night to 
keep the mosquitos out and cooking food that is fresh from a 
refrigerator and not worried about spoilage. I mean there is 
all kinds of things.
    So I am not saying that is a huge issue in Latin America, 
but it is in some areas. I like what I am seeing in Latin 
America with regard to energy production, energy research, 
energy exploration. We have seen some tremendous projects such 
as the solar project I mentioned and the ranking member 
mentioned in Chile, also the hydroelectric dam that was pretty 
impressive there. But I also understand the environmentalists 
don't want to see more hydro in Patagonia and tremendous 
resource of hydro in Latin America. But then you have got this 
ecological balance on what you do in pristine areas like 
Patagonia with energy production. So they are facing their own 
challenges for energy as well. There is the anti-fracking 
movement in South America, as well as we see here. So they have 
some challenges.
    Let me ask all of you just a simple question. Is 
hemispheric wide energy security and independence achievable in 
your opinion? And I say hemispheric. We have got to think from 
the Arctic to Antarctic, Canada, Mexico included in this, 
working with the United States and all of our Latin American 
friends and neighbors here, is that achievable? Because if it 
is, to preface the question, if hemispheric energy security and 
independence is achievable, that changes the dynamics in the 
Middle East with regard to our dependence on those sources of 
energy. So is it achievable or not?
    Mr. Pinon. Yes, it is and the way that we looked at it at 
the UT is that we divide the Western Hemisphere in five 
regions. The challenge that we have sometimes is we think that 
the whole Western Hemisphere can all of a sudden hold hands and 
sing Kumbaya and that is highly unlikely that it will happen.
    What we have done is that we looked at five producing and 
consuming regions that we think that then there can be a sub-
regional cooperation in the Western Hemisphere. The Southern 
Cone, Argentina, and Chile; Brazil, by itself; the Andean 
group, Peru, Bolivia, Colombia and Ecuador; what we call the 
greater Caribbean which is the whole Caribbean region including 
northern South America; and then North America.
    So we from the strategic point of view when you do your 
long-term strategic work and scenario planning, you have to do 
it from a regional point of view. But yes, I don't think--it is 
highly unlikely that the region, the Western Hemisphere as a 
whole could ever accomplish some sort of strategy in energy. 
Regionally, yes, we can.
    Mr. Duncan. Ms. Viscidi.
    Ms. Viscidi. I think that energy security for the region is 
achievable. I think oil and gas and electricity face very 
different issues. Oil and gas is really, particularly oil, but 
more and more gas or LNG, it is really a global market. It is 
very fluid. So I think the most important thing is to have open 
market policies, exports and imports with limited restrictions, 
so that you can really send oil and gas to the places where it 
is most needed.
    I think in electricity, it is more local. It is harder to 
transport. So it is more of the issues that you were talking 
about in terms of opposition to large hydroelectric dams. And I 
think the solution there is by diversity--portfolio diversity 
that provides the best energy security and it is more about 
what reforms need to be made in those countries. But I also 
think there is an opportunity for electricity integration in 
some places cross border transmission lines, especially in 
places like Central America. That can really help a lot to 
contribute to energy security.
    Mr. Duncan. Mr. Bordoff.
    Mr. Bordoff. Yes. I agree with that. I think it is possible 
to have hemispheric security in the sense that the hemisphere 
produces as much energy as it consumes. I don't know that that 
necessarily means that we have achieved security and 
independence because these are globally integrated markets and 
if there is a problem in the Strait of Hormuz or somewhere 
else, we are going to see prices at the pump go up because 
global oil prices will respond regardless of where we get our 
energy from. And the risks to supply, as we heard with regard 
to Venezuela, are not only from Middle East or other suppliers, 
they can be from hemispheric suppliers as well.
    So I think security comes from being more open, being more 
integrated through global markets. If we have a problem with 
Venezuela and sources of oil supply, we can import crude from 
somewhere else. If there is a problem with our refineries 
because of a hurricane or something else, we can bring in 
product and gasoline and diesel when we need it and that is 
true for LNG, too. If it makes sense for markets to bring LNG 
to South America, that is great; but, I think if prices rise 
again in Asia, and it makes sense for U.S. LNG to head to Asian 
markets or Eastern European countries to help them diversify 
away from Russian natural gas, then that makes sense, too.
    Achieving energy security is not only about where you get 
your energy from, but about having a diversity of sources of 
supply and also reducing your dependence on any one source, so 
energy demand reduction measures are important, too.
    Mr. Duncan. I think you are all correct. I look at it like 
this. You have got in the U.S. and Canada, you have got a lot 
of oil, like the oil sands or the Bakken, and we have got 
refinery capacity to handle that type of oil. In Mr. Castro's 
area in Texas, you have got natural gas, you have got gas 
pipelines going to Mexico. Those gas pipelines continue to 
extend down through the isthmus in Central America. You have 
got Panama's great hub for LNG distribution across Central 
America and South America. You have got Yoho's district in 
Florida that wants to be an LNG export terminal hub for the 
Caribbean and the Caribbean nations and lessen their dependence 
on PDVSA and Venezuela, in general. But if you take it on a 
broader sense, Venezuela oil comes back on line, you have a 
stable government there, their oil and natural gas reserves 
come on line. That is a game changer for the hemisphere as 
well.
    And some of the things we have talked about--electricity 
generation of a hydro and solar and other things in Latin 
America that we are seeing; but also the coal, the natural gas, 
the oil that is abundant there, whether it is through 
Petrobras, you know, assuming they get their act together and 
that comes back around without all the graft and corruption and 
everything that they are dealing with there: Good public policy 
with regard to the market solutions that President Macri is 
bringing in Argentina.
    So attracting foreign investment I guess is what I am 
saying in that regard. I just think that there is a tremendous 
opportunity for us, if we think hemispherically working 
together. Then the things in the Middle East, the things that 
OPEC want to do with the spigot aren't quite as important.
    I get what Mr. Bordoff is saying is global supply. Energy, 
whether it is gas or whether it is oil, is traded globally and 
demand and supply is dictated by global demands. I get all 
that. But just trying to think outside of the box, 
hemispherically, and what we can do to change some paradigms 
and change some dynamics with regard to the Middle East is 
important.
    We touched on Petrobras. That was another question I had, 
but I do want to ask about Colombia real quick. So Colombia has 
in the north, I guess northeast, good oil reserves, but the 
FARC has been an issue with regard to transporting that oil 
across the country so that it can either be shipped or refined. 
They have blown up the pipeline, the major pipeline there a 
number of times. FARC is not an issue any more, according to 
the peace agreement.
    Is that pipeline still a target for other terrorist 
organizations within Colombia and does the peace agreement in 
Colombia play a positive role in energy development in the 
country of Colombia? And I ask you that because we plan on 
visiting Colombia and I would love to talk with them about this 
as well. And in fact, I am seeing the President, President 
Santos tonight. I would love to have this conversation.
    So the FARC agreement, how that may play into energy if one 
of you want to answer that now. I will just open it to all 
three of you.
    Ms. Viscidi. I could answer that. Well, I think the peace 
agreement should help to reduce security problems with the 
FARC, but the ELN is still--they haven't started negotiations 
with the ELN. So there is no peace agreement. And the ELN is 
actually the guerrilla group that is more active in pipeline 
attacks. So that problem has not gone away as a result of the 
peace agreement.
    I think that the peace agreement isn't just about----
    Mr. Duncan. It is problematic for Colombia.
    Ms. Viscidi. Yes. So I mean there are many problems. The 
peace agreement is not going to solve everything overnight, so 
an issue like that, not to mention the issue of the potential 
for former guerrillas to go back to illegal activity has 
happened with prior demobilization. There are a number of 
continuing challenges. But I think that the vision of the peace 
agreement isn't just have the FARC return their arms. It is 
about a broader rural development. It is about getting the 
state to places in the country that it didn't have a presence 
before and integrating poor people into the system of the 
country. And it is not just the direct combatants. There is 
also a large number of people, militias affiliated that are not 
necessarily taking up arms. And all those people need to be 
integrated into society.
    And I think some of the issues with energy development are 
about kind of integrating people into society, getting the 
social license to operate. The anti-fracking movement, I think, 
if Colombia tries to develop its shale reserves to a point--it 
hasn't really done that yet; but, if it does try to, that is 
going to be a non-starter with the kind of opposition that you 
have on the ground.
    So I think the peace process could help to sort of resolve 
some of these local conflict issues and play a role.
    Mr. Duncan. That is a great answer. We will just leave it 
right there.
    Gentlemen, if you want to chime in later, that is fine. I 
got out of order. I am going to go Mr. DeSantis from Florida 
next.
    Mr. DeSantis. Well, thank you, Mr. Chairman, and thanks to 
the witnesses.
    Venezuela, it has just been a terrible situation there, we 
have been concerned about on this committee for a long time. 
They have the world's largest proven oil reserves, second 
largest natural gas reserves, and yet, their national oil 
company is generating negative cash flows, deep in debt. 
Clearly, there is civil unrest in the country and major 
crackdown, violation of human rights by the Maduro government.
    In order for Venezuela to become a functioning player in 
the regional and global energy market, do you think that that 
is possible as long as Maduro's regime is in charge?
    Mr. Pinon. No. There would have to be a change in the 
political and economic way that the country has been run for 
the last 10 years. PDVSA is no longer the state oil company 
that many of us, by the way, were very proud to say that they 
were a state oil company, just like Petrobras today.
    The challenge with PDVSA, for example, is that it is going 
to take them anywhere between 3 to 5 years to bring their full 
potential back again. By the way, we think that Venezuela could 
probably again bring on stream another 2 million barrels a day, 
if not 3 million barrels per day in a period of between 3 to 5 
years. The bottleneck is not necessarily geology. The 
bottleneck is the upgrade and capacity to turn that heavy oil 
of the Orinoco into syn. crude that can then be commercialized.
    But Venezuela has a huge potential. I mean you talk about 
lower oil prices. I mean I think between Brazil and Venezuela, 
there is probably anywhere between 3 million to 4 million 
barrels a day of production that could come on stream, again, 
not overnight, but certainly once you get the right investments 
and the technology in place. But no, it is going to take a long 
time for Venezuela to again recover the oil business that we 
were all very proud of and to have.
    Ms. Viscidi. I would just add, I think that there are 
things that could be done under the current government. There 
were a series of concessions made under Maduro a couple of 
years ago to some of the oil companies and they did help 
companies like Chevron to make sure that they were actually 
making money in the company and other oil companies have asked 
for some of those sort of concessions to be extended to them, 
lowering royalties rates, giving more operational control to 
the joint venture partners, because one of the issues is that 
PDVSA is just not capable of managing the project. And there 
are a series of other things. So technically----
    Mr. DeSantis. So let me, Mr. Pinon, you were shaking your 
head about that. You disagree?
    Mr. Pinon. No. The experience that this administration has 
had, the Chavez administration for the last 20 years is very 
clear that their partnership is just based on a one-way 
solution.
    Mr. DeSantis. Right.
    Mr. Pinon. When they need you, they will come to you. But 
as soon as circumstances change, they are not there, not paying 
their bills. They can certainly go to a Chevron or a 
Schlumberger or a Halliburton and say yes, please, help us out. 
But guess what, when the time comes to send a check and pay the 
bills, the check is not there. So no. My position is that 
within this administration and this regime and this political 
astronomic model, the oil industry in Venezuela cannot grow to 
its full potential.
    Mr. DeSantis. And I agree with that. I mean I think you are 
exactly right about the potential and you wonder. You almost 
have to try to mess this up and I think it is just this 
socialist model is just so flawed that here we are.
    Let me ask you about this. There have been reports that the 
state oil company gave a Russian company a lien on almost 50 
percent of Citgo which is the U.S.-based subsidiary in exchange 
for I think it was a $1\1/2\ billion loan. So Citgo has three 
U.S. refineries, the sixth largest refinery in the U.S.
    Now if Venezuela were to default on its debt payments to 
the Russian outfit, the Russian Government could potentially 
become the second largest foreign owner of U.S. domestic 
refinery capacity. And one, is that true; and two, what could 
the U.S. do to prevent that from happening?
    Mr. Pinon. I am going to stay out of the legal and 
financial risk. I will let my partners handle that. But the 
700,000 barrels a day that Venezuela imports today of crude oil 
to the U.S., 27 percent of that goes to Citgo. The rest, by the 
way, only goes to four other refiners. In fact, of the 700,000 
barrels a day that Venezuela imports today, 90 percent is 
imported by only 5 U.S. refiners. So the risk of losing that 
supply it can be manageable.
    The issue also with Citgo you have to remember, is that we 
have to keep those refineries running. From a strategic and 
national security point of view, Citgo has to continue on 
running. Also remember, that all of Citgo dealers all 
throughout Florida and everywhere else are individual owners of 
those service stations. So in other words, those service 
stations in Florida and the Carolinas and in Georgia that have 
the Citgo brand do not belong to Venezuela. They belong to 
individual businessmen out there. So what will their situation 
be if all of a sudden Citgo disappears? But for the legal and 
financial ramifications of that, I will----
    Mr. DeSantis. Mr. Bordoff, do you want to----
    Mr. Bordoff. I would just say I think there are risks in 
terms of physical supply, but like with all foreign 
investments, we have processes, including CFIUS and others, to 
review potential cyber issues, surveillance risks, and other 
things. And I think even what is going on today would make 
sense for the U.S. Government to look very carefully before 
ownership of major refining assets in the U.S. was transferred 
to a Russian state-owned company.
    Mr. DeSantis. Do you think the tools that are available now 
are sufficient to do that?
    Mr. Bordoff. I don't necessarily know the answer to that 
and I suspect they are. I think they are strong tools and we 
have used them in the past, but I can't say that with 
certainty.
    Mr. DeSantis. Great. I am out of time. I yield back.
    Ms. Viscidi. Can I just say for the record that I was going 
to agree with Jorge that I don't see those changes happening 
under the administration.
    Mr. Duncan. Go to Ms. Norma Torres from California for 5 
minutes.
    Ms. Torres. Thank you, Mr. Chairman, and thank you to our 
witnesses that are here today or I should say guests. I want to 
once again voice my concern that there isn't anyone here 
formally representing the administration and it is unfortunate 
that they are not able to address our concerns or even learn 
from what we are talking about here.
    As you all know, many South American countries have a large 
indigenous population whose territories can experience 
environmental impacts from energy development, whether that is 
oil, coal, palm oil, solar or hydro. Given that indigenous 
communities in South America are often marginalized and have a 
very limited political power, many of them don't even speak the 
language, how can we ensure that these communities have a voice 
in this process?
    Ms. Viscidi. Well, I think that there are processes in 
various countries. A lot of them have signed ILO 169 Convention 
on prior consultation. So there are legal processes in place to 
discuss energy projects and other types of infrastructure 
projects with indigenous communities.
    I think in many countries, the issue is kind of legal 
clarity the implementation having enough government resources 
and staff to actually make sure that they are there doing the 
dialogue that they need to do in every country, clarifying. The 
ILO Convention doesn't give indigenous communities the right to 
veto projects. These are national issues as well as local 
issues. And so there is a lot of confusion about who really has 
the right to make the decision. And I think that more could be 
done to really clarify the process, put more resources toward 
making sure the process that is on the books legally is 
actually implemented correctly.
    Ms. Torres. The original people of those communities or of 
those countries are often relocated, rivers are blocked or they 
are dammed. So they suffer quite a great deal and they are not 
being paid for the loss of the resources in many cases. That is 
a concern that I think that moving forward from our 
perspective, we need to be more careful on how we are impacting 
communities for the sake of helping these countries make a 
little bit of money.
    As you know, Venezuela is blessed with vast oil reserves. 
It should be one of the richest countries in the Western 
Hemisphere. Instead, it has become one of the poorest countries 
in the Western Hemisphere. People are dying in Venezuela. They 
are dying in the streets because of lack of access to medicine 
and food or simply from voicing their concerns and appealing to 
their government.
    I would like to ask all of you why do you think Venezuela 
has been so unsuccessful in turning its oil reserves into 
prosperity for its people? And what can other countries in the 
region learn from Venezuela's experience. If we are going to 
invest in a particular region, how can we ensure that the money 
that we are investing is being used properly and that there is 
transparency in this process?
    Ms. Viscidi. I think there are lots of reasons why 
Venezuela--why the industry has done so poorly. I mean most of 
it has to do with lack of investment, misusing funds, a lot of 
corruption by people working for PDVSA, basic upkeep like 
fixing pipelines, fixing refineries. Their refinery utilization 
is down to 39 percent of its capacity.
    A lot of it has to do with misuse of funds, I would say, 
also, diverting funds to things that have nothing to do with 
the oil business. You can only do that to such an extent. But I 
think it is really kind of the political and management issues 
of the country that led to that and so I guess that is the 
lesson for other countries is you know, you have to have a 
sound system of institutions and transparency, a stable 
government.
    Mr. Pinon. There is an English word that is called 
stewardship. And it is one of my favorite English words because 
it means just that, the management of your patrimony. And what 
Venezuela has done or the Government of Venezuela has done is 
that they have thrown that patrimony away. I mean today the 
risk of PDVSA and the reason they are below 2 million barrels a 
day is because they decided to basically go after that petty 
cash box and take all that money out for projects that have 
never materialized in benefit for the people.
    I don't have a problem in building hospitals and schools 
and roads, but the national oil company which is your petty 
cash box built that up so you could have more money and more 
resources for future generations. And they did not. They 
basically stole and raided that cash flow box, basically to 
benefit short term just for political gains. That is where 
their problem is.
    Ms. Torres. Mr. Bordoff, I am sorry, I am out of time.
    Mr. Bordoff. In 10 seconds I would just note that while 
this is one of the worst examples, it is by no means the only 
and in energy studies the issue of a resource curse is well 
documented and well known, resource nationalism's handling of 
resource wealth. You can go to Nigeria and lots of other 
places. So it is a really hard and challenging issue to address 
and I wish there were more exceptions to that rule. There are a 
couple, but not many. And it is an important lesson for 
countries like Ghana and others that are going to have new oil 
resource wealth coming to try to avoid some of those pitfalls.
    Mr. Duncan. I want to thank the gentlelady for her question 
about indigenous populations and hope to take a delegation to 
Peru. When I was down there with Ed Royce, Chairman Royce in 
2013, one of the big issues is property rights, especially in 
the indigenous villages where the chief determines who lives 
where and who owns the property, but they don't have any 
property records. Having good property records of deed of 
ownership and fee simple and what that bundle of rights is, who 
owns those minerals, those sort of things, play into that. I 
think that would be, you are traveling with us, I believe, I 
think that would be a good topic of discussion and I will try 
to make that happen because it is very informative.
    I am going to go now to the gentleman from Florida, Mr. 
Rooney.
    Mr. Rooney. Thank you, Chairman Duncan. I would like to 
just make one comment about the question about Venezuela's 
refineries in relationship with Citgo. As you know, the heavy 
oil refineries are very limited in what they can do which 
reduces the risks that we have by Rosneft having the lien on 
the asset. Fortunately, it would be a whole lot worse than with 
Baytown Refinery or Exxon or Bayonne, New Jersey instead of 
Corpus Christi, Lake Charles, but neither here nor there.
    With some personal experience in the area, I would take a 
little issue with Ms. Viscidi's comment that FARC has not been 
a problem with pipelines, having had them blow up several of 
mine in Putumayo. And I would like to comment here, I would 
like to ask----
    Mr. Duncan. Mr. Rooney, could you pull that mic over a 
little bit? Thank you.
    Mr. Rooney. I would like to ask Mr. Bordoff, he made a 
couple of very good comments in his statement about both the 
unconventional resources in Upper Magdalena, Mono Arana Field, 
and then the business about the FARC, to continue the 
chairman's question as to the pros and cons of the FARC deal 
and how it might affect production, particularly in the area I 
am familiar with down in Putumayo where we have to take our oil 
over to Ecuador to get it out of there nowadays.
    Mr. Bordoff. So that was for me?
    Mr. Rooney. Yes, the question about the Middle Magdalena 
unconventional and about the FARC and Putumayo.
    Mr. Bordoff. Enormous resource potential in Colombia and 
Colombia's gas production has been declining and its import 
dependence has been rising. So if it can take advantage of 
those domestic resources, that would make economic and energy 
security sense.
    I think the peace agreement, the widely held, rightly held, 
has been beneficial to attract foreign investment to make the 
country more attractive for companies to come in; but, I think 
I noted in my testimony that FARC and ELN have opposed foreign 
investment and now will be incorporated into the political 
process. So one question is sort of how that plays out and 
whether it has any impact.
    Just a week or two ago, President Santos announced one of 
the largest offshore gas finds in years so that has huge 
potential and then there are enormous shale resources in 
Colombia. I have been in Colombia three times in the last 2 
years, intense environmental opposition and indigenous people 
opposition. Shale is very--fracking is very controversial here 
in the U.S. It is intensely controversial there.
    So if they are going to develop that resource, it is going 
to be difficult, but very important that government and 
industry work collaboratively to engage with local communities, 
address their concerns, have a very collaborative process, make 
sure that they have strong rules for safe and responsible 
development in place to build public trust and confidence that 
you can develop shale the right way. And I think we can provide 
help and technical assistance in that and we can show evidence 
and historical experience in the U.S. Not that there is zero 
risk. Of course there is risk when you develop any hydrocarbon 
resources, but with the right level of government regulation--
--
    Mr. Rooney. But you know the first two horizontal wells in 
Colombia, Mono Arana, were done with no environmental damage 
and no problems at all.
    Mr. Bordoff. I think that was the point I was making, that 
I think we can demonstrate a long experience now in the U.S., 
as I was saying not that the risk zero, but with the right 
regulations, the right practices, if you operate the right way, 
you can develop shale resources responsibly.
    Mr. Rooney. Can I ask one more question or is my time up? 
One more. I would like to ask Mr. Pinon about Mexico, because 
he mentioned it obliquely in your testimony. You know, we have 
the lifting contracts in Burgos and Perinello and some of them 
down south in Cantaralls is about empty as a basin. So how do 
you feel about the potential reforms that President Pena Nieto 
has been put and the opportunities for private capital to work 
with Pemex?
    Mr. Pinon. The results of the first week of December, 
December 4th concessions were very transparent. When you have 
BHP paying excess of $600 million for the farm out of Trion, 
when you have Chevron joint venturing with Pemex in one of the 
Perdido faults, and when you have companies like China's CNOOC 
also going after two of the major blocks around Perdido will 
tell you that the geological potential of Mexico's Gulf of 
Mexico is huge. We have known that at UT by the way for a long 
time because of the geological work that we have done in the 
region.
    The issue is going to be what is going to happen with 
possibly a Lopez Obrador administration coming in 2018. We 
think that he is probably going to be another Lula, an 
individual that when he comes into office, we are wondering 
what is going to happen and he is really going to surprise some 
of us. Maybe--I am hoping for that to happen because of the 
potential that Mexico has.
    Mr. Rooney. Yes, we were pretty scared last time when he 
almost won. Yes, I couldn't agree more.
    Ms. Viscidi. Could I respond to the Colombia question?
    Mr. Rooney. Yes, sure.
    Ms. Viscidi. I think to clarify, the ELN has traditionally 
been the group more active in pipeline bombings and they are 
not a signatory to the peace process.
    Mr. Rooney. Right, they haven't been in yet.
    Ms. Viscidi. So they continue to be a threat. That was just 
my point. And I think also you bring up a really important 
point about opening up new areas of the country that were off 
limits because of security reasons, Putumayo, also Arauca on 
the eastern coast. This is another way that the peace process 
brings opportunities for energy, developing energy resources.
    Mr. Rooney. Perversely enough, the peace process worked 
adversely to the producers working down at Putumayo because as 
they need to show that they were a tough negotiating partner in 
Cuba, they doubled down on the poor folks trying to exploit oil 
in Putumayo. Thank you.
    Mr. Duncan. I think the gentleman. We will go now to Mr. 
Espaillat for 5 minutes.
    Mr. Espaillat. Thank you, Mr. Chairman. Certainly, I concur 
with the witnesses and I thank you for your testimony, that the 
political instability in Latin America and the Caribbean has 
been a major hurdle for economic development, in general, 
particularly energy independence, interdependence, and the 
advancement of even renewable energy in the region. Not since 
perhaps the Kennedy administration and its Alliance for 
Progress have we engaged in real proactive work with the 
region. We sort of like turned our heads, we fell asleep at the 
wheel. We have this attitude of benign neglect for the region 
that has allowed for these new scenarios to develop which have 
contributed to adverse relationships with the United States.
    And so for many years we have not engaged that region 
substantially in practical terms and as a result we saw the 
development of very adversarial relationships in the region 
vis-a-vis the United States. And in fact, we saw the Chinese 
and the Russians, Iran, and even radical groups like Hezbollah 
establish themselves right in the region because of our benign 
neglect.
    So my question is how do you see the Trump administration's 
divestment from the State Department and foreign affairs and 
sort of like a continuation of this very benign neglect 
attitude contributing to the continual instability of the 
region as it pertains to energy?
    Mr. Pinon. In fact, I think all three of us mention it. I 
think the best test case that we are going to have in the near 
term is Guyana. And there is a place that we ought to focus on, 
both diplomatically and with all of the other resources that we 
have, it is going to be Guyana. Guyana is about to find a 
major, major offshore discovery. They are going about to 
monetize it and that country is not ready for it. And if we 
want to begin from a root position to help other countries 
survive this curse that they might very well have of finding 
oil, it is going to be Guyana.
    And the role of the State Department is important and the 
role of the Department of Energy is also very important. So I 
would encourage this committee really that if you want to have 
a test case, if you want to have a poster child program for the 
next 5 to 10 years, I think Guyana would be it. But yes, the 
involvement with the State Department, the involvement with the 
Department of Energy and other U.S. Government agencies in 
development capacity for a lot of these countries is very 
important.
    Ms. Viscidi. Well, as I said in my opening remarks I think 
that the energy engagement is extremely important and I think 
it should be continued. And it is not just the benefits of 
these specific initiatives such as technical initiatives that 
might help countries in South America to develop resources or 
help Central American, Caribbean countries to improve their 
regulatory frameworks and find diverse supply sources. I think 
it is part of the bilateral relationship. It is an agenda item 
with different countries, among several agenda items; and, as 
long as these countries are interested, which they are, they 
are asking to work with the U.S., Mexico, in particular, I 
think that we should continue this area of cooperation. I think 
it is very important.
    Mr. Bordoff. I would just quickly add, I think everything 
we have talked about this morning should be a reminder that 
very sharp cuts to the State Department budget will be self-
defeating for U.S. national interests. It is in our interest to 
collaborate and cooperate with countries in South America and 
everywhere else and to have energy production, safe and 
responsible production, stability, political stability, and 
opportunities for U.S. companies to operate there.
    So as one example, the Bureau of Energy and Natural 
Resources of the State Department I think has done very, very 
useful work to help countries technically and to partner. When 
Mexico was opening up its energy sector, and in other ways, 
both on hydrocarbons and on clean energy sources, it is 
important to have robust organizations like that within the 
State Department.
    Mr. Espaillat. Just for the record, I think I can say 
safely, Mr. Chairman, that this committee has a bipartisan 
position in support of full funding for the State Department 
and we continue to provide the tools for diplomacy and other 
efforts to continue to move forward.
    One final question, real quickly, these South American 
partners, these countries have signed on to the Paris 
Agreement. And there are very deep concerns for the environment 
in these countries. Brazil continues to be sort of like the 
lung of the hemisphere. And hydrofracking continues to be a 
challenge in many of these countries.
    How do you see our potential to withdraw or at least 
distance ourselves from the Paris Agreement to impact the 
relationships that we have with these 12 independent nations of 
the region that have signed on to the Paris Agreement?
    Mr. Bordoff. I am glad you raised that. I mentioned climate 
change a few times in my oral testimony. And I think South 
America is especially vulnerable to the impacts of global 
climate change. Public opinion surveys shows it is the region 
of the world where the public cares most intensely about the 
problem of climate change and I think that is partly because 
they are seeing the real world effects of it. Bolivia 
experienced the longest and deepest drought in history, 
triggering a state of emergency. We have seen hydropower 
affected in other places.
    I think it is most likely that U.S. domestic policy action 
to address climate change will proceed at a slower pace with 
this administration than may have otherwise been the case. But 
having a seat at the table, I think as Secretary Tillerson put 
it, as part of the Paris Agreement, I think makes good sense 
for the U.S., both so we continue to be part of this. This 
process is going to go on a long time and political parties may 
shift in the future, but also because it does provide continued 
confidence to other countries to move forward with their own 
efforts.
    Mr. Espaillat. Thank you, Mr. Chairman.
    Mr. Duncan. I owe you some extra time from a previous 
committee hearing, so I am always going to be lenient. I want 
to thank the witnesses. You all have been fabulous. This has 
been a great topic for us to discuss. It is something that we 
are going to continue talking about because I think about the 
United States and Colombia with Plan Colombia and how our 
countries really became closer over a certain aspect and then 
led to free trade agreements and so I think energy is a segue 
to a much stronger relationship with the United States and 
other Latin American countries, but also all across the 
hemisphere as a segue to closeness here in this neighborhood, 
so to speak. So I look forward to discussing these type issues 
with leaders of the South American, Latin American countries.
    And so with that, I will just say that pursuant to 
Committee Rule 7, members of the subcommittee will be permitted 
to submit written statements to be included in the official 
hearing record and without objection, the hearing record will 
remain open for 5 business days to allow statements, questions, 
extraneous materials for the record, subject to the length 
limitation of the rules. There may be additional questions that 
members may have. They may submit those in writing. I would ask 
the witnesses to just try to answer those if you can. That is 
rare, but just due to other hearings around the Hill today, 
some members may not have been able to make it.
    I want to thank you again. I want to thank the committee 
members for their input and activity here today and with that 
we will stand adjourned.
    [Whereupon, at 11:18 a.m., the subcommittee was adjourned.]

                                     

                                     

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