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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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A Tumultuous Year for South America’s Oil Industry

  • Brazil leads South America's oil production surge with record output, while Venezuela experiences a brief economic upturn amidst political tensions.
  • Argentina's shale oil boom coincided with an economic crisis and political shifts under President Milei, whereas Colombia faces challenges with declining production amid civil unrest.
  • Guyana has emerged as a new player in the region's oil scene, attracting attention from major oil companies and potentially being a source of geopolitical uncertainty.
Argentina oil

Last year, 2023, was a tumultuous period for South America’s oil industry. Increased recognition of climate change saw regional governments push to reduce emissions and implement policies aimed at enhancing environmental protection. Elevated geopolitical instability along with increased regulatory scrutiny and tax hikes further impacted the continent’s oil industry. Meanwhile, Guyana and Brazil’s mega-offshore oil booms garnered considerable attention from Big Oil and governments across the world, notably the leaders of the OPEC oil cartel who fear losing control of petroleum prices. South America is once again emerging as a hydrocarbon producing powerhouse with many regional countries, including Guyana and Brazil, reporting record production during 2023. Here are last year’s key developments for South America’s top four oil producers.

#4 Argentina

Argentina, South America’s second largest economy with gross domestic product (GDP) of $622 billion for 2023, is the continent’s fourth largest oil producer. The country, which is undergoing an epic shale oil and gas boom, is once again engulfed in a catastrophic economic crisis. The severity of the economic disaster unfolding in Argentina is underscored by 2023 inflation surging to a multidecade high of 211.4% (Spanish) to top Venezuela’s 190% giving the country the world’s second highest annual inflation rate after Lebanon. The worsening crisis, which can be blamed on the blunders of successive Peronist administrations, saw political outsider and self-described anarcho-capitalist Javier Milei win Argentina’s 2023 presidential election Related: EU Carbon Prices Tumble to More Than Two-Year Low

Immediately upon taking office, President Milei started implementing economic shock therapy aimed at stabilizing the economy and taming rampant inflation. These, nonetheless, come with considerable risk and caused December 2023 inflation to spike to a historical monthly high of 25.5%. As President Milei unwinds complex capital controls, slashes fiscal spending and dials down costly energy as well as transport subsidies, there will be considerable financial fallout. There are fears that as those measures are implemented the cost of living along with the unemployment rate will spiral higher sparking protests and potentially triggering another political crisis. This is occurring despite the considerable economic windfall delivered by Argentina’s burgeoning unconventional oil boom, which will be given a significant boost by Milei’s energy policies.

Data from Argentina’s Ministry of Economy data shows December 2023 oil production hit an all-time high of 699,684 barrels per day, with natural gas output falling 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 for August 2023. The ongoing exploitation of the 7.5-million-acre Vaca Muerta shale formation is responsible for this solid growth with shale oil for December 2023 comprising nearly 53% of all petroleum lifted in Argentina. Indeed, unconventional oil output crossed the halfway mark for the first-time during October 2023. Meanwhile, 58% of natural gas produced during that period was extracted from shale. 

Buenos Aires views the Vaca Muerta as a silver bullet for Argentina’s catastrophe prone economy which is locked in an exaggerated boom and bust cycle. The shale play, which analysts claim is superior to many U.S. formations, will experience further production growth as state-controlled YPF and foreign drillers invest in the Vaca Muerta. YPF, which plans to spend $5 billion to $6 billion annually, is in the process of divesting aging mature oilfields so it can focus on the abundant shale oil and gas acreage in the Vaca Muerta. Foreign energy majors are also ramping up investment in Argentina’s unconventional oil acreage. This will boost production to a forecast peak of 2.2 million barrels per day by 2035. While Milei’s controversial policies could finally lift Argentina out of economic crisis, the Vaca Muerta oil boom will boost GDP, improve the balance of trade and bolster fiscal income.

#3 Venezuela

Last year saw a series of stunning breakthroughs for Venezuela, the pariah South American state, which prior to Hugo Chavez’s 1999 socialist Bolivarian revolution was the continent’s largest oil producer. In an unanticipated development U.S. President Joe Biden, during October 2023, broadly eased sanctions against Venezuela for a six-month period in exchange for guarantees of free and democratic 2024 presidential elections. This allowed Caracas to recommence extracting and exporting petroleum as well as receive payment for oil sales. It occurred after the White House, in November 2022, authorized supermajor Chevron to resume lifting oil in Venezuela for export to the United States. 

For those reasons, Venezuela’s petroleum output and subsequently oil dependent economy grew at a solid clip during 2023. Over the course of 2021, as the COVID-19 pandemic waned, OPEC data shows Venezuela pumped an average of 553,000 barrels per day, which by 2023 had risen by a notable 35% to 749,000 barrels per day. During December 2023, Venezuela’s petroleum output hit a multi-year high of 786,000 barrels per day. This was responsible for a material increase in economic activity with 2023 GDP expanding by 4% and the IMF forecasting 4.5% growth for 2024. Rising petroleum production will bolster government coffers, while allowing national oil company PDVSA to fund the rebuilding of ramshackle oil infrastructure which is currently impeding further production growth.

Nonetheless, there are signs Venezuela’s recovery may be short lived. Authoritarian President Maduro, during 2023, ramped up saber rattling against neighboring Guyana and Venezuela’s claims to the Essequibo region, even threatening to invade the contested region. Indeed, at the end of 2023 there were genuine fears Maduro would use the sham referendum, which found in favor of incorporating the Essequibo into Venezuela, as a pretext to invade the territory. This attracted the ire of many regional powers, notably the U.S. and Brazil, while the UK, in a sign of solidarity, sent a warship to its former colony. Maduro is using the Essequibo dispute to pressure Venezuela’s opposition and as a distraction from upcoming presidential elections, which if free and democratic will see his regime removed from power. The dictatorial regime accused key opposition figure Maria Corina Machado of acting corruptly with energy supermajor Exxon to launder money and undermine Caracas’ claim to the Essequibo.

Earlier this year Maduro’s authoritarian government went as far as to ban Machado, who won a primary to become the opposition’s unity candidate for 2024, from holding public office for 15 years, on what are tenuous grounds. This has sparked considerable speculation the Biden administration will not renew sanctions relief after April 2024 deadline. The U.S. State Department in a warning issued to Venezuelan after Machado’s ban stressed the sanctions relief will only be renewed if Caracas meets its commitment to free and fair elections. It is unlikely Maduro will follow through on that promise, with open democratic elections likely leading to his removal from power, leading to the reimposition of U.S. sanctions.

#2 Colombia

Last year was tumultuous for Colombia’s oil industry after an already troubled 2022. The strife-torn Andean country’s first ever leftist president Gustavo Petro, who assumed office on August 7, 2022, continued with his agenda to wean Colombia off its fossil fuel dependence. Key to Petro’s plan was to cease awarding new contracts for hydrocarbon exploration and banning hydraulic fracturing or fracking. That aggressive plan to support the push to renewable energy coupled with November 2022 tax hikes targeting extractive industries caused 2023 hydrocarbon investment to tumble. Peak industry body the Colombian Petroleum Association (ACP – Spanish initials) claims that private hydrocarbon investment fell by a third during 2023. 

During 2023 Colombia’s petroleum industry was rocked by civil dissent and rising violence. A significant portion of which was driven by growing environmental concerns among communities impacted by oil spills and other forms of environmental degradation as well as the failure of some drillers to maintain a solid social license. Violent protests engulfed Sinopec subsidiary Emerald Oil in the department of Caqueta during March 2023 which saw police and company employees taken hostage. Community blockades and other protests are common in the Putumayo Basin and other remote oil producing regions such as the department of Arauca, with those events disrupting industry operations thereby causing oil production to fall.

Soaring cocaine production, which hit another all-time high for 2022, is responsible for heightened violence and lawlessness in many remote regions where the petroleum industry operates. This further impedes exploration and production activities while responsible for surging oil theft from Colombia’s network of pipelines. Cenit, a subsidiary of national oil company Ecopetrol which operates Colombia’s oil pipelines, estimates 65% of the stolen petroleum is destined for use in the manufacture of cocaine, with it processed into a crude form of gasoline. You see, substantial volumes of gasoline are required to extract the coca leaf alkaloid which is the key precursor required to manufacture cocaine. Cenit claims to have reduced oil theft by 36% during 2023 through the deployment of drones, pipeline pressure sensors and the deployment of army patrols to monitor pipelines.

Those events are sharply impacting Colombia’s oil industry. Production, since the 2020 COVID-19 pandemic, is seemingly caught in a never-ending decline spiral. Data from Colombia’s petroleum regulator, the National Hydrocarbon Agency (ANH – Spanish initials), shows the country pumped an average of 776,817 barrels of petroleum and 1.1 billion cubic feet of natural gas per day during 2023. While this ranks Colombia as the second largest oil producer in South America it is well-below the 885,863 barrels per day reported for 2019. It is unlikely that Colombia’s petroleum production will grow significantly and return to pre-pandemic levels, particularly with higher industry taxes, heightened geopolitical uncertainty and rising insecurity deterring foreign energy investment.

#1 Brazil

While the members of OPEC+, notably Saudi Arabia, have been cutting oil production, Brazil which is South America’s largest producer has been reporting record output. Data from the hydrocarbon regulator, Brazilian National Agency for Petroleum, Natural Gas and Biofuels (ANP – Portuguese initials) shows the country produced an average of 4.3 million barrels of oil equivalent per day during 2023. This was slightly more than 10% higher compared to a year earlier and the first time for Brazil to pump over four million barrels of oil equivalent with petroleum making up 78% or 3.4 million barrels of the country’s total output. This ranks Brazil as the world's seventh largest oil producer behind China and ahead of OPEC member United Arab Emirates. 


The federal government in Brasilia plans, through the Potencializa E&P program, to lift petroleum output to 5.4 million barrels per day by the end of this decade. If the country, which is South America’s largest economy, achieves that lofty target it will overtake Canada to become the world’s fourth largest oil producer. Despite that requiring a massive 54% increase in production, there are indications that Brazil possesses the hydrocarbon potential to achieve such an ambitious target. For December 2023, South America’s largest economy lifted almost 3.6 million barrels of oil and 5.6 billion cubic feet of natural gas per day. While that is 2.5% and 3.4% lower than the record production highs hit during November 2023, there is ample evidence that Brazil’s hydrocarbon output will continue growing at a steady clip. Foreign energy investment continues flowing into Brazil’s gigantic offshore oil boom which is driven by the country's immense pre-salt oil reservoirs, which comprise 77% of proven reserves totaling 14.9 billion barrels.

While inflows of foreign capital are crucial to developing Brazil’s immense offshore oil potential, it is national oil company Petrobras which is leading the charge to develop the country’s offshore hydrocarbon basins. The integrated energy major plans to invest $102 billion, which is 31% higher than previous plan, between 2024 and 2028, with 72%, or $73 billion, of that amount earmarked for exploration and production activities. That considerable spending will fund the drilling of 50 exploration wells along with more than 350 production development wells while allowing 14 new floating production storage and offloading (FPSO) vessels to be deployed. Petrobras estimates this will boost the company’s production by 14% between 2024 and 2028 to 3.2 million barrels of oil equivalent per day. 

Petrobras’ mammoth spending coupled with large inflows of private foreign energy investment point to Brasilia achieving its goal of lifting petroleum production to 5.4 million barrels by 2029. This will see Brazil overtake Canada to become the world's fourth largest producer behind Saudi Arabia. In a shock development, underscoring the threat posed by Brazil’s oil boom and growing production, the OPEC+ consortium, toward the end of 2023, invited South America’s largest petroleum producer to join the group. The federal government in Brasilia accepted the invitation joining the oil cartel during January 2024, although Brazil will not be subject to production quotas. This is a major coup for the oil cartel and strengthens its ability to influence global energy prices.

By Matthew Smith for Oilprice.com

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