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Monica_55905 Oct 08

The leading role of the energy sector post-pandemic

The leading role of the energy sector post-pandemic image
Since the COVID 19 pandemic was declared, using the fabulous regional leadership space that being Executive Secretary of the Latin American Energy Organization offers me, I have been in charge of working on the role of the energy sector in the economic recovery of Latin America and the Caribbean. (ALC). Something that we have shared in its approach with industry leaders and regional and global strategic partners (the Inter-American Development Bank, the International Energy Agency, the International Renewable Energy Agency, among others). The concept behind the work with our partners is to use the necessary investments in infrastructure in the region aimed at accelerating energy transitions, modernizing the energy sector, digitizing it, decarbonizing our economies, and taking advantage of the abundant resources (renewable and non-renewable) that the region has, as a dynamic engine of the post-pandemic regional economy and generator of jobs.

The main global economies have committed significant resources to inject investment and financing for economic reactivation. Energy infrastructure is one of the channels chosen to promote this sustainable reactivation. In 2020 the 50 largest global economies announced a total of $ 14.6 trillion, of which $ 314 trillion of planned investment is earmarked for the energy sector and green recovery.

However, our region starts from a completely different situation. The LAC economies were in weak fiscal positions before January 2020 and with very low growth levels or even recession, with the economies based on their extractive industries being the most affected comparatively. In this context, the debt space or public resources were destined to meet health needs.

However, many countries in the region began to identify that the role and participation of private investment in the energy sector, the prospects at the level of new technologies, the development of energy infrastructure that allows expanding the penetration of renewable sources, digitization systems, innovation, regional energy integration, the use of natural resources and disruptive technologies would have a special impact on job creation and economic reactivation.

A few weeks ago, the first solar concentrating plant in our region was inaugurated in Chile. In the last six months, several LAC countries have already launched their strategies for incorporating hydrogen as an energy vector, in many cases with the vision of becoming exporters of the fuel in the future. Sustainable mobility is already part of the sectoral policies of many countries and work is being done on schemes for the reconversion and decarbonization of transport.

New processes aimed at incorporating generation capacity from renewable sources, regulatory modernization to promote greater digitization, distributed generation or energy storage are being incorporated in many countries. Additionally, LAC has begun to think about the role that the so-called critical minerals (copper, lithium, nickel, cobalt and rare earths) will have, necessary to enable energy transitions.

We have signs of the beginning of a path to project a gradual economic recovery that includes the energy sector in its critical path. However, even when we have some good signals, that trajectory is not uniform, nor does it often achieve temporal continuity.

What this pandemic leaves us is that development gaps will surely widen between regional economies. We will go back in many of the spaces gained at the level of human development indicators, including the universalization of access to energy and the affordability of energy services by our population and thus again the most vulnerable sectors will be the most affected as a result of this global crisis.

As you observed, I initially focused on the concept of sustainable recovery, intentionally leaving aside the role of hydrocarbons and fossil fuels for the end of this discussion. I have always maintained that hydrocarbons are present in the future energy development of Latin America and the Caribbean. This reality that refers to the validity of oil and its derivatives and natural gas, even for decades, is not contradictory to the fact that there should be efforts to decarbonize global economies and reduce the emission of greenhouse gases.

In the post-pandemic scenario, the role of natural gas in Latin America to energize and expand regional markets and reduce carbon intensity in many energy end uses and in electricity generation will be a fundamental element in decarbonization strategies. On the other hand, in the scheme of relatively high oil prices that are currently observed, the viability for the exploration and exploitation of unconventional oil and gas resources available in the region will possibly boost the flow of investments in our region (provided that there is the legal and institutional security necessary to guarantee these investments).

Another element that we must add to this approach is that many of the major players in the hydrocarbon sector are on the road to being energy companies and in some cases they have already spoken in favor of establishing carbon pricing schemes. These elements will gradually have an impact on our region, on investments and on the repositioning of companies. The point here is that the hydrocarbon sector may have to leave its comfort zone and innovate in new business models, cross-cutting opportunities and technologies, among others.

The viability of a green recovery in the rest of the world is closely associated with ensuring the competitiveness of renewable energy sources. That in essence would not be compatible with a scenario of low oil prices. But the reader must be careful in interpreting this previous statement, the future price scenario is not alien to what can be observed at a geopolitical level with the incorporation of new oil supply from the potential lifting of sanctions and the position of offer adopted by large producers, aspects that will be present in the short and medium-term scenario.

In short, energy transitions, digitization, disruptive technologies have the potential to generate jobs, boost economies and support the development of new value chains in Latin America and the Caribbean. On the other hand, hydrocarbons (gas and oil) will also make a substantial contribution to the economic recovery of the region.

The great challenge is to be able to fix in decision makers, public and private, this vision of the leading role that the energy sector can potentially have in the post-pandemic and continue to build effective strategies for this purpose.

Greetings from Quito-Ecuador.

Alfonso Blanco OLADE Executive Secretary