Last year, 2023, was a turbulent time for the South American oil industry. With the growing awareness of climate change, the region** is driving to reduce emissions and implement policies aimed at enhancing environmental protection. Increased geopolitical instability, coupled with increased regulatory scrutiny and tax increases, has further affected the oil industry on the South American continent. At the same time, the big offshore oil booms in Guyana and Brazil have attracted a lot of attention from major oil companies and countries around the world, especially the leaders of the OPEC oil cartel who are worried about losing control of oil. South America is once again a major producer of hydrocarbons, with many regional countries, including Guyana and Brazil, reporting record production in 2023. Here's a look at the key developments from South America's four largest oil producers over the last year.
4 Argentina
Argentina is the second-largest economy in South America, with a GDP of $622 billion in 2023, making it the fourth-largest oil producer on the continent. The country is experiencing an epic shale oil and gas boom, plunging into another catastrophic economic crisis. In 2023, inflation in Argentina soared to 211The multi-decade high of 4 percent, surpassing Venezuela's 190 percent, making it the world's second-highest annual inflation rate after Lebanon, underscores the severity of Argentina's economic disaster. The aggravation of the crisis can be attributed to the mistakes of successive Peronists, with Javier Milley, a political outsider and self-proclaimed no-capitalist who won Argentina's 2023 elections.
Immediately after taking office, Milley began implementing economic shocks aimed at stabilizing the economy and curbing rampant inflation. Still, these pose considerable risks and cause inflation to soar to 25 in December 20235% all-time monthly high. With Milley** removing complex capital controls, cutting fiscal spending, and lowering expensive energy and transportation subsidies, there will be considerable fiscal implications. There are fears that as these measures are implemented, the cost of living and unemployment will spiral, triggering a ** and possibly another political crisis. This is still happening despite the sizable economic windfall from Argentina's booming unconventional oil boom, which Milley's energy policy will give a big boost.
In December 2023, ** production hit an all-time high of 699684 barrel per day, and natural gas production fell to a 10-month low of just under 4.2 billion cubic feet per day, well below the all-time high of 5.1 billion cubic feet recorded in August 2023, according to the Ministry of Economy. The ongoing exploitation of the 7.5 million acres of Vaca Muerta shale formations was responsible for the steady growth of shale oil in December 2023, which accounted for nearly 53% of the total oil extracted in Argentina. In fact, unconventional oil production broke through half of the mark for the first time in October 2023. At the same time, 58% of the natural gas produced during this period was extracted from shale.
Buenos Aires sees Vaca Muerta as a panacea for Argentina's catastrophic economy mired in an exaggerated boom-and-bust cycle. Analysts say production from the shale block, which outperforms many U.S. formations, will grow further with investments in Vaca Muerta by state-controlled YPF and foreign drillers. The YPF plans to spend between $5 billion and $6 billion a year and is divesting aging mature fields in order to focus on the rich shale oil and gas area of Vaca Muerta. Foreign energy giants are also increasing their investment in Argentina's unconventional oil sector. This would bring production to a peak of 2.2 million b/d in 2035. While Milley's controversial policies may eventually lift Argentina out of its economic crisis, the vaca muerta oil boom will boost GDP, improve the balance and increase fiscal revenues.
3 Venezuela
Last year, the South American country of Venezuela made a series of astonishing breakthroughs. Before 1999, Venezuela was the largest oil producer on the South American continent. In an unexpected development, Joe Biden of the United States broadly eased sanctions against Venezuela for six months during October 2023 in exchange for free and democratic guarantees of the 2024 elections. This allowed Venezuela to restart extracting and exporting oil, as well as receiving payments for oil sales. This happened after the White House authorized supergiant Chevron to resume extracting oil from Venezuela for export to the United States in November 2022.
For these reasons, Venezuela's oil production and the subsequent oil-dependent economy grew at a steady rate in 2023. In 2021, as the coronavirus pandemic waned, OPEC data showed that Venezuela mined an average of 5530,000 barrels of oil, a figure that has risen significantly by 35% to 74 in 202390,000 barrels. In December 2023, Venezuela's oil production hit a record of 78A multi-year high of 60,000 b/d. This is the reason for the significant growth in economic activity, with GDP growing by 4% in 2023 and 4% in 20245%。Growing oil production will prop up the ** coffers, while allowing the national oil company PDVSA to fund the reconstruction of the crumbling oil infrastructure that is currently hampering further production growth.
Still, there are signs that Venezuela's recovery may be short-lived. In 2023, Maduro stepped up the threat of force against neighboring Guyana and Venezuela's claims to the Essequibo region, which drew the ire of many regional powers, notably the United States and Brazil, while the United Kingdom sent a ship to its former colony in a show of solidarity. Maduro is using the Essequibo dispute to put pressure on the Venezuelan opposition, with Maduro accusing the main opposition figure of María Corinna Machado of corrupt practices with energy giant Exxon, laundering money and undermining Venezuela's sovereignty over the Essequibo region. Earlier this year, Maduro's ** even barred Machado from public office for 15 years on feeble grounds. Machado won the 2024 primary election as a candidate for opposition unity. This has sparked considerable speculation that Biden** will not extend the sanctions relief after the April 2024 deadline. After the Machado ban was issued, the United States*** issued a warning to Venezuela, emphasizing that sanctions will only be lifted if Venezuela fulfills its commitment to free and fair elections.
2 Colombia
After an already troubled 2022, last year was a tumultuous one for the Colombian oil sector. The first leftist **petro in the history of the conflict-torn Andean country, who took office on August 7, 2022, continues to carry out his agenda to wean Colombia off its dependence on fossil fuels. Key to the Petro plan is to halt the awarding of new hydrocarbon exploration contracts and to ban fracking or fracking. This aggressive plan to support renewable energy development, coupled with a tax hike for extractive industries in November 2022, led to hydrocarbon investment in 2023**. The Colombian Petroleum Institute, the peak industry body, claims that private hydrocarbon investment fell by a third in 2023.
During 2023, Colombia's oil industry has been hit by civil dissent and rising violence. Much of this is due to growing environmental concerns from communities affected by oil spills and other forms of environmental degradation, as well as the failure of some drillers to maintain a stable social permit. Community lockdowns and other ** activities are common in other remote oil-producing areas such as the Putumayo Basin and Arauca, and these events have disrupted industry operations, resulting in a decline in oil production.
Soaring cocaine production hit an all-time high in 2022, which is the reason for the increase in violence and lawlessness in many remote areas where the oil industry operates. This has further hampered exploration and production activities, while also leading to a surge in oil theft in Colombia's pipeline network. Cenit, a subsidiary of Ecopetrol, the national oil company that operates the Colombian oil pipeline, estimates that 65% of the stolen oil will be used to make cocaine and process it into crude gasoline. The extraction of coca leaf alkaloids requires large amounts of gasoline, and coca leaf alkaloids are the key precursors needed to make cocaine. Cenit claims that oil theft was reduced by 36% during 2023 by deploying drones, pipeline pressure sensors and deploying army patrols to monitor pipelines.
These events are seriously affecting Colombia's oil industry. Since the pandemic in 2020, production seems to have fallen into an endless downward spiral. In 2023, the country extracted an average of 7768.17 million barrels of oil and 1.1 billion cubic feet of natural gas. While Colombia is the second-largest oil producer in South America, it is well below the 88 reported in 201958.63 million barrels per day. Colombia's oil production is unlikely to grow significantly and return to pre-pandemic levels, especially as higher industrial taxes, heightened geopolitical uncertainty and rising insecurity hinder foreign energy investment.
1 Brazil
While OPEC+ members, especially Saudi Arabia, have been cutting oil production, Brazil, South America's largest oil producer, has seen record production. In 2023, the country produced an average of 4.3 million barrels of oil equivalent per day, according to the hydrocarbon regulator Brazil's National Agency for Oil, Gas and Biofuels (ANP). This figure is slightly more than 10% higher compared to the same period last year and is also the first time that Brazil has extracted more than 4 million barrels of oil equivalent, of which** it accounts for 78% of the country's total production, or 3.4 million barrels. This makes Brazil the world's seventh-largest producer**, behind China and ahead of OPEC member the United Arab Emirates.
Brazil** plans to increase oil production to 5.4 million b/d by the end of the decade through the Potencializa E&P program. If South America's largest economy achieves this lofty goal, it will overtake Canada as the world's fourth-largest oil producer. While this would require a significant 54% increase in production, there are signs that Brazil has the hydrocarbon potential to achieve this ambitious target. In December 2023, South America's largest economy extracted nearly 3.6 million barrels of oil and 5.6 billion cubic feet of natural gas per day. Although this is 2. below the all-time production high set in November 20235% and 34%, but there is ample evidence that Brazil's hydrocarbon production will continue to grow steadily. Foreign energy investment continues to flow into Brazil's vast offshore oil boom, fueled by the country's huge pre-salt reservoirs, which account for 77% of proven reserves, totaling 14.9 billion barrels.
While the inflow of foreign capital is critical to exploiting Brazil's vast offshore oil potential, Petrobras is leading the development of the country's offshore oil and gas basins. The integrated energy giant plans to invest US$102 billion between 2024 and 2028, 31% higher than the previous plan, of which 72%, or US$73 billion, is dedicated to exploration and production activities. This significant expenditure will be used to drill 50 exploratory wells and more than 350 production development wells, while allowing for the deployment of 14 new floating production storage and offloading vessels. Petrobras estimates that this will increase the company's production by 14% between 2024 and 2028 to 3.2 million barrels of oil equivalent per day.
Petrobras' huge spending, combined with a large inflow of private foreign energy investment, indicates that Brazil has achieved its goal of increasing oil production to 5.4 million barrels by 2029. This would make Brazil the world's fourth-largest oil producer after Saudi Arabia, overtaking Canada. Shockingly, the OPEC+ consortium invited South America's largest oil producer to join the group at the end of 2023, highlighting the threat posed by Brazil's oil boom and production growth. Brazil** accepted the invitation to join OPEC in January 2024, although it will not be subject to production quotas. This is a major change for OPEC+ that strengthens its ability to influence global energy**. (Compiled by Xiao Chen).
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