Energy security is one of our world’s greatest challenges, and the decisions the United States and the rest of the world make in the next few years will be with us for generations to come.  The energy challenge is broad.  It is a matter of national and economic security; it is an issue that impacts business; and — most importantly — it is an issue that affects our families.  Families are feeling their budgets squeezed by higher prices at the pump and larger utility bills.

Some of the most important energy challenges facing the United States and Latin America include: high oil and natural gas prices, declining production in traditional areas, vulnerable infrastructure and political instability in traditional production areas, security concerns for production and distribution infrastructure, and inadequate refining capacity.

Energy security in our hemisphere can be improved with policies that expand energy supplies, increase efficiency of energy production and consumption, encourage the use of the most environmentally responsible technologies, enhance the transparency and efficient operation of energy markets, and strengthen the capacity to respond to oil supply disruptions.

In the United States, we are striving to be better producers and consumers of energy through our efforts to promote conservation and to expand and diversify our supply sources.  We are working to make energy efficiency improvements in our homes, places of work and modes of transportation. 

While energy exists in a world market, U.S. energy security is served by working with our partners in the Western Hemisphere to ensure that we all produce at optimal levels and that our infrastructure development and energy consumption occurs at the most efficient levels and in the most efficient ways. 

We believe that all countries are best served by a strong, stable hemisphere.  We also believe that a strong, stable and prosperous hemisphere is created by all countries basing their energy development, transportation and use on market reliance; by employing forward-looking policies that proactively address the energy challenges of today and tomorrow; and by using the best technologies and a broad range of energy resources to give consumers the best choices.

One positive example of a government’s ongoing effort to increase energy investment is in Colombia.  Facing the prospect of becoming a net oil importer, Colombia took effective steps to improve their investment climate in 2003.  In an effort to increase transparency and spur exploration, the Colombian government created the National Hydrocarbons Agency (ANH, in Spanish) to administer the sector, a responsibility previously under the control of state-owned oil company, Ecopetrol.  As a result, Ecopetrol now competes on a level playing field with private companies, and oil companies may now assume up to 100% of investment and risk activities in all exploration and production contracts.  Royalties changed from a 20% flat rate to a sliding scale, starting at 8% for smaller production amounts increasing to 20% as production grows.  The Colombian government also established innovative new methods of working with companies to address security concerns, invested significant amounts of money to provide improved geological information and set out a number of strategic objectives.  The goal of this initiative was to provide new incentives to investors to return to Colombia and explore its vast and virtually unexplored resource base.  These reforms have successfully attracted new investment to Colombia.

Another positive development can be seen in Peru.  Over the last few years, the government awarded new licenses under a revised contract structure, companies have moved forward with exploration and production plans, and progress on the Camisea gas project and Liquefied Natural Gas (LNG) project continues.  The giant Camisea gas fields located in the Peru contain at least 11 Tcf of natural gas and as much as 30 Tcf, and will provide supplies to the U.S. market either directly to regasification sites on the U.S. West Coast or via facilities under construction in Mexico.  The expansion of gas supply from South America to Mexico and the United States and the new LNG facilities in Mexico are a great example of the benefits of increased hemispheric energy security for our economies.

As of 2007, Latin America provided the United States with a third of its imported oil.  The region is also a significant and a potentially larger source of natural gas. Trinidad and Tobago provide the United States with 70% of its imported LNG.  And there is great market potential from oil gas reserves in Mexico, Peru, Bolivia and Venezuela.  Undiscovered oil and gas in the Western Hemisphere is estimated at 30% and 20% of the world’s undiscovered resources, respectively.

While these countries work to get their valuable oil and gas reserves into the energy market place, some Latin nations are making great strides on alternative energy sources.  For example, Brazil’s commitment to ethanol in the transportation sector is a well-documented model for many countries.  Brazil has been a leader in the region on creating the right regulatory and fiscal incentives to expand the use of ethanol and other non-traditional energy sources.

Diversity of energy supplies remains a major challenge in Latin America.  For example, petroleum accounts for more than 90% of the energy consumption in Caribbean countries.  Oil has long been a major fuel for Caribbean power plants.

In the global drive not to become too dependent on any one energy source, the United States and Latin American countries should vigorously pursue policies that will diversify their sources of energy while still increasing the standard of living for their growing populations.  As demand for fuel and power also grows, Western Hemisphere cooperation on energy at the highest levels of business and government is critical.

Key to that cooperation is recognizing that the solutions to our energy challenges include strong trade relationships with our Latin American allies.  As the Institute’s recent open letter to the 44th President and 111th Congress states, expanded trade and the elimination of tariff and non-tariff barriers are necessary for a more resilient energy market.

Creating an energy market that draws upon a broad range of energy sources and technologies will also help the United States, Latin America and other countries preserve the environment.  In the near-term, the United States will work with other countries on a sound, global framework that addresses climate change and that is compatible with the economic aspirations of the world’s developing nations.

The nations of the Western Hemisphere want a more secure energy future and it depends in large part on the ability of the private sector to invest and develop new sources of traditional and renewable sources of energy.  Our policymakers must recognize that the business of energy is essential for the economic success of this hemisphere.