[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
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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
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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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
----------
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.]
A P P E N D I X
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