[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
ENERGY OPPORTUNITIES IN LATIN AMERICA AND THE CARIBBEAN
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
THE WESTERN HEMISPHERE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 11, 2013
__________
Serial No. 113-20
__________
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 ENI F.H. FALEOMAVAEGA, American
DANA ROHRABACHER, California Samoa
STEVE CHABOT, Ohio BRAD SHERMAN, California
JOE WILSON, South Carolina GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas ALBIO SIRES, New Jersey
TED POE, Texas GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina KAREN BASS, California
ADAM KINZINGER, Illinois WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas ALAN GRAYSON, Florida
PAUL COOK, California JUAN VARGAS, California
GEORGE HOLDING, North Carolina BRADLEY S. SCHNEIDER, Illinois
RANDY K. WEBER SR., Texas JOSEPH P. KENNEDY III,
SCOTT PERRY, Pennsylvania Massachusetts
STEVE STOCKMAN, Texas AMI BERA, California
RON DeSANTIS, Florida ALAN S. LOWENTHAL, California
TREY RADEL, Florida GRACE MENG, New York
DOUG COLLINS, Georgia LOIS FRANKEL, Florida
MARK MEADOWS, North Carolina TULSI GABBARD, Hawaii
TED S. YOHO, Florida JOAQUIN CASTRO, Texas
LUKE MESSER, Indiana
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
------
Subcommittee on the Western Hemisphere
MATT SALMON, Arizona, Chairman
CHRISTOPHER H. SMITH, New Jersey ALBIO SIRES, New Jersey
ILEANA ROS-LEHTINEN, Florida GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas ENI F.H. FALEOMAVAEGA, American
JEFF DUNCAN, South Carolina Samoa
RON DeSANTIS, Florida THEODORE E. DEUTCH, Florida
TREY RADEL, Florida ALAN GRAYSON, Florida
C O N T E N T S
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Page
WITNESSES
The Honorable Carlos Pascual, Special Envoy and Coordinator for
International Energy Affairs, U.S. Department of State......... 4
Mr. Matthew M. Rooney, Deputy Assistant Secretary, Bureau of
Western Hemisphere Affairs, U.S. Department of State........... 14
Mr. Jorge R. Pinon, associate director, Latin America and the
Caribbean Program, Center for International Energy and
Environmental Policy........................................... 31
Mr. Eric Farnsworth, vice president, Council of the Americas and
Americas Society............................................... 42
The Honorable David L. Goldwyn, president and founder, Goldwyn
Global Strategies.............................................. 50
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Carlos Pascual: Prepared statement................. 7
Mr. Matthew M. Rooney: Prepared statement........................ 16
Mr. Jorge R. Pinon: Prepared statement........................... 34
Mr. Eric Farnsworth: Prepared statement.......................... 45
The Honorable David L. Goldwyn: Prepared statement............... 53
APPENDIX
Hearing notice................................................... 84
Hearing minutes.................................................. 85
The Honorable Matt Salmon, a Representative in Congress from the
State of Arizona, and chairman, Subcommittee on the Western
Hemisphere: Material submitted for the record.................. 86
ENERGY OPPORTUNITIES IN LATIN AMERICA AND THE CARIBBEAN
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THURSDAY, APRIL 11, 2013
House of Representatives,
Subcommittee on the Western Hemisphere,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 3:04 p.m., in
room 2200, Rayburn House Office Building, Hon. Matt Salmon
(chairman of the subcommittee) presiding.
Mr. Salmon. Thank you so much for being here. I am usually
overly concerned about time, so I apologize for keeping you
waiting.
The quorum is present, and the subcommittee will come to
order. I am going to start by recognizing myself and the
ranking member to present our opening statements. And without
objection, the members of the subcommittee can submit their
opening remarks for the record.
Now I yield myself as much time as I may consume for my
opening statement.
Good afternoon, and welcome to what is really part II of
our subcommittee's look at energy security and prosperity in
the Western Hemisphere. Our last hearing focused on Canada and
Mexico specifically. We had the opportunity to discuss the
Obama administration's unfortunate pattern of obstructing and
delaying some of these energy-related projects, such as the
Keystone XL Pipeline that will stand to benefit job creation
and increased energy security.
We also talked about the real possibility of structural
reforms to the Mexican state-owned oil company Pemex, and hope
that these reforms will lead to increased production and
increased prosperity for Mexico as well as the United States.
We also lamented the administration's failure to send the
transboundary Hydrocarbons Agreement with Mexico to Congress
for approval, putting in question our Nation's commitment to
partnering with Mexico to improve its production and
exploration in pursuit of energy security and mutual
prosperity.
But I will say that at some of the recent meetings that we
have had with the administration, I have been very pleased that
language has been submitted that is acceptable to the
administration. And I want you to know we are now doing
everything we can to work with Members of Congress to move this
forward as quickly as possible, because I think it's a win/win.
Today we are going to take a look at the rest of the region
and hear from administration officials, industry, and regional
experts on what the energy matrix looks like in Latin America.
I wanted this subcommittee to lead the discussion on how to
focus on energy production in the Western Hemisphere, and how
this focus should be centered on leveraging vast energy
resources to help the region as a whole achieve energy security
and prosperity through true market reforms to the sector and
beyond.
The United States needs to be a constructive and willing
partner in the region and truly become a shining example about
how opening up energy regimes can help resource-rich nations
create jobs, stimulate growth, and generate prosperity.
Unfortunately, as we review the opportunities available, again
we find some examples of the administration standing in the way
of some of the initiatives that will benefit our Nation's
energy security and job creation.
Similar to delays in the Keystone XL Pipeline approvals,
the administration has been delaying approving of the LNG
export licenses to the Caribbean, Europe, and Asia. And I hope
to hear more about this from our witnesses. In my view, the
delays are just more of the same, and I would like to--I
believe it is important for this subcommittee to make clear we
want to see the U.S. move forward with energy-related efforts
and end some of the perceived stall tactics.
There is so much promise in the region, from pre-salt
discoveries off the coast of Brazil to the successes brought on
by Colombia's energy sector reforms, and, most importantly,
from the oil and gas renaissance we have enjoyed right here in
the United States. We are now in the great position to truly
help our region achieve greater prosperity, job creation, and
energy security.
This subcommittee will be a loud voice in favor of
exporting our values of free enterprise and open markets to the
betterment of the region's growth and energy security. I truly
believe we have a real opportunity to achieve energy
independence right here in this Western Hemisphere if we unlock
our true potential.
I want to thank Ambassador Pascual, State Department's
Energy Envoy and Coordinator for International Energy Affairs;
and Mr. Matthew Rooney, Deputy Assistant Secretary of State for
Western Hemisphere Affairs.
I want to welcome our second panel of witnesses also: Jorge
Pinon of the University of Texas at Austin; Mr. Eric
Farnsworth, the Council of the Americas; and Mr. David Goldwyn
of Goldwyn Global Strategies. I look forward to their testimony
and hearing their perspectives on how we can achieve our goals
of a more prosperous and energy-independent hemisphere.
Thank you. Thank you all very, very much for taking the
time to be with us today to discuss this important and timely
topic.
I would like to now recognize Ranking Member Sires for his
remarks.
Mr. Sires. Thank you, Mr. Chairman.
Good afternoon, and thank you to our witnesses for being
here today.
Today's discussion is an effort to address what has long
been an oversight in our foreign policy: Integrating energy
policy with our national security interest. Oil production has
increased in the United States, but it has not increased enough
to overcome our need to import oil. The United States imported
four times the amount of--it exported in 2011 alone. This is a
worrisome--this is worrisome, giving our energy dependence to
nations residing in unstable regions of the world and to
nations whose governments are at times hostile to our national
interest. As a result, it is imperative that our energy
security policy be not knee-jerk reactionor an afterthought in
our foreign policy considerations.
The resurgence of oil and gas productions in the U.S. will
change both the global landscape and geopolitics of energy. The
United States is predicted to overtake Saudi Arabia as the
largest the global oil producer by 2020. And a significant
expansion of U.S. oil production could push oil prices down
enough to devastate oil-producing nations. Regardless, I am
realistic in regards to the nature of our energy independence.
Inasmuch as the United States remains integrated with
global energy markets, no amount of oil or gas will completely
insulate the United States from global events and price
disruption. The more likely scenario is that the future in the
U.S. production will simply have a shock-absorber effect to
sudden spikes in energy prices. So in light of these
predictions and in spite of our energy renaissance, I believe
it is dangerous to allow ourselves a false sentence of
security.
We get about half of our oil petroleum from the Western
Hemisphere, half of which is from Canada. And after Saudi
Arabia, Mexico is the United States' third largest supplier of
petroleum. Venezuela has up to 88 percent of the region's
proven oil reserve and accounts for roughly one-third of our
oil imports from the region. And Brazil is the world's second-
largest producer of ethanol in the world after United States.
On the other hand, in countries like Venezuela, Bolivia,
Ecuador, and Argentina, expropriations and the nationalization
of private industries have become the norm rather than the
exception. Many of the beneficiaries of Venezuela's Petrocaribe
program have few energy resources and are heavily dependent on
oil imports. And with oil accounting for nearly 70 percent of
the energy need of smaller countries, economic growth has been
a difficult achievement. Meanwhile, in Mexico, we will not--we
will have to wait and see if President Pena Nieto's energy
reform will be realized.
It is for these reasons that the Western Hemisphere must
play a critical role in our energy security policy, and why I
believe committed engagement on energy cooperation throughout
the hemisphere, it is in the national interest of the United
States. Our national security requires energy policy be a
central component of our foreign policy. We should build upon
and expand our energy diplomacy effort, mitigate the
Caribbean's 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.
And I thank you, Chairman, for holding this meeting.
Mr. Salmon. Before I introduce the witnesses, I do want to
say something else for the record. What an honor and pleasure
it has been to serve with the ranking member. You know, we talk
a lot in this country about the need for bipartisanship, and I
have never seen a gentleman more willing to reach across the
aisle on policy in the Western Hemisphere than Mr. Sires.
It is just a real pleasure to work with you. And I am
really excited. I think that maybe we can show the rest of this
place how bipartisanship can really work.
Mr. Sires. I feel the same way about you. Must be my Cuban
genes.
Mr. Salmon. All right. Pursuant to committee rule 7, the
members of the subcommittee will be permitted to submit written
statements to be included in the official hearing record.
Without objection, the hearing record will remain open for 7
days to allow statements, questions, and extraneous materials
for the record, subject to the limitation of the rules.
I would like to introduce the first panel. Honorable Carlos
Pascual. Ambassador Pascual is the State Department's Special
Envoy and Coordinator for the International Energy Affairs. In
this capacity he advises the Secretary on energy issues,
ensuring that the energy security is advanced at all levels of
U.S. foreign policy.
Prior to his appointment, Ambassador Pascual served as the
United States Ambassador to Mexico and was vice president/
director of the Foreign Policies Studies Program at the
Brookings Institution. Ambassador Pascual received his M.P.P.
from the Kennedy School of Government at Harvard University and
his B.A. from Stanford University.
Matthew M. Rooney is the Deputy Assistant Secretary of the
Bureau of Western Hemisphere Affairs. He led interagency and
international negotiations that produced the Secretary's
Pathways to Prosperity in the Americas initiative and the
President's Energy and Climate Partnership of the Americas.
Mr. Rooney has served in the Ivory Coast, Germany, Gabon,
and El Salvador, focusing on macroeconomic policy, energy
exploration, and trade issues.
Mr. Rooney studied economics, German, and French at the
University of Texas at Austin, and received his master's degree
in international management at the University of Texas at
Dallas.
Before I recognize you, I have done this before, and I
apologize, it is just one of those things, but I am going to
explain the lighting system in front of you. You each will have
5 minutes to present your oral statement. When you begin, the
light will turn green; when you have 1 minute left, the light
will turn yellow; when your time has expired, the light will
turn red. I ask you to conclude your testimony once the red
light comes on. I am not going to have a heavy gavel today,
though; we want to hear what you have to say.
After our witnesses testify, all members will have 5
minutes to ask questions. And I urge my colleagues--looks like
me and you--to stick to the 5-minute rule to ensure that the
members get an opportunity to ask questions.
Let us begin, Ambassador Pascual. You are recognized.
STATEMENT OF THE HONORABLE CARLOS PASCUAL, SPECIAL ENVOY AND
COORDINATOR FOR INTERNATIONAL ENERGY AFFAIRS, U.S. DEPARTMENT
OF STATE
Ambassador Pascual. Thanks so much, Chairman Salmon,
Ranking Member Sires. It is a great pleasure to be with you
here today and to have this opportunity to have a discussion of
the Western Hemisphere to look at the energy potential in the
region and to be able to learn from one another on how we can
develop this great potential that you have been mentioning
already.
The United States is undergoing an energy revolution.
Innovative technology, entrepreneurship and strong commodity
prices have spurred the production of shale gas, shale oil, and
offshore oil. Combined with vehicle-efficiency measures, the
United States has decreased fossil fuel import dependence. Our
experience in unconventional oil and gas opens commercial and
technological opportunities for U.S. businesses. We are on the
verge of comparable breakthroughs in renewable energy, which
could provide similar benefits for U.S. industry and job
creation. U.S. leadership on these opportunities will have an
important implication for continuing and long-term energy
security in North America and the rest of the Western
Hemisphere.
The U.S. Energy Information Administration estimates that
the United States has 24 billion barrels of shale oil
resources. The State of North Dakota produces more oil than
Ecuador, an OPEC member. We have gone from importing more than
60 percent of the oil we consumed in 2005 to less than 40
percent last year. Canada and Mexico alone accounted for 38
percent of our oil imports in 2012. The potential for North
America can multiply this type of transformation that we are
seeing today.
While Canadian and U.S. oil production have been rising,
Mexican production has dropped since 2004. Mexican President
Enrique Pena Nieto, as Congressman Sires has noted, has now
made energy reform a priority. If it is successful, imagine
these possibilities: If Mexican production could regain the
level it had in 2004, by 2035 North American production can
rise from 18 million barrels a day to over 23 million barrels a
day. That jump alone in volume approaches the current combined
production of Iraq and Venezuela, to give you the scale of
possibility that exists in our hemisphere.
A similar story is playing out in global natural gas
markets. In the last 5 years, U.S. gas production has increased
24 percent. Natural gas once intended for the United States is
meeting demands in markets around the world. New supplies for
Mozambique, Norway, Russia, and Australia are revolutionizing
the world's gas markets. The potential in Mexico has only
started to be explored.
These revolutions in oil and gas build a picture in which
North America can be a hub not only for U.S. energy security,
but global energy security. We have to keep seeing the
hemisphere in that context that is the foundation for stability
and security for the entire world, and this can come with
benefits for stabilizing markets and contributing to our
economic growth at home.
There are also opportunities in Argentina, Brazil,
Colombia, Peru, Trinidad and Tobago. Their challenge, the
challenge of these countries, will be to attract the commercial
investment needed to enable development, and each country is
approaching this challenge differently.
Venezuela, with one of the largest oil reserves in the
world, faces a critical moment. Since a peak in 1997,
production has declined by about 1 million barrels per day.
With the upcoming elections Venezuela's new leadership will
have the chance to create an environment that attracts
investments and technologies that are revolutionizing global
markets elsewhere and potentially could benefit Venezuela's
people, its economy, and world markets as well. That choice is
one they have to make regarding the kind of policy environment
they set for international investment.
Throughout the Americas, the exciting prospects for
commercial opportunities and economic growth are just as great
in the power sector. The International Energy Agency estimates
that the Americas, excluding the United States, will require
$1.4 trillion in power sector investments by 2035 to meet
electricity demand.
Our companies are already associated with 4.5 gigawatts of
lower-carbon-energy development in the region. For example, a
U.S. company, Sempra, plans to build a 1.2-gigawatt wind farm
in Mexico, where the first phase will generate 156 megawatts
with a U.S. $300 million investment. OPEC and Ex-Im are
considering an additional $650 million in clean-energy projects
in Mesoamerica in 2014. The Brazilian Government has announced
plans to spend more than U.S. $330 billion in power generation
and transmission through 2021. These are all opportunities for
American business for trade and investment.
As we work to expand the potential for energy revolution in
the region, we cannot forget the Caribbean. The islands of the
Caribbean have been saddled with some of the highest
electricity prices in the world, as much as four to five times
what we pay here in Washington, due to their dependence on
imported diesel fuels. Technology and good business practices
can give them an alternative.
For example, Ex-Im Bank has provided a $6.4 million loan
guarantee to finance the export of the SolarWorld Americas
solar modules to Barbados. OPEC is going to provide $50 million
to support the Caribbean Idea Marketplace, a business
competition designed to foster collaboration among Caribbean
diaspora entrepreneurs. Just in the past few days, we heard
from colleagues in the Dominican Republic, new projects that
are being considered to tap the vast gas potential that could
exist in the United States and could allow creative power-
generation projects in the Dominican Republic.
Entrepreneurship and innovation rooted here in the United
States has given us a remarkable opportunity for this
hemisphere with global significance. Innovation and resources
are allowing us to grow economically and to protect our
national security. We can do this in ways that protect the
planet, and as we expand these opportunities regionally and
globally, we will create jobs at home. It is a moment of
opportunity that we cannot waste.
Thank you for the opportunity to discuss these important
issues with you today. And I appreciate your willingness to add
our witness statement to the record as well.
Mr. Salmon. Thank you, Ambassador.
[The prepared statement of Ambassador Pascual follows:]
----------
Mr. Salmon. Mr. Rooney.
STATEMENT OF MR. MATTHEW M. ROONEY, DEPUTY ASSISTANT SECRETARY,
BUREAU OF WESTERN HEMISPHERE AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Rooney. Thank you, very much, Mr. Chairman, Mr. Ranking
Member. Thanks for this opportunity to be here with you today
to discuss these issues. We are grateful for this committee's
attention to this set of issues, and we look forward to working
closely with you to advance U.S. energy security in the Western
Hemisphere.
As Ambassador Pascual has already noted, the Americas hold
tremendous strategic importance for the United States in terms
of energy. As energy demand continues to grow, both globally
and in the region, all countries in the hemisphere have a
vested interest in developing energy resources and the capacity
to fuel sustainable economic growth. That is why the Bureau of
Western Hemisphere Affairs has made it a central component of
its economic strategy for the region for the last several years
to conduct a dialogue with our partners throughout the region
on energy, energy security, and renewable energy.
Through both bilateral and multilateral efforts, we have
supported renewable--we have supported regional energy security
by promoting the safe, sustainable development of energy
resources. We have promoted increased access to affordable,
reliable energy services, and the development of transparent,
effective market structures that incentivize private-sector
investment and provide opportunities for U.S. businesses in the
region.
In the coming years, we expect our energy interdependence
with the region to increase, as oil producers such as Canada,
Brazil, and Colombia ramp up output, and as Mexico considers
important reforms to increase its production. But while
countries like Canada, Mexico, Brazil, and Venezuela have
significant hydrocarbon resources, others in Central America
and the Caribbean remain dependent on imported energy. This is
one of the many reason it makes sense to focus on the Western
Hemisphere's large potential for renewable energy.
In many Latin American countries, hydropower has
traditionally played an important part in the energy matrix.
Most countries also possess significant wind, solar, geothermal
and bioenergy potential, and a number are setting targets to
integrate renewables in their energy grids.
Through the Energy and Climate Partnership of the
Americans, which was launched by President Obama at the 2009
Summit of the Americans in Trinidad, the United States is
working with governments, the private sector, and NGOs in the
region to promote development and deployment of renewable
resources and technologies.
It is important to acknowledge that energy development
projects even with conventional or renewable resources are not
without controversy. In recent years large-scale hydropower
projects have begun to attract more concern among human rights
and environmental and indigenous groups. The construction of
new transmission lines can improve the stability of power
markets and lower prices for consumers, but their construction
can also have adverse environmental and community impacts. We
have used diplomatic engagements through out the region to urge
governments to take full account of these impacts.
From the point of view of the United States, our work on
promoting renewables, access and reliability under ECPA and the
Connect 2022 initiative supports not just regional market
development, but, equally importantly, more importantly,
significant trade and investment opportunities for U.S.
companies. Increased electrical interconnection in the region
will open opportunities for investment in electrical generation
and transmission, as well as good management technologies, all
areas where U.S. businesses are highly competitive and where we
work very closely with the Department of Commerce, the Export-
Import Bank, and the Overseas Private Investment Corporation to
ensure that the U.S. private sector has up-to-the-minute
information on opportunities that exist.
We still face major challenges in the Americas. Countries
that have pursued statist, nontransparent energy policies have
seen their production decline, despite the high energy prices
of the past several years. These countries have found it
difficult to attract the necessary investments, both foreign
and domestic, to help their energy production and economies
grow. We continue nonetheless to advocate open and transparent
energy markets free from corruption and reinforced by strong
protections for investment to help countries enhance output and
promote long-term economic growth.
As our closest neighbors and strongest trading partners,
the energy and economic security of the Western Hemisphere is
critically linked to our own. We have maintained a sharp focus
on furthering our national energy security, promoting
alternative and renewable sources of energy, fostering energy
efficiency, promoting environmentally sound production and use
of energy, and ensuring the stability and security of
international energy supply. Continued progress will require
patience, continued commitment and robust engagement, which our
bureau, in partnership with Ambassador Pascual, are prepared to
provide.
Thank you very much, Mr. Chairman, Mr. Ranking Member,
other members of the committee, for your interest. I appreciate
your willingness to enter the larger statement into the record
and to present this shorter summary to you today. I appreciate
very much your continued interest in this issue, and look
forward to answering any specific questions or concerns that
you might have.
Mr. Salmon. Thank you very much.
[The prepared statement of Mr. Rooney follows:]
----------
Mr. Salmon. I would like to yield myself 5 minutes for
questions, and I would like to start with you, Ambassador.
Thanks for the testimony and the time that you have given to us
to come before the subcommittee and talk about this extremely
important topic.
My question is about the LNG licenses that have yet to be
resolved. And how the DOE continues to, in my view, stall on
issuing those licenses despite its own commission's study
confirming that price increase concerns are not really the
issue. I am wondering if you can tell me from the
administration's perspective why the delay? I have heard it
described just as with the delay and approving the Keystone XL
Pipeline of paralysis by analysis. And this continued
paralysis, is it affecting job creation and prosperity that can
result from moving ahead with LNG exports? We have such a low
price right now with LNG and such a vast supply in the United
States, and it seems to me that could be a win/win. Is this
something that we can find some common ground on and move
ahead?
Ambassador Pascual. Mr. Chairman, thank you for the
interest you have taken on the topic. And you really put your
finger on an issue which has been critical in global markets,
which is what has happened with the emergence of natural gas.
And part of that has been here in the United States, but what
we have also seen is a radically changing gas market throughout
the world.
We have had some--the biggest finds in the world that we
have seen in Mozambique in the last 30 years, in Australia, in
Israel, in Cypress, and in Norway. So we need to think about
this from a broader global perspective and the United States
fitting into that picture.
I can assure you that our colleagues in the Department of
Energy are serious about this issue. It is a topic that we talk
about on a regular basis, and that they are proceeding with due
diligence.
They published a study, as required under the Natural Gas
Act of 1926, in December. That study laid out the parameters
for what the benefits would be from natural gas exports for the
United States. In accordance with that law, they had two
comment periods that have been completed. The first comment
period is open to everybody; the second comment period is to
accept rebuttals of any of the first comments. That closed on
February 22nd. There has been a relatively short period of time
since then to take into account all of those comments.
What they now need to do is go back through the 16
applications that they have received and make final judgments.
In making those judgments, they have to take into account both
the initial study and the broad commentary that has been
received.
I know that they have an interest in being able to review
that, and bring it to conclusion, and be able to come forward
with recommendations that they think are going to be consistent
with the national interests of the United States. It would be
premature for me to suggest what those outcomes would be, but I
think it is fair to say that with the urging that you have
given, the urging and the interest that the industry has had,
that they recognize the importance of trying to move this issue
along as quickly as possible.
Mr. Salmon. Okay. Thank you very much. I just would like to
note that there is a lot of interest on both sides of the aisle
in getting this issue revolved as quickly as possible so that
we can get on with prosperity and energy independence, and I
think that that achieves both objectives in due measure.
I have one other question, Ambassador. It is just kind of a
personal bone to pick, and it is not necessarily with the
administration. I think it is our policy on ethanol here in our
country, and it deals with Brazilian ethanol, because you
mentioned that in some of your comments.
I understand that we put a pretty heavy import fee on
Brazilian ethanol, which is derived from sugarcane, as opposed
to corn as it is here in the United States. And I am just
wondering, it appears that the reason that we put such a--given
the administration's strong support for free trade and
constructive engagement, especially within our hemisphere, it
kind of appears that what we are trying to do is provide some
kind of unfair protection for our own home-grown ethanol when
it appears that the Brazilian opportunity might be a pretty
good one. And I would just like your thoughts or comments, and
if I am asking the wrong person, you just tell me. But I feel
frustrated that it feels a little bit protectionist that we are
importing--you know, we are putting these high tariffs on the
importation of Brazilian ethanol, and I would like to maybe
understand what the rationale might be.
Ambassador Pascual. You are right, Chairman, to keep
focused on this market and the potential that it has.
Let me just mention a couple of things. Specifically the
tariff that you mentioned expired last year. There is an ironic
situation that the Brazilians face right now that international
sugar prices have been so high that they have actually been
exporting the sugarcane for sugar rather than using as much of
it as they have in the past for the production of ethanol. So,
ironically, we have been in a situation where the Brazilians
have actually been importing ethanol from the United States.
Together we have actually been working and identifying
projects in Central America, the Caribbean, and even in some
African states where we are trying to take some of the
technologies, the commercially competitive technologies in the
development of ethanol, and share them with others, as well as
advice on the regulatory and pricing structure to make those
markets more competitive and viable.
So the competitive environment has improved, and the record
of our cooperation with Brazil has indeed improved. Ranking
member indicated that you might be going there. If you talk
with them about the work that they are doing on ethanol, I
would be interested in any feedback that you get on that.
Mr. Salmon. Thank you very much.
I would now like to recognize the ranking member Mr. Sires.
Mr. Sires. Thank you, Mr. Chairman.
Yes, the chairman has planned a trip to Argentina, Brazil,
and Colombia. So at the end of the month, and I guess we will
give him some feedback on what we----
Mr. Salmon. Your big focus will be on energy issues.
Mr. Sires. You know, I sit through these hearings now a
couple years, and I have to say I hear the same thing all the
time, the opportunities that are available in the Western
Hemisphere, how we can--you know, we should take advantage of
it. You know, the growth, and, you know, power, electrical
power, grids, everything.
But, you know, I also get a lot of people in my office
complaining about the corruption and how they can't do business
in the Western Hemisphere in some of these countries. So I was
just wondering if you could comment, Assistant Secretary, on
that, because I do get a number of people. And now we are
looking at some of these countries. Argentina just nationalized
the oil industry from Spain. You have going on in Ecuador. So
can you just comment, because if I were a businessman, you
know, I certainly don't know if I want to invest in a country
there is no stability. So, to me, it is going to be another
situation where the countries in the Western Hemisphere are
going to miss an opportunity to--you know, to move ahead. And
can you just talk a little bit about that.
Mr. Rooney. Sure. Thank you very much, Mr. Ranking Member.
There is certainly a range of experiences out there. And
there are countries, you mentioned Argentina and Ecuador, where
I think American companies and other foreign companies have
found it very difficult to operate. In those cases, in
Argentina, for example, we have made it very clear, I think, to
the Government of Argentina repeatedly and at the highest
levels of that government that we think that expropriating
assets of foreign companies is not a very promising economic
policy, that it is likely to scare investors away, and that
private investment is important to growth in any sector. And
certainly in the energy sector, private investment is
indispensable to sustain long-term development of those assets.
By the same token, in Ecuador we have been following very
closely the disputes that have taken place there. We are very
clearly aware of the many court cases and arbitrations that are
unfolding with respect to Chevron--Texaco Chevron in Ecuador. I
think the government there has no doubt about our view of that
set of policies.
There are other countries at the other end of the range
that are actually pretty clean. Chile has a very clean
investment environment, and very transparent system, and a very
transparent way----
Mr. Sires. Can you name a couple of those countries?
Mr. Salmon. So we can recommend them.
Mr. Sires. So we can recommend them.
Mr. Rooney. So you can go there, right?
And then there is a bunch in the middle, where admittedly I
think even they would admit they struggle with lack of
transparency, they struggle with conditions of corruption in
public service and in the courts. I think in those cases we
have tried now in general, not just with respect to energy, to
use different tools to encourage those governments to clean up
their acts.
Our free trade agreements that we have with a number of
countries, in particular Central America, provide a number of
tools and protections that U.S. investors can use to protect
their interests. And we have, I think, seen over time that
those relationships have encouraged those countries to become
more transparent as things go along. There is no question that
in many of these countries you have to you have a strong
stomach to do business.
Mr. Sires. Deep pocket, too.
Mr. Rooney. That being said, I think a number of American
investors have proven to have pretty strong stomachs. And you
have major U.S. corporations that have been engaged in many of
these countries for years and years and years, have found ways
to do business and thrive.
So I think certainly when we talk to American companies
that are doing business or considering doing business in these
regions, we advise them to take great care in selecting their
business partners, to take great care in the way they draft
their contracts, to take great care in who they hire to
represent them, and to stay in close touch with the political
environment as things unfold, because things can shift under
your feet quite quickly.
Mr. Sires. Thank you very much.
I am sorry, I have just got one more question. Mr.
Ambassador, can you talk a little about the new President of
Mexico, his effort to modernize Pemex, and what it would mean
if it was able to pass through their legislation--legislature?
Ambassador Pascual. One of the things which President Pena
Nieto has indicated is that his government and his party is
very committed to pursuing comprehensive energy reform. It is a
landmark step for Mexico. As you know, natural resources,
hydrocarbon resources in Mexico were nationalized in the 1930s.
It is a national day in Mexico celebrating the naturalization
of those resources.
But Mexico has also taken a very realistic perspective,
understanding that they haven't had the capacity to develop
deepwater resources or the kind of shale gas and shale oil
potential that exists here in the United States. And in order
to do that, it is going to require significant private
investment.
The first step that President Pena Nieto has taken has been
to work within his party to gain the endorsement of the party
to actually move forward with comprehensive energy reform. They
have been working across a triparty basis of three major
parties to build support for that. They have indicated that
they want to introduce that reform measure after they complete
the telecommunications reform, which is currently in process of
working itself through the political system. After going
through the parliamentary process, it would have to pass
through the states; 21 out of--23 out of 31 states are actually
controlled by the PRI.
So there has been quite extensive effort that has been
taken to build the coalition for the prospects of energy reform
that would welcome the possibility of private investments in a
way that protects Mexico's resources, but allows them to be
developed in participation with international actors. It is an
issue which has very nationalistic resonance within Mexico.
Mexico has to take the lead in it, because if they are not seen
as leading, if it is seen as being opposed by the outside, that
will become a constraint. But at the same time it is quite
impressive that there has been a measure, a set of measures
that are being developed that are quite as comprehensive and
extensive as they are.
I would say, Mr. Chairman, as well, thank you for your
mention of the transboundary issues, because I think one of the
important steps that can be taken on the part of the United
States is to indicate that we can pass the authorizing
legislation for the transboundary agreement that would suggest
that the U.S. is committed to the agreement that we have
already signed together with Mexico that would allow for
exploitation and sound environmental management of those
transboundary resources between our borders.
Mr. Salmon. Thank you very much.
The chair now recognizes the gentleman from Florida Mr.
Radel.
Mr. Radel. Thank you, Mr. Chair.
I go back to Colombia when we talk about some of these
countries where people may be a little apprehensive in terms of
investing in. We have seen that Colombia has done partial
privatization of their state-owned oil company, and because it
is now more of a market-oriented energy sector, it is booming
there.
Have we been able to--I guess I would even use the word
``educate'' or share the message of this kind of great example
that we have had in working with Colombia to other countries in
an effort to reach out and work with them? Has the
administration or anyone from the Department?
Mr. Rooney. Thank you, Mr. Radel. I think the--the short
answer is yes. We are, of course, not shy about pointing out
that kind of experience to others in the region. In general,
particularly over the last several years, we found it very
useful. I think the chairman mentioned an initiative that I was
involved in launching a couple of years ago, which was a trade-
related initiative called Pathways to Prosperity. There, and in
the energy area as well, we found it very useful to create
platforms so that experiences like Colombia's can be
highlighted so that it is not us making those points to others
about the desirability of this kind of privatization and
restructuring of an important sector like that, but it is a
Latin country outlining its own experience. We found that to be
a very powerful--a very powerful way to carry that message. And
the experience, as you say, is--pretty much speaks for itself.
Mr. Radel. With that said, I would actually transition into
Mexico with you, Mr. Ambassador. I mean, I am a firm believer
that we hear a lot of talk about illegal immigration and
fingers point south of all these people who want to cross the
border come here illegally. The best way to solve that problem
is with a booming economy south of us, and it is imperative for
us to work with these countries to foster this kind of growth
through market-oriented ways of doing so.
That said, the hydrocarbon agreement, what kind of a signal
are we sending Mexico right now with the hold-up in this? And
if you could give us some context of the hydrocarbon agreement,
where we are at?
Ambassador Pascual. Certainly. First of all, on the
transboundary agreement, transboundary maritime agreement, the
purpose of it was to look at the area which is 1.4 miles on
north and south of the border between Mexico and the United
States, the nautical border. What in effect we have had thus
far is a moratorium in the western gap, but in reality a
moratorium over that entire area, because any company that
might be looking at any kind of hydrocarbon development is
going to look at it with uncertainty because there is a lack of
clarity over the ownership of resources.
The discussions on this agreement began in September 2009
when I was Ambassador to Mexico. We went through a negotiation
process. There were extensive consultations with industry in
the United States as well as a nongovernmental sector. The
agreement was signed in February of last year. The Mexican
Parliament has actually ratified that. It is now with the
United States to actually pass the implementing legislation
that is needed to be able to act on some of the key provisions
to be able to implement it.
The language for that agreement has been put forward to the
Congress. The administration is fully supportive of moving
forward with it as quickly as it possibly can. This is
something which the industry feels is positive, because it
provides a way of giving greater assurance to develop the
resources that are on our side of the border when there are
reservoirs that cut across the border; provides a mechanism
between Mexico and the United States to create units and
cooperation among those units, and where there is advance
agreement where in that unit one company gets 60 percent and
another one gets 30 percent, or whatever it is, and you know
when the oil comes out, there is no argument about how to
divide it up because you have already created the unit and
reached an agreement ahead of time of how to separate it. And
it provides great environmental benefits as well, because it
creates a mechanism that allows us to support the Mexican
Hydrocarbons Commission. It allows us to be able to, within the
individual agreements, ensure that the standards comply with
American standards on the environment.
And so it really is a win/win. And so we are
extraordinarily encouraged about the positive reception we have
seen among various Members of Congress.
What it really needs right now is a vehicle to be able to
move it forward, and if any of you can be helpful in that and
give some direction and guidance to how that might be able to
be done, we would be extraordinarily appreciative.
Mr. Radel. I am sure that we all have the interest of doing
that, working together, even if it is just symbolically to
say--to reach out to all of Latin America to say that we are
here to work with you.
Ambassador Pascual. Thank you.
Mr. Salmon. Thanks, Mr. Radel.
I would just like to say for the record that I strongly
support moving that language or some permutation of it that is
acceptable to the administration as quickly as possible. I
believe that is a big win/win. And we are really fortunate to
have a member of our subcommittee who is actually on the
committee of jurisdiction that will be looking at that
legislation, I think, ultimately, and that is the Resources
Committee. And I would like to yield to him. The chair yields
to Mr. Duncan.
Mr. Duncan. Thank you.
First off, I will just mention that I am currently drafting
legislation. Hope to have it ready for your cosponsorship on
the transboundary agreement, to move that forward, and working
with folks here on the Western Hemisphere Subcommittee, but
also Natural Resources, I think, is vitally important.
You know, when I approach American energy independence
issues, often talking about, one, North American energy
independence, but now I have expanded that on all American
energy independence, where we work with our neighbors in this
hemisphere, both in Latin America, Mexico, with Canada, I think
it is an all-of-the-above approach to truly working with our
neighbors. And it also helps foster those economies.
And when the gentleman from Florida was talking about
Colombia, I couldn't help but recollect last year I was at the
Summit of the Americas in Cartagena, and we met with the
Colombian--Albio was there. We met with the Colombian Congress,
and they said they keep spending-to-GDP ratio to about 4
percent. They have low taxes. And they just have enough
government to support a free market. And the Colombian
Government is really thriving.
And so we heard some of the concerns they had that are
concerns of mine dealing with energy, and that is a question I
have for the gentleman. How are you approaching Venezuela? And
that may have been answered already, but Venezuela, with the
death of the leader, Hugo Chavez, there, are there efforts to
move away from U.S. dependence on Venezuelan oil or natural
gas? And, you know, how do we work with the other neighbors
within the Latin American community and in this hemisphere to
move them away from Venezuelan dependence and maybe more toward
an American or North American or Western Hemisphere agreement?
So I think the transboundary agreement helps with that with
Mexico, but I would like to see how we approach Venezuela and
those issues now. And I ask that of both of you gentlemen.
Mr. Rooney. Thank you, sir.
I think as we look forward over the next couple of days to
the Presidential election in Venezuela, we are all waiting to
see what happens. Perhaps not terribly suspenseful, but we are
waiting to see what happens nonetheless.
On the subject of Venezuela's energy trade with the United
States, I think, as I recall, it is something in excess of 40
percent of Venezuela's exports of oil come to the United
States, which, in turn, represents something less than 10
percent of our imports of oil. So it has been our sense
throughout, and I think it helps explain why Mr. Chavez never
used oil as a weapon against us, that, in fact, the importance
to Venezuela of the U.S. as a market and as a place to refine
its oil is actually quite, quite significant, and perhaps in
some ways more important than Venezuela as a supplier to the
United States. Ten percent is nothing to sneeze at, but it is
nonetheless less than 40 percent.
We have a testy relationship with Venezuela. We have looked
for opportunities to engage in areas of mutual interest. We
think we have mutual interests with Venezuela, potentially, in
counternarcotics, counterterrorism, and energy, and we have not
found them terribly receptive in the past.
We are hopeful that the future will bring an opportunity to
have a more constructive relationship with Venezuela.
Nonetheless, I think you are absolutely correct that the
opportunities for energy integration and energy trade in the
rest of region are significant and offer us enormous
opportunities to shift our trade elsewhere and to work more
closely with other partners.
Mr. Duncan. And Ambassador?
Ambassador Pascual. Let me focus on the Caribbean aspect of
this question, because the subsidies that Venezuela has
provided the Caribbean countries have perpetuated a dependence
on imported fuels, particularly diesel fuels.
I mentioned my in my testimony that right now in the
Caribbean, countries are paying, people are paying, businesses
are paying four to five times for electricity than what we pay,
higher than what we pay here in the Washington, DC, area, about
35 cents a kilowatt hour. In the past countries have been
hesitant to raise their concerns about that energy dependence
because they have been concerned about the subsidies that they
have been receiving from Petrocaribe.
The United States has been deeply engaged in the region,
and we have been working with them through a mechanism called
the Caribbean Renewable Energy Forum. And increasingly what we
have heard from country after country is that the demands that
they are hearing from their people and their businesses is that
they need to enter in a competitive global economy. And as many
of you have said, you can't be competitive if you are starting
off already by paying four or five times more for the price of
electricity than everybody else.
So among the things that we have been working on are a
range of possibilities that could look at possibilities of the
use of gas, of wind, of solar energies, and ways that can
reduce the cost of electricity generation. We have already seen
some prospects, including within the United States and Puerto
Rico, and not far away, in the Dominican Republic, to lower the
cost of the generation.
One of the things that these countries are finding is that
to make it possible to attract the investment that is
necessary, they have to create a better business climate, as
you have indicated. But we have seen, for example, recently
with the Dominican Republic efforts that they are trying to
make to meters on their systems so that they can actually gauge
who is using electricity and who is not and be able to collect
from them.
This whole effort of good business climate, real business
opportunities, the reduced cost of alternative fuel mechanisms
than what we have seen in the past, together can begin to
create--is already creating an alternative environment for
power generation, which offers a real prospect to the region
that they haven't in the past. And we are very much committed
to be able to work together directly, with these countries
directly, with the Inter-American Development Bank, with the
World Bank, and most importantly with the private sector,
because in the end one of the key things is going to be can you
attract private investment to those kinds of projects in a way
that is sustainable. Because these things can't run on the
basis of subsidies. They have to run on a sound commercial
economic basis.
Mr. Duncan. And I think I applaud the chairman. Earlier in
his statement he talked about LNG exports. And I think one
thing the administration can do is help expedite the permitting
for LNG terminals so that we can export some of this gas. When
you talk about quality-of-life issues, if we could export
American gas to Latin American countries, if you travel to that
area, the prevalent smell is charcoal because a lot of folks in
that area cook and heat their homes with charcoal. If we could
change that over to natural gas, refrigeration from propane,
other things, there are just a world of opportunities to
improve the quality of life of folks in Latin American through
American and North American and Western Hemisphere energy
sources.
And with that I will yield back, Mr. Chairman.
Mr. Salmon. Absolutely.
The chair would like to yield one additional question from
the ranking member.
Mr. Sires. You know, as the Congressman said, we spent a
good deal of time with Members of the Congress in Colombia. It
was very informative, the way they are moving forward. We also
talk about their relationship with Chavez.
I just think that this politics of Chavez to give oil to
the Caribbean nations basically was just used to turn them
against the United States. And I do hope that the new
President, even though he talked to the little bird the other
day, changes the policy, because I don't think we can afford to
have all these people that are dependent on Venezuela really
day by day turn against us.
So we somehow in the State Department and through our
energy policies here, we have to find a way of--how can I say
it--battle that, because really--you know what I am talking
about. You know. They give money to the Dominican Republic.
Excuse me. Great prices to the Dominican Republic. Some of the
small islands. Obviously, Cuba is the biggest beneficiary of
that policy.
So I was just wondering, you know here is what they are
doing. They having an election. How are we going to approach
that? You know.
Mr. Rooney. Thank you, sir.
I think you won't hear us defending Mr. Chavez's approach
to this set of issues. We have certainly shared the concern
about Petrocaribe--that is the program we are talking about
here--over the last several years. I think the economic
pressures on some of the recipient countries have been acute,
especially 2 or 3 years ago when petroleum prices had spiked.
Those countries are very, very dependent on imported fuel, both
for electricity generation and for vehicle fuels. And so the
pressures that they were under were simply irresistible, and I
think they bought into Petrocaribe largely out of economic
motives, not really for ideological reasons.
I think the success--I am not sure if I would have
considered it cost-effective if I were the Venezuelan
Government in terms of political payoff, because I think some
of those countries have, you know, indicated that they were not
entirely comfortable with the political pressures they were
being put under, and looked for ways for escape.
When you look, I think, at the production of oil in
Venezuela, the budget situation of Venezuela, price conditions
there, you know, inflation is very high. I think you are
looking at a potentially fragile financial situation. And
sooner or later the budget realities are going to be such that
any government is going to be under pressure to question that
use of resources into the region. So I wouldn't--wouldn't want
to speculate how long that might be, but I think budget
realities have a way of catching up with the government.
Mr. Sires. It is mind-boggling to me to see a country with,
what, 80 percent, 88 percent of the oil in the Western
Hemisphere, and they are broke.
Thank you, Mr. Chairman.
Mr. Salmon. Well, thank you very much, gentlemen. I
appreciate your testimony before the subcommittee, and we look
forward to working with you on all these issues. Thank you.
Mr. Sires. Thank you very much.
Mr. Salmon. I would like to seat the next panel if we
could. Thank you very much.
Okay. Thank you.
Looks like we are ready to introduce the next panel. Thank
you for taking time to testify.
First we would like to introduce Jorge Pinon. Jorge Pinon
is the director of the Latin American/Caribbean Program at the
University of Texas as Austin. He was president and CEO of
Transworld Oil USA prior to joining AMOCO Corporation as the
president of AMOCO Corporate Development Company Latin America.
In this position Mr. Pinon represented the business,
development, and joint venture efforts in Latin America between
AMOCO Corporation and state oil companies. He holds a degree in
economics and a certificate in Latin American studies from the
University of Florida.
Now I would like to turn to Mr. Farnsworth. Eric Farnsworth
is a vice president of the Council of the Americas and Americas
Society. Mr. Farnsworth began his career in Washington with the
U.S. Department of State. Also, he was a senior advisor to the
White House Special Envoy for the Americas. Eric Farnsworth
holds an M.P.A.--that is a great degree; I have the same one--
in international relations from Princeton's Woodrow Wilson
School.
Next up, Mr. Goldwyn, David L. Goldwyn, is president of
Goldwyn Global Strategies. Under his supervision GGS has staged
shale gas regulatory workshops for government regulators in
Belgium, Poland, Rumania, Bulgaria, and Ukraine. Also, Mr.
Goldwyn served as the U.S. State Department Special Envoy and
Coordinator for International Energy Affairs.
Mr. Goldwyn holds a B.A. in government from Georgetown
University and a master's in public affairs from the Woodrow
Wilson School of Public and International Affairs at Princeton
University, and a J.D. from New York University School of Law.
Mr. Pinon, we would like to start with you.
STATEMENT OF MR. JORGE R. PINON, ASSOCIATE DIRECTOR, LATIN
AMERICA AND THE CARIBBEAN PROGRAM, CENTER FOR INTERNATIONAL
ENERGY AND ENVIRONMENTAL POLICY
Mr. Pinon. Thank you, Mr. Chairman. I ask that my written
testimony be included in the record.
Geopolitical uncertainties such as political instability,
resource nationalism, civil conflict, economic downturns, and
natural disasters in oil-producing countries and exporting
countries in all regions of the world threaten both rich and
poor nations alike.
Crude oil and natural gas, and now ethanol, have become
true global fungible commodities with limited restrictions in
their deliverability across oceans and borders. They
respectively represent 34 and 24 percent of the world's primary
energy consumption, making hydrocarbons the long-term principal
fuel of economic growth around the world.
The role played by emerging markets, many of them, such as
China, net importers of oil on a grand scale, also adds a new
complexity to the challenge of international energy security as
these countries race toward resource control outside of their
own borders. The energy sector has become to many countries in
the world the Achilles heel to their economic survival and
growth, making these challenges strategically important issues
of geopolitical context.
The Western Hemisphere represents approximately one-third
of the world's proven conventional and unconventional
hydrocarbon reserves. And like it was mentioned here, Venezuela
alone has approximately 300 billion barrels of proven
conventional and unconventional reserves. Argentina and Mexico
are the third and fourth largest holders respectively of
technically recoverable shale gas reserves in the world. Mr.
Chairman, nearly 50 percent of world's total shale gas reserves
are in the Western Hemisphere.
Today Latin America energy potential is being undermined by
a number of serious geopolitical uncertainties, along with
economic, environmental, social, and regulatory issues that
could impact the monetization of the region's rich hydrocarbon
resources. High political risk, onerous fiscal contractual
terms and condition, populist rhetoric, and the nationalization
of national oil companies' assets have caused the declining
exploration and production investment in Venezuela, Ecuador,
Bolivia, Argentina, and Mexico, seriously threatening the
monetization of the rich hydrocarbon resource in the region.
Most recently Argentina's confiscation without compensation
of 51 percent of YPA shares owned by Spanish oil company Repsol
reenforces the challenge of resource nationalism in the region.
If Argentina, a member of the G20, can carry on these policies
without having to face the consequences, the rule of law could
be seriously undermined, creating a domino effect in other
Latin America countries, Bolivia, Colombia, and Brazil among
them.
If countries want to increase energy and resource
development activities, they have to offer fiscal and
contractual terms and conditions which offer an acceptable rate
of return to investors commensurate with their potential and
associated technical and commercial risks.
We need to encourage the design of fiscal and investment
models that create alignment between the objectives of the host
government and foreign investors, while promoting good
governance standards and behaviors by reinforcing through other
regions the need for, as Congressman Sires raised, rule of law,
accountability, transparency, and integrity.
Even though the region, Mr. Chairman, is rich in crude oil
and natural gas reserves, it has a considerable deficit in the
refinery capacity needed to monetize liquids production into
petroleum fuels. Crude-oil-exporting countries, such as
Venezuela, Mexico, Colombia, Ecuador, Brazil, and Argentina,
are also importers of refined products.
For the first time, Mr. Chairman, since 1949, in 2011, the
U.S. became a net exporter of petroleum products. Approximately
50 percent, Mr. Chairman, of the total U.S. petroleum exports
in 2012 were destined to Latin America and Caribbean.
A comment: Petrocaribe has delivered 96,000 barrels a day
to the region; we have delivered 300,000 barrels of petroleum
products to the Caribbean and Central America during the same
period.
We believe, Mr. Chairman, that academic institutions can
play a role of thought leaders and agents of positive change by
transferring knowledge and best practices, thus providing
developing countries the opportunity to become fast learners to
avoid mistakes made by others and to have access to existing
process, research, and best practices that might be beneficial
to their specific energy and sustainability needs. The
University of Texas, Austin president William Powers, Jr., will
be visiting Brazil June 5, 6, promoting the Scientists without
Borders program, which will open the way for the Brazilian
Government to fund graduate study in the United States for
promoting Brazilian students in the STEM field.
It is clear to us, Mr. Chairman, that lessons learned and
best practices have to be shared in order to avoid conflicts
between good neighbors--Colombia is a good example--and foster
conditions and relationships toward energy security and
cooperation in the Western Hemisphere.
We thank you, Mr. Chairman, for allowing us to share with
you our views on energy challenges and opportunities for Latin
America and the Caribbean. Thank you, sir.
Mr. Salmon. Thank you, Mr. Pinon.
[The prepared statement of Mr. Pinon follows:]
----------
Mr. Salmon. We would like to recognize Mr. Farnsworth.
STATEMENT OF MR. ERIC FARNSWORTH, VICE PRESIDENT, COUNCIL OF
THE AMERICAS AND AMERICAS SOCIETY
Mr. Farnsworth. Thank you very much, Mr. Chairman. Good
afternoon. And thank you to the ranking minority member as well
as the other members of the committee. It is a real privilege
to be with you today. I think you are going to hear a lot of
similarities among us and with some of the other testimony that
you have heard previously, and I would like to ask, as well,
that my full written statement be submitted for the record.
Mr. Salmon. Without objection.
Mr. Farnsworth. I would like to give you the bottom line
first. Energy security is of fundamental strategic importance.
It has long been a core component of U.S. foreign policy
globally on a bipartisan basis, and it is within this context
that the nations of Latin America, the Caribbean, and Canada
must be considered.
Already just over half of U.S. energy imports come from the
Western Hemisphere, meeting approximately one-quarter of our
daily energy needs. At the same time, a dramatic expansion of
energy resources across the hemisphere made possible by
cutting-edge technologies, including ultra deepwater drilling
offshore and biofuel production and fracking onshore, has
created the possibility of a new, highly favorable paradigm.
As a result, we should seek as a first priority to work
together as a hemisphere to increase energy security for all
parties in a manner that lowers costs through increased
production and greater efficiencies; encourages sustainable
economic growth, development, and job creation; and supports a
clean-energy matrix with environmental protections. These
issues will become even more relevant as the middle class grows
and expectations and energy consumptions continue to rise
across the hemisphere.
The reality is, we have heard from others already this
afternoon, is that the Western Hemisphere is rich in energy
resources. Latin America already boasts the world's cleanest
energy matrix in large measure due to a reliance on hydropower
and the purposeful development of biofuels. Meaningful
additional projects in wind and solar are under way.
Nonetheless, traditional fuels will remain critical to meet
both regional and global energy needs for the foreseeable
future. And here, too, Latin America and the Caribbean boast
significant resources. Unfortunately, politics, including
populist governance and regional rivalries between and among
states, and a suboptimal investment climate in a number of
nations, specifically including a weak and malleable rule of
law, has led to a sectoral underdevelopment and unnecessary
inefficiencies.
At the same time, the United States is not the only Nation
that sees the potential for cooperation in Latin America,
Caribbean, and Canadian energy. China, for example, which is
now the world's top energy consumer, is a relatively recent,
but very active participant in the development of regional
energy resources, as are other nations, including India and
Russia. This is a region that is now in play. In my view, the
United States must, therefore, do a better job making the case
for regional partnership, because alternatives for the region
exist today which simply did not exist a decade ago.
With this in mind, the United States can and should become
more proactively engaged in regional energy issues, serving as
a resource and a partner for nations that seek engagement with
us. In the first instance, we must take several steps in the
near term that will show a seriousness of purpose and
leadership in hemispheric energy matters. Three come right to
mind, and we have discussed all of them to a greater or lesser
extent already this afternoon: Approval of the Keystone XL
Pipeline as soon as reasonable environmental concerns are
addressed; implementation of the pending transboundary
Hydrocarbons Agreement with Mexico; and greater alacrity in the
effort to approve exports of natural gas.
We should begin to view energy, in my view, and
specifically natural gas, as a potent new tool of regional
foreign policy, particularly in the Caribbean Basin, including
Central America. The Caribbean Basin faces economic challenges
unlike the rest of the hemisphere due to small and less
competitive economies. As security gains are made in Mexico and
increasingly Central America, drug traffickers will change
their routes back into the Caribbean, where they came from
originally.
Those realities coupled with Venezuela's growing economic
challenges and political transition, which may cause Caracas to
reduce its provision of subsidized energy under the Petrocaribe
program, suggest that now would be an opportune time for the
United States to help build will Caribbean competitiveness and
job creation in the formal economy. The export of cleaner
natural gas and the focus on regional electricity connectivity
should, therefore, in my view, underlie such an initiative.
More broadly, the United States has a strategic interest in
working with willing nations to develop their own energy
resources effectively while promoting models that reduce the
negative, if unintended, consequences of energy development.
Nations need U.S. technology, management expertise, and
investment dollars. They need our education system to develop
their engineers and seismologists. They need help to understand
regulatory tax and pricing models that work. They need be
exposed to best practices and environmental mitigation. And
they need technical assistance to improve the investment
climate and the rule of law.
And in this regard, let me just raise very briefly one
country in particular, because it is so much important in terms
of hemispheric energy trends, and that is Brazil, which I
believe offers a case study for consideration.
Major discoveries in the pre-salt fields off the coast may
soon catapult Brazil into the ranks of the global energy
superpowers. Energy cooperation with Brazil is thus a prime
opportunity for the United States, as the President said when
he traveled there in 2011. At the same time, despite massive
potential, development has been slower than predicted due to a
number of government-mandated requirements, complicated rule of
law, and continued uncertainty in terms of elements such as the
sharing out of royalties.
These issues are not unique to Brazil. The purpose in
raising them, however, is to suggest that great opportunities
in hemispheric energy come with certain challenges as well.
Only by focusing purposefully on the region at the most senior
levels of government will the United States, in my view, be
able to take full advantage of a partnership that is clearly in
our self-interest to pursue.
So, Mr. Chairman, members of the subcommittee, I want to
thank you again for the opportunity, and I look forward to your
questions.
Mr. Salmon. Thank you much, Mr. Farnsworth.
[The prepared statement of Mr. Farnsworth follows:]
----------
Mr. Salmon. Chair recognizes Mr. Goldwyn.
STATEMENT OF THE HONORABLE DAVID L. GOLDWYN, PRESIDENT AND
FOUNDER, GOLDWYN GLOBAL STRATEGIES
Mr. Goldwyn. Thank you, Mr. Chairman, Mr. Ranking Member.
And thank you for your attention to this issue, you and the
members of the committee. Rather than summarize my quite
lengthy testimony, I thought I might ask to enter into the
record and then just talk about the opportunities.
Mr. Salmon. Without objection.
Mr. Goldwyn. Thank you.
We have heard a lot this morning about the impact of this
tight oil and gas boom on U.S. energy security. Certainly our
self-sufficiency in gas lets us be an LNG exporter, but not
only of LNG, but natural gas by pipeline to Mexico and
potentially by compressed natural gas to the hemisphere. The
real significance of this is that we can create a more
competitive market for the hemisphere, which can lower price as
well as lower emissions.
Our oil production boom has strategic advantages as well.
We no longer import light sweet crude. This was the essence of
what we were seeking for decades in terms of security. With
supply from Canada, we will have a limited amount of imported
heavy crudes from outside the Continental North American
Continent. Some of that will come from Saudi Arabia, through
its Motiva refinery system, and the rest is really a
competition between Saudi heavy, Canadian, and Venezuela.
So our decisions that we make on that will be important,
but it also means that with our self-sufficiency we are going
to force the hemisphere, and, frankly, everybody else who is an
oil producer, to adapt or die, essentially to be more
competitive, because investment around the world in oil and gas
as shifted dramatically to North America because we have
market, we have terms, we have contract security, we have
infrastructure. So the countries which have the state-led
models are going to undergo a severe challenge, and the
countries which have market-oriented models are going to
attract more investment.
And this is really--this is the significance of what is
happening to us, how it is going to shape the hemisphere. It
is, frankly, an open question. It is a dramatic geopolitical
pivot for us, because we have more physical security, and we
have the ability to use exports as a tool of foreign policy.
And it is going to take a while for Americans to get used to
the idea that we are resource wealthy and not resource scarce.
But we have this potential.
So the question is how do we make the most of this
opportunity? And I have six suggestions. The first, we have to
keep up the work on energy efficiency and renewables, because
there is a huge amount which the hemisphere can do,
particularly the Caribbean and Central America, to reduce its
dependence on fuel. That will be an economic boom for them. And
so we do important work there, and we should keep that going.
The second thing we need do is to spread this
unconventional oil and gas boom to countries in the region. I
began something called the Global Shale Gas Initiative when I
was at the State Department; now it is called the
Unconventional Gas Technology Assistance Program, but
essentially teaching other countries how to produce
unconventional oil and gas safely and efficiently. Let them
grow their own. Some of that is about framework, some of that
is about taxation, some of it is about infrastructure, but also
it is about the technology and how to protect air and water.
That brings to the table something that we want to talk about.
And then we get to have the conversation about framework and
corruption and other issues, which they may not want to hear,
but that is the quid pro quo for having that conversation.
Third is to implement the transboundary agreement. We have
talked about that a lot this morning, and it is very
encouraging to know that there will be legislation from
Representative Duncan to push that through. That is important
for Mexico, because Mexico is also going to have to adapt, and
Mexico's national security interests clearly are in our
interests as well.
My fourth suggestion is a sharper focus on the Caribbean.
And here I think the real choice for them is between fuel oil
and gas. Renewables have a role to play, but they need base-
level electricity. They are small islands, small markets, with
small transportation distances. So the potential for gas
penetration is quite large there.
The question is, how do they get it in? Now, they don't
need liquified natural gas. They don't need that price, they
don't need to spend that money. Maybe compressed natural gas is
the answer. So but if we can find a way to get it out, perhaps
by finding it is in U.S. national interests for all gas exports
to the Caribbean to be in the U.S. national interests, make it
easy for the Department of Energy, and find how to get that in.
What they need is an engineering study more than anything else
to figure out as a practical matter what is the most cost-
efficient commercial way to get that in. Maybe that is
something that the committee could task.
Fifth, I think we need to reconsider our policy on exports.
Now, with gas exports we have talked a lot about the Department
of Energy's process. I think they will get through that
relatively quickly. I think when they look at the projects
which are mature, in that they have gone through the prefiling
process with FERC, they have filed their environmental reports,
and they have a real contract, I think you will have a small
number of projects that are ready to be permitted, and they
will be permitted soon. But maybe there are smaller projects to
export CNG to the Caribbean. They should get attention also.
So I think that will move along because it has huge
benefits economically and for climate, but we are also going to
have to start looking at oil exports, because we have a surplus
of light sweet crude. We don't have a place to put it. Rather
than using it as blend stock with heavy crude to make a refined
product, we might look at a way to swap that in the hemisphere
and export as much light as we have heavy, because our primary
customer base for the products and for the light crudes is in
the hemisphere. So it is a great thing that we can bring to
help them.
Lastly, I think we need to focus our diplomatic and
commercial engagement in the hemisphere. We have a lot of fora,
but we need to focus on Brazil, Mexico, Venezuela, and the
Caribbean. And, in particular, if I can just say just a few
seconds about Venezuela, the conversation is going to be
difficult for a while, but we need to start talking to them
again so when things turn and the wheels turn, we have people
that we can talk to on the other side; reconnect with Pedevesa
because they are going downhill, both in terms of where their
market is and where their production is going and fiscal
pressure. And so eventually things will change; we just need to
be ready. Thank you.
[The prepared statement of Mr. Goldwyn follows:]
----------
Mr. Salmon. Thank you, gentlemen.
I yield myself now 5 minutes for questions. And the first
question I would like to direct to Mr. Farnsworth, but it could
equally be addressed to you, Mr. Goldwyn.
You touched on the LNG exports and the importance of the
U.S. finally moving forward with granting export licenses to
LNG to the Caribbean. Formalizing economies in the Caribbean
Basin and Central America should be a regional goal. So how
important would these exports be toward realizing that goal?
And with the Petrocaribe's largesse in question now, now is the
time to push, I believe, for free trade agreements with many of
these nations in the Caribbean Basin. Do you agree with that?
Mr. Farnsworth. Yes, sir, I do. And thank you for the
question.
I caution that it is not a panacea. I mean, there are some
real issues here in the Caribbean Basin. But fundamentally, if
you look at a global economy, there aren't a lot of options for
small island state that is connected only through tourism or
maybe some small industry or some small agriculture. And if the
cost of electricity and the cost of fuel imports is three,
four, five times higher than in advanced economies just next
door, you are fundamentally economically uncompetitive.
If you take that and you take away, potentially--we don't
know, but potentially you take away the subsidies that some of
the islands have been receiving from Venezuela, and you layer
on top of that the enhanced security requirements that are
quite predictable as the United States works with our Latin
America partners in Central America and Mexico to try to
address some of those security issues, you have a fairly
complicated stew here that could compel one of two things. It
could compel illegal activity, or it could compel additional
migration. Neither one of those is particular, I think, in
terms of the U.S. interests.
So it seems to me we should try get ahead of the curve to
the extent that we can, recognizing there are lead times in
terms of permits and infrastructure development and all of
that. But we should get started now because we can see this
train coming down the tracks. And this is something that I
think is both proactive, but it is also positive.
You know, the United States has a very strong and positive
relationship with the Caribbean in the context of global
politics. During the Cold War we were very active with the
Caribbean Basin Initiative. We saw it in global context. That
is fine. The beneficiaries, however, were the Caribbean region
and Central America. And I think we really need to begin to
look at this region in a new way, a way that recognizes some of
the obvious limitations, but says, look, we have a foreign
policy need in the region, and let us use energy as part of
that. And I think you can't really get there from here unless
you begin to open the spigot in terms of natural gas exports.
Mr. Salmon. Right.
Mr. Goldwyn.
Mr. Goldwyn. I would just add two quick points. One is
these are relatively small markets, so in terms of total volume
of gas, it really shouldn't be a concern on price. And given
all the studies that have been done, I actually don't think
there is a legitimate concern on price anyway, but that is
another question.
The second is these countries do need a market signal that
if they sign a purchase agreement, that they will be able to
get a license relatively quickly. And so that is where I think
a policy determination would be helpful.
Mr. Salmon. Thank you.
Mr. Pinon, thank you for your testimony, and thank you for
coming all the way from Texas to be here with us.
With respect to Argentina's recent confiscation of YPF
shares owned by the Spanish firm Repsol, you correctly point
out that they flagrantly turned their nose up at the rule of
law, yet Argentina has significant resources, particularly in
shale gas fields, and they can benefit from the U.S. shale gas
revolution.
Do you see President Kirchner taking more serious steps
toward attracting foreign investment while moving away from her
statist and highly politicized policies?
Mr. Pinon. Well, I believe that a major change has to take
place. I think the signal that she sent to the industry by the
confiscation of the Repsol assets sure puts in question who
else is going to invest money in Argentina. If I was a major
oil company or an international oil company, I would question
how long will my assets be safe in Argentina.
You have also have to remember, Mr. Chairman, that any
upstream project takes anywhere between 1 to 7 years to bring
onstream. These are issues that do not happen overnight. There
is huge amount of capital investment that has to go up front.
So even if I sign an agreement today that is valid to my
corporation, what says that after 5 years, when I already have
2-, 3-, 5 billion on the ground, that the rules of the games
are not going to change?
So that is the big issue. That is what happened in
Venezuela. That is--with Exxon Mobil and with CONOCO. That is
what happened in Ecuador with Occidental Petroleum. Once these
international oil companies start putting large amounts of
capital into the country, they more or less have you; in other
words, the negotiation rule now is totally different.
I think she is going to have a problem. There is economic
problems in Argentina. Argentina is a very wealthy country not
only in oil and gas, but in many other areas, and the country
has always failed to materialize. So we will see what happens.
Mr. Salmon. I think, you know, I learned early in my
business career that if you take the idea that you have got to
deal with long-term objectives for your business, and that is
grow business over time and develop a reputation as an honest
broker and somebody that people will be willing to do business
with, and not the mentality that some look at the used car
salesman--just sell that car and take advantage right here and
now because we gotta get the sale, gotta squeeze every bit out
that we possibly can now--it provides long-term success. And
with Argentina's economic travails and problems, they would be
well suited to look at focusing on some of these rule-of-law
issues on investment, not just in regard to Repsol, but in
regard to many other companies that I have talked to,
international companies, that are very wary about doing
business in Argentina because of these contract issues that are
not being adhered to and rule-of-law issues that are being
flouted. And I think ultimately if Argentina recognizes it is
not in their best interests, it is not in their best long-term
interests to continue going along this road, they have got to
start recognizing contracts and adhering to rule of law.
But thank you very much.
I would like to recognize the ranking member Mr. Sires.
Mr. Sires. I am glad that the Caribbean Basin has been
raised, because I think one of the problems that we have had in
the past, in my opinion, is that we focus on the big fish. You
know, we focus on Mexico, we focus on Brazil. And obviously the
large opportunities are in those countries.
But there is a whole host of small countries, small markets
that we seem to fly over. So when you said, Mr. Pinon, that we
give them 300 million gallons, you know, of oil, that--I didn't
know that figure. I think that bodes well for us, because we
can certainly rebuff the influence of Venezuela by doing the
same thing. I guess the 115 million people in Mexico makes
Mexico the best partner we could ever have because of all the
resources. And I would think the natural connection that we
have with Mexico would make it a natural to continue.
But one of the concerns that I always hear from Mexico is
that they don't want to be seen as the United States'
interfering in their business. And even this change that they
are going to modernize their industry, they are very cautious
about proceeding so they don't perceive that the United States
is pushing this.
Can you comment on that? All three of you? I will start
with you, David. You don't mind if I call you David do you?
Mr. Goldman. Please. I think there has been a bit of an
evolution in Mexico. Traditionally, certainly this was
nationalization was core to the revolution, it is a very
sensitive subject. And most of the conversation right now is
going on among the political parties in Mexico to see what they
can live with. And they have this hard balance. They want to
increase production, and they want new technology and their
capital constrained. So they have to figure out how do they get
that in, and will they have constitutional reform or not? And
so it is largely an internal discussion.
I don't think they see us pushing it. I think they have a
Petrobras model, they could have a stat oil model. They could
have a number of models which keep the state as the owner of
the resource and keep the state as the regulator and keep the
state in every deal, but still allow foreign companies to be
operators and to book reserves. They have got to figure that
out.
I think what we can do is very quietly we can let our
geologists talk to their geologists. We can talk to people at
the Department of Energy about the nature of deepwater
technology. We can have people in Interior talk about how to
manage that safely, and none of that has to be in the public
eye. We can work to give the government privately the
confidence that it can see its way through to do this. But I
agree, the less public we are, the better. But I really think
this is internally driven by the pon and by the pre rather than
seen as some sort of a U.S. effort to impose this or change
this.
Mr. Farnsworth. I would agree with that, and I would simply
add that from my perspective, it seems that the new government
of Enrique Pena Nieto sees energy reform in the context of
overall national competitiveness, and so they don't see it as
an independent stand-alone but rather integral to Mexico's
ability to achieve its economic growth targets over time and
the ability to really turn Mexico into an engine of global
production and growth which is clearly where the government is
headed. Now how they do that is really an issue for the Mexican
people to figure out. There are some good models out there
which would seem to hit the framework that they need
politically. But it is their issue.
And frankly, I have been quite amazed at the restraints
that has been shown by other countries, not just the United
States, but other countries saying, look, this is a political
issue for you, and you need to resolve it in your own way in
your own terms. But having said that, there is a horizon out
here by which if you can find a way to reform this sector, it
will turn Mexico into, or contribute to turning Mexico into
that type of partner, Mr. Ranking Member, that I think we would
all see.
Mr. Pinon. I lived in Mexico for 5 years and I agree with
David, I think even if the legal and legislature and political
obstacles can overcome, you still have Pemex. Pemex is not
Petrobras. Pemex is not Ecopetrol. So even if you can put the
legal mechanisms in place that would allow Mexico to play ball
in this game, they won't be able to achieve the goals that we
are looking for because they have this state oil company that
is called Pemex. And it is not from the point of view of their
technical expertise. By the way, many of them are graduates of
the University of Texas. That is not the issue.
Is there skills as far as being entrepreneurs, is there
skills of being able to play the game competitively? Mexico has
been a national oil company that has stayed inside of Mexico
for the last 50 years. Petrobras has an international
experience. Petrobras is a true independent international oil
company. Ecopetrol today, Colombia's national oil company, is
doing business with Shell in the U.S. Gulf of Mexico. Why?
Because they learned from that experience and regrettably Pemex
is a true national oil company from the point of view that
technically they might be very competitive. But from an
entrepreneurial management stewardship point of view I think
they lack the skills to really take Mexico into what we want it
to be 5, 7 years from now.
Mr. Sires. So you are not very hopeful of this?
Mr. Pinon. No, sir, I am not. Mr. Pena Nieto has 6 years in
power. It is a 6-year presidential term. And as I share with
you today, any project upstream takes anywhere between 1 to 5
years to materialize. I am sorry, I am optimistic for the
potential of Mexico. It has been shared by all of us this
morning, this afternoon in the panel. I just don't think that
they will be able to achieve their goal, again, in particular
with the organization that they have of the energy sector
particularly in Pemex, I don't think so.
Mr. Salmon. The chair recognizes Mr. Radel.
Mr. Radel. Mr. Pinon, in that same vein looking at Brazil,
have they reverted to increased resource nationalism? Brazil?
And I follow up with we have this so-called pre-salt reserves,
which has the potential to turn the country into one of the top
five oil and gas producers in the world. Is there opportunity
there for us?
Mr. Pinon. Brazil will surpass both Venezuela and Mexico as
the largest producers of oil in the region, which to many of us
that have been in this industry for 34 years, we never thought
that we would mention something like that.
When Lula da Silva came in power in 2003, I believe, those
of us that were in the industry said there goes Petrobras. We
thought that is it, close the doors, go home, there is another
Venezuela coming. And Lula da Silva is probably to me the best
President that Latin America has ever had because being a
leftist, being a socialist, he was able to recognize that
Petrobras was that golden goose that was laying the eggs, and
he said, I have to let it run like a true enterprise. I, as the
state, am more than happy to collect the dividends and part of
the shares if they go up. I want it to make more money because
I am collecting 28, 30 percent corporate tax and by the way,
they are going to make a lot of money for me. Lula knew how to
run Petrobras. He just let it be Petrobras.
That is why I am concerned about Argentina. We have two
poster childs in the region and that is Brazil and Colombia.
And what I am afraid of is that if we let Venezuela and Ecuador
and Bolivia and all of these guys and now Argentina go through,
it might give some of these governments a second thought,
particularly if they do find all of these resources that now
they say, by the way, I don't need the techno, I don't need the
geologist, because I know where it is. I still need the
engineers because I need to know how to get it out. But I don't
need the geologists anymore.
What is the advantage of an Exxon or a marathon or a
Chevron or a Conoco to any of these countries anymore? Is it
really technology? You have Schlumberger and Baker Hughes and
Halliburton today in Mexico doing business that used to belong
to the international oil companies. So the service business
even has taken today a role that the majors always never wanted
to take, which was the service type of business.
So I have a problem. I think that we really, again, I think
the future is fantastic. I am optimistic. I think Latin America
can do it. All that I am saying is we need to take a step back,
and we need to take the job and the role that some of these
countries are playing.
And China, today when China goes and is, and forgive me Mr.
Chairman, but when China today is negotiating with Brazil and
in the other room you have an American oil company, there are
two different type of negotiations going on. I am not saying
that the U.S. ought to have a national oil company, by the way.
We don't have a national oil company. So when you have an
international oil company in one room and you have a Chinese
oil company in the other room, that Chinese oil company has
government officials with it, has the National Bank of China
with it, has all of the infrastructure required, has the
engineer, has a turn key package.
We don't have that flexibility because we don't have a
national oil company. And I am not saying that we need to have
one. But I just want the members of the committee to understand
that when you have a China national oil company competing
versus an American oil company, in many of these countries, and
it is not--but wait--it is not an issue of corruption. It is
not an issue of corruption. It is an issue that they have the
competitive advantage that we don't have. That is what I am
going to say.
Mr. Goldman. I will just offer a slightly different view. I
am a little bit more worried about Brazil because the big boom
in Brazil happened when they opened the offshore to foreign
operators and they got in technology and project management,
what they didn't have, and they learned a lot and they had to
tag along with that. And now they have taken a step back by
saying that Petrobras has to be the operator in every project,
that they have to put capital into every project, that they
have to evaluate every project, has already slowed them down.
So their production estimates have declined and the local
content requirements are understandable, but they are required,
companies are required to have things that Brazilians don't
make yet. So all of that is going to slow things down. I think
they will still be huge and they are very adaptive, so they may
learn that this is not a revenue maximization model, and maybe
they wanted to have that money for development and they will
change. But right now where if that take off looked like this,
it has flattened out a little bit.
And I think Brazil, if the prices soften a little bit,
companies will bid in the next round. But whether they go from
exploration to production will depend a lot on what the returns
are and what the price is whether Brazil is competitive. So I
think they are going to have to compete more or they are not
going to be the producer that they could be.
Mr. Farnsworth. If I could just piggyback on that as well;
this is where the North American play comes in so heavily
because given a choice between investing in the United States
or Canada versus uncertain markets in Latin America, most
people chose North America. And what we have seen with the
dramatic increase in recoverable energy in North America,
companies don't have to make those riskier plays. And to the
extent that any country, Brazil or any country is taking a step
back, the issue then is how are they going to be able to
attract the massive investment that is required to develop
those resources?
The resources are there. What isn't there is the
investment. This is why China is so important because it has
played a role that really didn't exist in the past whereby
countries--Venezuela is a perfect example--can pursue policies
and ambitions that the rest of the international community
might have rejected in the past, but with China's support, they
have been able to pursue certain policies. Now perhaps the
Chinese are getting a little bit impatient with Venezuela and
the inability to repay debts and that sort of thing, that
remains to be seen.
But this is where I think an argument in terms of the
quality of investment can be developed with the western
hemisphere. And I think the Western hemisphere nations are very
receptive to that. In other words, a dollar of Western company
investment isn't necessarily the same as a dollar of Chinese
investment, not necessarily because the Chinese come with a
package, but because of all of the externalities that we don't
discuss: The corporate social responsibility, the hiring on the
local economy, the support for local education systems, anti-
corruption, Foreign Corrupt Practices Act, corporate
governance, all of these that Western companies will bring,
none of those things that the Chinese will bring.
And so you have a quality of investment. Yes, you can make
more money in terms of some of the investment coming from other
parts of the world. But in the longer term, is that a good
thing to help develop your country along the way that, frankly,
I think most of the people in the region would want to go, dare
I say it, does that help support democracy? Now this is the
Western Hemisphere Subcommittee, so I am comfortable making
these types of argument.
But the truth is, I think this is a concrete connection
between investment policy and energy and resource nationalism
and the quality of democracy down the road and true
partnership. And I think we are seeing that develop right
before our eyes in many of the countries in the region.
Mr. Radel. Thank you, gentlemen.
Mr. Salmon. Thank you. The chair recognizes Mr. Duncan.
Mr. Duncan. Thank you, Mr. Chairman.
I just want to mention one thing that the gentleman from
New Jersey talked about in the last panel, and that is
opportunity with, in a post Castro, post Chavez environment in
the Latin America region. We have an opportunity there to go
back and redevelop some relationships and find some opportunity
for American businesses. But I know we all only want to deal
with democratic regimes and democratic governments. And so I
think we have got to find a way to negotiate that, we have got
to find a way to support pro democracy, and we have got to find
a way to seize those opportunities. And I look forward to
working with the ranking member going forward.
I think the administration should begin that process as
well, and so I appreciate the efforts, especially with Cuba
that the ranking member has had.
Mr. Pinon, you mentioned China and the Chinese example. We
heard the same thing in the Kurdish region of Iraq that when
American companies are trying to negotiate with these
governments, the Chinese have a leg up in that they have got
the support of their government, and along with that comes the
bank and everything you mentioned. I think the American
Government needs to do a better job with supporting American
businesses going into those negotiations. And I hear that other
places. So I appreciate your bringing that up.
And what we see with China is not just negotiating with
Chinese companies with the government backing, we actually see
the Chinese Government going in and not only purchasing mineral
rights and mines and oil and natural gas fields and rights but
also purchasing companies and rare-earth minerals and just a
lot of different things.
And so I guess the question I have, because this is a very
interesting topic for me, is what can the U.S. Government do to
better support American businesses so that U.S. business can
better compete with China, Russia, Iran, and I appreciate you
guys mentioning Argentina, Argentina has reached out to Iran
recently, and that concerns me greatly.
And so what can the government do? Give us some ideas,
things that we might be able to work on as the legislative
branch to push forward those concepts?
Mr. Goldman. I think we can do a number of things. One is
we can make clear to the countries in the region that the
expertise in unconventional oil and gas, which is the future of
their hemisphere was born and raised here in the United States.
So they are not going to find that expertise from Chinese
companies. Second, deepwater, ultra deepwater other than
Petrobras, no Chinese company----
Mr. Duncan. They are paying big dollars to purchase these
mining companies, not the rights, but the companies themselves,
they are paying big dollars for that in order to have access. I
didn't mean to interrupt you.
Mr. Goldman. They bought Nexen up in Canada. But I don't
think anybody is yet trusting SINOC to be the operator of a
deepwater. Now mining is a different story and I agree with you
there. But one thing we can say is if your future is in
unconventionals and in deepwater, you want to go with people
who actually know how to do this right and do it efficiently
and those tend to be Western companies, not exclusively
American, but in this hemisphere, American.
The second thing I think is to point out to them the
reliability and the business climate that it creates. If you
want investment in lots of other areas you have to have a
positive investment climate and we come with all the things
Eric has explained so well how in terms of how we behave in
country.
The Chinese increasingly being seen as colonialists,
particularly in Africa, because they have an enclave way of
operating. They don't bring any jobs. They keep to themselves.
They don't treat the environment well. And people are getting
irritated with them. And in the hemisphere so far, they have
mostly bought assets which Western companies have wanted to
dump so they haven't made any strategic acquisitions.
But I think going forward, as you said, we have go to also
just get in there and have a relationship that is good across
the board so that we can make the case and be commercial
advocates.
Mr. Duncan. Before I come back to Mr. Pinon for some
additional, let me make just make a comment that I was talking
with some oil and natural gas folks from the Gulf of Mexico,
the Louisiana Texas area, and they are talking about a lot of
those companies left the Gulf and went to the coast of Brazil,
went to the coast of Africa and now they are coming back
because what they found dealing with those governments and
their regulations and the slowness of permitting and other
things, as bad as the rules and regulations are currently under
this administration for deepwater drilling in the Gulf of
Mexico, it is still they understand there is some certainty,
they understand what the policies are, they may not like them,
but it is a better business climate for dealing with our U.S.
Government having to go through the delays and all that, at
least they know what they are getting, whereas there is so much
uncertainty.
So they are pulling a lot of those rigs back to the Gulf of
Mexico. I thought that was an interesting thing to hear from
them because of the certainty aspect and the uncertainty, I
guess, is what I am trying to say dealing with the Brazilian
Government or the African governments that they had to deal
with.
And so going back to what can the U.S. Government do to
support businesses and these environments, U.S. companies to
make them better to compete with the Chinese? Mr. Pinon.
Mr. Pinon. I still think that we do need, we have in this
country, and by the way one of the things that made this
country the best country to invest in oil and gas is because we
do have that separation between the private sector and the
state, and the government. And so we have to be very careful in
the amount of support that the United States oil companies can
get from our Government. We have to be very careful with that.
But again, I think support in the area of technology
transfer, the area of STEM education, working with, like
Brazil, with scientists without borders, we in the United
States have right now the State Department 100,000 strong in
the Americas in which we exchange students, in other words,
there is a lot of ways in which the U.S. can really influence
and work on changing the behaviors and the knowledge and the
skills in a lot of these countries.
But we have to be very careful how the United States
Government gets involved in the business dealings of U.S. oil
companies overseas. I think that could set certain precedents
that I wouldn't be in favor of.
By the way, another issue that China is doing is China and
Brazil today have joint ventures with both Statoil and with
Repsol. So China is also not going necessarily on their own,
but China is also going into joint ventures with international
oil companies who have the deepwater expertise like the
Norwegians and like Repsol.
So the Chinese, I don't know what David's data shows, but
we believe that in the next 4 years, if you have all of the
equity production that China could very well have in Latin
America, including the oil for loan exchange, China could be
pulling as much as 600,000 barrels a day out of Latin America
in equity production.
In fact, they are looking for a refinery. They have talked
to Valero, they have talked to a number of people to look for
refinery capacity in the Caribbean.
And by the way, China is a good partner. Many of us, ask
the Exxons and the Chevrons and everybody else, we have
partnership with China in China and in many other places in the
world. So that is not necessarily the issue. If, like you said,
the rules of the game when they go into a lot of these
countries is totally different than the rules of the games as
far as it goes with us.
You mentioned the issue of all of the regulations and all
of the rules that we have to follow, by the way, not
necessarily because they are set by the United States
Government, because from the corporate point of view, is good
business. So those are the things that we have to work with.
Mr. Duncan. My time is expired but I just want to mention
the ranking member talked about fly-over countries, the smaller
countries in Latin America, because we focus on Argentina,
Brazil, Colombia, and we focus on the hot spot of Venezuela,
but there are tremendous opportunities in Honduras and
Nicaragua and other countries in the isthmus there. But also
there is opportunities in, I believe, in Ecuador and Bolivia,
Paraguay, Uruguay.
There are tremendous opportunities for the U.S. to begin
fostering, reestablishing those relationships that I think are
going to be very, very important for us going forward and I
yield back. Thanks.
Mr. Salmon. I couldn't agree more.
Mr. Sires had a follow-up question.
Mr. Sires. I guess I get a little more reaffirm of the fact
that I think some of these countries are going to miss the
opportunity that is there for them by doing all the things that
we talked about today.
Here is a golden opportunity to move forward, and they are
their own worst enemies by doing what, as Congressman Duncan
said, he spoke to some of the members, some of the companies
are pulling back and they are coming back into America. Why?
Because they don't have the same problems that they encounter
when they do business in those countries.
I was just telling the chairman the last time I was in
Colombia, I had dinner with one of the presidents of one of the
universities. And he said to me that the second most studied
foreign language in Colombia today is Mandarin. So that tells
you something that the influence of China, and that is
Colombia. I could just imagine where they have more influence
and where they are doing more business than in Colombia, what
is going to happen? Thank you, Mr. Chairman.
Mr. Salmon. Thanks. We do have a few more minutes. I would
like to ask another question, too. I have a significant amount
of background with China. I have been there over 30 times. I
speak the language. And I did not learn it in Colombia, but, in
fact, I learned it in Taiwan. But I would like to say that
given the fact, it is always easier to move things when you
deal with an autocratic government, where the business and the
government are all working in concert with one another.
And Mr. Pinon, you mentioned that that is an advantage with
their oil companies, the state-owned oil company where they
have the government, the financier there, the oil company all
at the table and they can blow and go. We can't do that, and we
never will because we live in a government where the system of
checks and balances and free market sector.
So what are some of the things beyond--that we can adopt as
policy to make it so our oil companies can compete a little bit
more effectively?
And then one other question to Mr. Goldman, you talked
about the importance of energy and diplomacy and I couldn't
agree more. But what can the United States and this
subcommittee, in particular, do to help encourage energy-rich
nations like Ecuador and Argentina develop the type investment
climate that will boost their production and increase
exploration? Thank you.
Mr. Pinon. Mr. Chairman my apologies, I am biased, but 52
of the top geologists in Petrobras today are graduates of the
University of Texas. Now I can assure you that the University
of Oklahoma and Texas A&M and those universities also have a
huge number of graduates from the universities in those
national oil companies.
The best way that we have to reach those governments are
through our own people, whether it is education, whether it is
technology, whether it is student exchanges, whether it is
environmental issues, water resources, one of the things that
we are working now at the University of Texas helping a lot of
these countries is whether it is shale gas or something else,
it is going to impact water resources in a lot of these
countries. So we are focusing on that too.
We have just had the vice minister of energy of Guatemala,
Eric was there, so we are looking at Guatemala for geothermal,
how can we help Guatemala develop their geothermal industry. So
I think there are a lot of things that we can do as the United
States not only from the government, but also from the private
and academic sectors.
Mr. Salmon. Thank you.
Mr. Goldman.
Mr. Goldman. Thank you. Well, I think the market is a
strict disciplinarian, so I think the first thing that is going
to happen is they will notice how Colombia is doing, and how
Chile and Argentina are doing something on gas and the Bolivias
of the world will have to adapt. But I think the other thing we
can do is use some of our multilateral mechanisms, the energy
and climate partnership of the Americas, use demonstration
examples as you heard from Ambassador Pascual earlier, so
Colombia can stand up and say this is how we are getting an
investment; Brazil can say this is what has worked for us so
far; Mexico can say these are the changes we are looking at so
they can hear it from their neighbors and not from us.
And I think we can also our strategic dialogues with Brazil
and others to talk about whether we can do some triangulation
and get some, the people who those countries listen to to
deliver some of this message so it is not coming from us
directly.
Mr. Salmon. Great idea. Mr. Radel, did you have any other
questions you wanted to ask?
Mr. Radel. Sure, for the record as we talked about Mandarin
being studied in Colombia, we are learning Spanish here in the
United States.
Mr. Sires. You got some oil.
Mr. Radel. I would like to talk about Ecuador. I think
maybe Mr. Goldman, this would be best for you. There is a
vacuum now with Hugo Chavez gone, even just symbolically. Could
you describe our relations right now with Ecuador? One of the
biggest splashes that Correa, President Correa made years ago
was we said we would like to have our air base there and he
said, sure, I would like one in Miami too. Not going to happen.
But could you describe our diplomatic relations with them, and
whether or not you believe that they would try and fill that
kind of vacuum within the Bolivarian revolution, if you will.
Mr. Goldman. Well, I think I have been out a little while
so I don't know how relations are. So my guess is they are
probably cordial. The foreign investment condition in the
energy sector is worse than it is in any investment sector in
Ecuador, but that is where it is worst and the actions against
Oxy and others have been very serious. So I think the
Department warns people of the volatility there.
I don't think Ecuador has the resources, and I don't think
Correa has the charisma, and I don't think the country has the
respect to fill that vacuum. I don't think anybody wants to
follow the Ecuadorian model. Bolivia has tried, I think, to its
enormous detriment, and maybe permanent detriment as other
countries find their own sources of gas. So I don't think
anybody is going to be following President Correa wherever he
may be trying to lead them.
And, in fact, we will have to see what happens to Ecuador's
production, but if it declines at the pace that Venezuela's
production has declined, my guess is there will be enough
internal problems there that no one will wish that on
themselves.
Mr. Radel. Well, there is one assessment. Thank you. Mr.
Farnsworth do have something as well?
Mr. Farnsworth. I agree with what David has said, but also
to piggyback on what Mr. Sires, the point that you made which I
think was absolutely correct. You have a boom in global energy
that threatens to bypass some of the countries in the region
despite being extraordinarily wealthy in energy. For the last
several years, production in Venezuela has decreased, even
though global emergency markets have been at historic highs.
And any first year business student will tell you you want to
sell as much as you can in a tight market for the highest price
you can. And in fact, the production has been decreasing
because of mismanagement of the energy sector et cetera, et
cetera, some of the things we have already talked about.
One country we haven't talked a lot about but which just
came up is Bolivia. Bolivia is a perfect example of this.
Bolivia should be, in some ways, the major supplier of natural
gas in South America because of their geographic location,
because of the amount of supplies they have. And what happened
is they created conditions that were so negative to investment
and delayed so long the actual development of the sector that
now, discoveries around them have taken over and you have
surrounding countries, Brazil, Argentina, of course we know
Peru, Chile even, which traditionally doesn't have a lot of
energy at all, and now you have Bolivia, instead of being the
center of energy in South America, is really the hole in the
doughnut. And the people that lose ultimately, in my view, are
the people of the country because they are the owners and they
are the ones who should be receiving the benefit of the natural
resources, and they are not, because it is just not getting
sold.
Now yes, I am overstating the case, yes there is Bolivian
gas going to Brazil, yes, it is going to Argentina, et cetera,
but not as much as it should have, and they should have been
the first mover in South America that would capture those
markets, capture those patterns of trade and allow them to
really establish the terms of discussion.
They haven't done that. But I think if you extrapolate that
more broadly, you could see and you later on, now some of the
changes again that we talked about in North America, some of
the changes in Asia, some of the finds we see that we have seen
in the Middle East et cetera, et cetera you have a region that
is rich in resources that might simply miss the boom because of
politics, and that is a concern to all of us.
Mr. Salmon. This discussion has been increasingly engaging
and I don't want to cut anyone off. I believe Mr. Pinon, you
wanted to talk and then I am going to close with Mr. Sires'
last question. But you guys have been phenomenally well-spoken
in giving us your thoughts and ideas, and I think we could
probably go on for another couple of hours, and none of us
would be bored. We are really enjoying this, so I don't want to
clamp it off. We have got another few minutes, Mr. Pinon, and
then I will go close with Mr. Sires.
Mr. Pinon. Just one comment, we haven't talked about the
Guyana basin. We have today Guyana and Surinam who probably
have 15 billion barrels of reserves offshore. And I was just
recently in Georgetown, and those countries are not ready to
what is coming for them. We really have to keep an eye on both
Guyana and Surinam because they have huge resources. And if
they do discover oil, we need to be there.
The other one is Uruguay. Already, international oil
companies are moving offshore Uruguay. By the way Bolivia is
looking now at moving gas LNG via barges down the Parana
because they are now really being landlocked.
So all that I am saying is that the Western Hemisphere and
Latin America is going to be a lot of fun, and we look forward
to come down here often and share with you our thoughts on the
region. Thank you.
Mr. Salmon. Mr. Sires.
Mr. Sires. Mr. Chairman, this has certainly been a very
informative hearing today, and I thank you for putting it
together. But I have to end it with disagreeing with you a
little bit about these countries' adopting. I think some of
these leaders are making too much money. You look at the
Nicaragua, whole family is multi millionaires. These people
were in the mountains years ago. So I don't think they get it
for their people. Some of these people are getting very, very
wealthy in this whole process. And to adopt, and they are going
to have to adopt, I am sorry, I disagree with you. That is just
the way I think. Thank you for the hearing.
Mr. Salmon. Thank you so much, Mr. Sires. And thank you so
much. We are in an exciting crossroads right now, and I think
that we have phenomenal opportunities if we but use them, and
it is totally win-win.
Mr. Radel, you mentioned earlier I believe on some of the
issues of illegal immigration we are talking about. Is it not
one of the best things that we could do to stave off some of
those problems to prop up Mexico's economy or help them to be
more successful?
That having been said, their economy is growing at about 7
percent and their unemployment rate is lower than ours, and I
have heard that they are about to employ a U.S. guest worker
program in Mexico.
So thank you very much for being here today. We appreciate
your attendance, and we appreciate your wonderful comments and
intellect. Thank you very much. This meeting is now adjourned.
[Whereupon, at 4:55 p.m., the subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing RecordNotice deg.
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Material submitted for the record by the Honorable Matt Salmon, a
Representative in Congress from the State of Arizona, and chairman,
Subcommittee on the Western Hemisphere