Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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Visiting Brazil – the energy issue

by Shannon K. O'Neil
June 28, 2007

Energy is not just an important domestic policy issue in Brazil, but has also been a key element of its foreign policy. While Brazil has an admirable mix of energy sources – including hydroelectric, natural gas, oil, and ethanol – it has struggled and continues to struggle with potential energy shortages. These limits led to energy rationing in 2001, hitting the Cardoso government hard in the polls and providing Lula with an effective campaign issue in the 2002 Presidential race.

During the 1990s these energy needs spurred an active foreign policy promoting energy integration with South America. In particular, Petrobras invested heavily in Bolivia to increase its supply of natural gas. It also reached out to Argentina and others, increasing both commercial and political ties through energy interdependence.

Yet now in 2007, energy-based integration is dying. Despite rhetoric to the contrary by South American leaders, the time for deepening energy ties has passed. Argentina has shut out Chile in these last few months from its gas sources, encouraging the Chilean government to look abroad. Peru has decided that it will sell any surplus gas to Mexico and the United States, rather than its local neighbors. And for Brazil, recent events in Bolivia have pushed both Petrobras and the government away from diversifying regionally. Instead, the country has turned to developing its own natural gas supplies, as well as bringing in liquid natural gas – LNG – from sources other than Latin America.

This changing energy plan will likely significantly influence Brazil’s foreign policy. Brazil’s stated South-South diplomacy focus is faltering, due in no small part to the limitations in the area of energy security. These domestic economic realities are pushing the government to engage with a broader set of nations – including the United States and European nations. While currently led by Lula himself (and his March agreement with President Bush on ethanol), these economic needs will pressure the famously independent Foreign Ministry as well in the months to come. This trend bodes well for Brazil, which should be able to diversify its energy sources and provide for the future. It bodes poorly for Bolivia, as its largest energy investor and client turns outward. And it means that the studies for a regional gas pipeline spanning South America will remain just that, limiting yet again integration in the region.

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  • Posted by Sam Logan

    Brazil has already presented itself as a stumbling block for regional integration on a number of levels. The Bank of the South, without Brazilian involvement, has little chance of a real future as the Brazilian development bank BNDES is the biggest local investor in South America.

    Regarding electricity, Brazil’s largest problem is her energy champion – Petrobras. As a company, Petrobras is reticent to allow private energy companies invest in Brazil’s natural gas development because all the pipelines that carry natural gas from Bolivia and from smaller Brazilian-based sources are owned by Petrobras. This company does not want private, smaller companies taking advantage of what is considered state-owned infrastructure. Yet to maintain a monopoly on this infrastructure is placing short-sighted profiteering motive ahead of the country’s future energy needs. Plans to dam a number of rivers in southern Brazil have been put on hold. And as we’ve seen, Bolivia cannot be trusted.

    Something has to give, and the first signs of Petrobras’ victory or capitulation will be seen in Brasilia, where politicians continue to debate over a bill that would force Petrobras to open its gas pipeline infrastructure to private use…

    Meanwhile, only six of 100 Brazilian senators have not been accused of corruption. The Pan American games has given all here an excuse to talk about something else, and the current crisis with aviation security overshadows all other political concerns…

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