Latin America: Energy Supply, Political Developments, and U.S. Policy Approaches

Prepared for Members and Committees of Congress

Western Hemisphere countries supply the United States with 50% of its imported crude oil. Three
countries in the hemisphere—Canada, Mexico, and Venezuela—account for the lion’s share.
Other significant oil producers in the region include Ecuador, Colombia, Brazil, Trinidad and
Tobago, and Argentina.
In terms of proven oil reserves, the Western Hemisphere has about 24% of reserves worldwide.
After Canada, Venezuela has the second largest amount of proven oil reserves in the hemisphere,
almost 87 billion barrels, but this does not include as much as 270 billion barrels of extra-heavy
and bitumen deposits from the Orinoco belt. If these deposits became recoverable, Venezuela’s
proven reserves would exceed those of Saudi Arabia. In terms of natural gas, the United States
has the largest amount of proven reserves in the hemisphere, about 39%, followed by Venezuela,
almost 31%. Canada, Trinidad and Tobago, and Bolivia also have sizeable reserves. Almost all of
the gas imported by pipeline into the United States comes from Canada, while Trinidad and
Tobago accounted for about 58% of U.S. liquified natural gas imports in 2007.
While oil and gas producers such as Venezuela, Mexico, Argentina, Bolivia, Colombia, Ecuador,
and Trinidad and Tobago are net energy exporters, most other Latin American and Caribbean
nations are net energy importers. Moreover, with the exception of Trinidad and Tobago, most
Caribbean and Central American nations are highly dependent on energy imports.
High oil prices have spurred the rise of resource nationalism in several Latin American energy-
producing countries, which has raised concerns about access to energy resources and political
interference with the level of energy production and investment in the region. Such nationalism is
often fueled by poverty, and appears to be strongest in countries where people believe that they
are not benefitting from the exploitation of their countries’ natural resources. Yet many analysts
assert that such nationalism is a logical outcome of higher energy prices, and is similar to the
actions by energy-producing countries around the world that want to capture more of the profit
from their natural resources.
This report examines Latin America’s current political environment and its apparent effect on
energy production in the region. It also discusses efforts to help many Latin American and
Caribbean countries dependent on energy imports, including Venezuela’s preferential oil
programs, the Mexico-led Meso-American Energy Integration Program, and U.S.-Brazilian
cooperation on biofuels. The report also examines policy approaches that have been proposed for
increased hemispheric energy cooperation, congressional interest in the topic of hemispheric
energy security, and related legislative initiatives: S. 193 (Lugar), the Energy Diplomacy and
Security Act of 2007, and S. 1007 (Lugar), the United States-Brazil Energy Cooperation Pact of

2007. This report will be updated to reflect legislative action.

Introduc tion ..................................................................................................................................... 1
Energy and Latin America’s Political Environment........................................................................5
Ve ne zuela .................................................................................................................................. 7
Bolivia ..................................................................................................................................... 10
Brazil ........................................................................................................................................ 11
Ecuador ........................................................................................................................ ........... 12
Mexico .................................................................................................................................... 12
Support for Countries Dependent on Energy Imports..................................................................13
Venezuela’s “Oil Diplomacy”.................................................................................................14
Mexico and the Meso-American Energy Integration Program...............................................15
U.S.-Brazilian Cooperation on Biofuels.................................................................................15
Policy Approaches on Energy Cooperation...................................................................................16
Congressional Interest...................................................................................................................17
Legislative Initiatives..............................................................................................................19
Figure 1. Map of Latin America and the Caribbean........................................................................5
Table 1. U.S. Crude Oil Imports from Western Hemisphere Countries, 2007...............................2
Table 2. Western Hemisphere: Proven Oil and Gas Reserves, January 1, 2008.............................3
Table 3. Western Hemisphere Oil Production, 2006 and 2007........................................................4
Author Contact Information..........................................................................................................20

The United States is the top oil consumer in the world, consuming some 20.7 million barrels of
oil per day (mbd) in 2006, according to Department of Energy statistics, with net oil imports 2
accounting for 12.3 mbd or almost 60% of the total. Western Hemisphere countries supplied the
United States with about 46% of total crude oil and petroleum product imports and almost 50% of
U.S. crude oil imports in 2007. Three countries in the hemisphere—Canada, Mexico, and
Venezuela—account for the lion’s share of U.S. crude oil imports from the region while other
Latin American and Caribbean countries account for the balance. Other significant oil producers
in the region include Ecuador, Brazil, Colombia, Trinidad and Tobago, and Argentina. (See Table


In terms of proven oil reserves, the Western Hemisphere has some 321 billion barrels, about 24%
of reserves worldwide. Canada leads the pack with almost 179 billion barrels, with over 95% of
its oil extracted from Alberta’s tar sands, which is replacing output from aging conventional
fields. Venezuela is second in the hemisphere with 87 billion barrels of proven oil reserves. This
figure does not, however, include as much as 270 billion barrels of extra-heavy and bitumen
deposits from the Orinoco Belt in central Venezuela, though proven oil reserves will likely 3
amount to no more than 20% of this amount once the deposits are certified as recoverable. Other
countries with significant oil reserves include the United States, with about 21 billion barrels,
Brazil and Mexico, with about 12 billion barrels each, and Ecuador, with almost 5 billion barrels
of reserves. Cuba also potentially has almost 5 billion barrels of reserves in the deep waters of the
Gulf of Mexico, but these are still not proven. (See Table 2.)
Western Hemisphere nations, including the United States, produced about 17.2 million barrels of
oil per day (mpd) in 2007, amounting to almost 24% of worldwide production. The top producers
were the United States (5.1 mpd), Mexico (3.1 mpd), Venezuela (almost 2.4 mpd), and Canada
(2.6 mpd). Oil production in a number of countries declined in 2007, including in Venezuela,
where the government has asserted majority control over projects with foreign oil company
participation, and in Mexico, where production and reserves have been falling for the last several
years, largely because of depletion of the Cantarell oil field in the shallow waters of the Gulf of
Mexico. In several other countries, however, such as Canada and Brazil, oil production has been
increasing. The outlook appears good for Brazil to increase its oil reserves and production
substantially. (See Table 3.)
The United States is the top consumer of natural gas in the world, with about 23.1 trillion cubic
feet (tcf) consumed in 2007, and net gas imports of about 3.8 tcf or almost 16% of total U.S.
natural gas consumption. Canada accounted for the almost all of the 3.8 tcf in natural gas
imported by pipeline in 2007, while a small amount was imported from Mexico. Trinidad &
Tobago accounted for 0.5 tcf in U.S. liquified natural gas (LNG) imports in 2007, about 58% of 4
total U.S. LNG imports, while other LNG suppliers included Egypt, Nigeria, and Algeria.

1 Statistics in this section are drawn from “Worldwide Look at Reserves and Production,” Oil & Gas Journal,
December 24, 2007, as well as information from the U.S. Energy Information Administration (EIA), available at
2 U.S. Energy Information Administration,United States Energy Profile,” April 21, 2008.
3 U.S. Energy Information Administration, “Country Analysis Briefs: Venezuela,” October 2007.
4 U.S. Department of Energy, Energy Information Administration, Natural Gas Monthly, March 2008, Tables 1 and 4.

Table 1. U.S. Crude Oil Imports
from Western Hemisphere Countries, 2007
(Annual, Thousands of Barrels)
Annual, Percentage of Total U.S.
Thousand Barrels Crude Oil Imports
Canada 680,834 18.62
Mexico 514,480 14.07
Venezuela 419,841 11.48
Ecuador 72,138 1.97
Brazil 60,975 1.67
Colombia 50,099 1.37
Trinidad & Tobago 17,608 0.48
Argentina 12,156 0.33
Guatemala 3,975 0.11
Peru 1,841 0.05
Bolivia 1,257 0.03
Belize 250 0.01
Total, Western Hemisphere 1,835,454 50.20
Total, U.S. Imports Worldwide 3,656,170 100.00
Source: U.S. Department of Energy, Energy Information Administration
In terms of proven natural gas reserves, the Western Hemisphere has 545 tcf, or almost 9% of
total world reserves. The United States has the largest share of proven natural gas reserves in the
hemisphere, with 211 tcf or 39% of the hemisphere’s total, followed by Venezuela, with reserves
of 166 tcf, Canada with 58 tcf, Bolivia with almost 27 tcf, and Trinidad and Tobago with almost

19 tcf. (See Table 2.)

Table 2. Western Hemisphere:
Proven Oil and Gas Reserves, January 1, 2008
Proven Oil Reserves Proven Natural Gas Reserves
(billion barrels) (trillion cubic feet)
Argentina 2.587 15.750
Barbados .002 .005
Belize .007
Bolivia .465 26.500
Brazil 12.182 12.280
Canada 178.592 58.200
Chile .150 3.460
Colombia 1.506 4.342
Cuba .124a 2.500
Ecuador 4.517
Guatemala .083
Mexico 11.650 13.850
Peru .382 11.928
Suriname .088
Trinidad & Tobago .728 18.770
United States 20.972 211.085
Venezuela 87.035b 166.260
Total, Western Hemisphere 321.071 544.930
Total, World 1,331.698 6,185.693
Source: “Worldwide Look at Reserves and Production,” Oil & Gas Journal, December 24, 2007.
a. This amount does not include an estimated 4.6 billion barrels of undiscovered oil in the deep offshore oil
reserves in the Gulf of Mexico north of Cuba. See U.S. Geological Survey, “Assessment of Undiscovered Oil
and Gas Resources of the North Cuban Basin, Cuba, 2004,” Fact Sheet 2005-3009, February 2005.
b. This amount does not include as much as 270 billion barrels of extra-heavy recoverable reserves in the
Orinoco Belt in central Venezuela.
The Western Hemisphere produces more than 80% of the world’s biofuels, led by Brazil 5
producing ethanol from sugar and the United States producing ethanol from corn. In 2006, the
United States was the largest producer of ethanol, with almost 4.9 billion gallons, followed
closely by Brazil with 4.5 billion gallons; together, the two countries produced 69% of ethanol in
the world. Brazil became the largest source for U.S. ethanol imports in 2006, supplying 434
million gallons. Several Caribbean and Central American countries—Costa Rica, El Salvador,
Jamaica, and Trinidad and Tobago—exported smaller amounts of ethanol to the United States that 6
together totaled about 220 million gallons in 2006. Several other countries in the region produce

5 Inter-American Development Bank (IDB), A Blueprint for Green Energy in the Americas, April 2007, p. 7.
6 Renewable Fuels Association, “Industry Statistics, online at

ethanol, but largely for their domestic markets, while several countries have expanded investment
in biodiesel production, including Colombia, which has focused on palm oil, and Brazil.
Table 3. Western Hemisphere Oil Production, 2006 and 2007
2006, Actual 2007, Estimated Change from 2006
(1,000 b/d) (1,000 b/d) (%)
Argentina 640.5 630.0 -1.6
Barbados 0.9 0.8 -11.1
Belize —
Bolivia 44.8 44.0 -1.8
Brazil 1,722.3 1,760.0 2.2
Canada 2517.2 2,645.0 5.1
Chile 10.0 10.0
Colombia 527.5 525.0 -0.5
Cuba 38.7 39.0 0.9
Ecuador 534.6 500.0 -6.5
Guatemala 16.1 15.0 -7.1
Mexico 3,256.3 3,135.0 -3.7
Peru 115.6 114.0 -1.3
Suriname 13.2 14.8 12.5
Trinidad and Tobago 142.8 122.0 -14.5
United States 5,101.7 5,135.0 0.7
Venezuela 2,561.7 2,390.0 -6.7
Total, Western Hemisphere 17,243.6 17,079.6 -1.0
Total, World 72,647.0 72,361.0 -0.4
Source: “Worldwide Look at Reserves and Production,” Oil & Gas Journal, December 24, 2007.

Figure 1. Map of Latin America and the Caribbean
Source: Map Resources. Adapted by CRS. (K. Yancey 10/16/06)

High oil prices have spurred the rise of resource nationalism in several Latin American countries,
which has raised concerns about access to energy resources and political interference with the
level of energy production and investment in the region. Such nationalism often develops as a
response to conditions of poverty, and appears to be strongest in countries where people believe

that they are not benefitting from the exploitation of their countries’ natural resources. Yet many
analysts assert that such nationalism is a logical outcome of higher energy prices and closely
follows the actions taken by energy-producing countries around the world that want to capture 7
more of the profit from their natural resources.
The populist government of Hugo Chávez in oil-rich Venezuela has asserted firmer state control
over the state-run oil company, Petróleos de Venezuela (PdVSA), steering more of its proceeds to
fund the government’s infrastructure projects and social programs and asserting government
control over foreign investment in the petroleum sector in Venezuela. The government of Evo
Morales in Bolivia has fulfilled his campaign pledge of nationalizing the significant natural gas
sector, calling for foreign companies to be “partners, not owners” of the country’s gas resources.
Ecuador has moved to capture more of the windfall profits from foreign oil companies operating
in the country, and in May 2006 terminated the contract of Occidental Petroleum after a long
dispute over whether the company had broken laws in selling some of its oil-drilling rights in
Ecuador to a Canadian firm. In Peru, which is poised to become a significant exporter of natural
gas, the 2006 electoral victory of former President Alan García over Ollanta Humala, an admirer
of Hugo Chávez, eased international concerns about the future development of Peru’s energy
sector. In Mexico, the main energy issue is how to deal with declining oil reserves and
insufficient funds for maintenance and exploration, and whether Mexico will open its state-
controlled oil production to private and foreign investment.
Because of rising resource nationalism, foreign oil companies in a number of Latin American
countries are having to pay more to do business in terms of increased taxes and royalties. Some
observers fear that this could slow foreign investment in the region’s energy sectors, which is
already hindered by political and social instability in some countries. Others contend that foreign 8
companies will continue to invest where there is a likelihood of profit. Some energy-producing
countries in the region, such as Brazil and Colombia, continue to follow a capitalist model for
energy investment that allows foreign companies to own and operate energy concessions.
Nevertheless, across the region, there is continuing underinvestment in energy infrastructure, with 9
some analysts maintaining that many countries are at risk for widespread electricity shortages. In
the case of Colombia, the situation has been exacerbated by a long civil conflict that makes
resource exploitation difficult and costly.
There has been some concern about the potential for heightened competition for Latin American
energy resources from countries like China and India, which are seeking new sources for their
growing energy needs. The Chinese government has been acquiring interests in exploration and
production abroad, including in Latin America. China and Venezuela have signed a series of
energy-related agreements since 2005, including joint ventures for oil and gas exploration in
Venezuela and to increase Venezuela’s supply of oil to China. The state-run China Petrochemical
Corporation (Sinopec) signed an agreement in April 2006 with Brazil’s Petrobras to build a
natural gas pipeline linking the northeast and southeast of Brazil. China is also exploring energy
deals in Ecuador, Bolivia, Peru, and Colombia, as well as offshore projects in Argentina and
Cuba. India has recently begun to increase its energy assets in Latin America by pursuing joint

7 Steven Dudley, “High Prices an Incentive for Tighter State Control,Miami Herald, July 5, 2006; Sara Miller Llana,
“Latin America Demands More for Its Oil and Gas,Christian Science Monitor, April 9, 2007.
8The Shape of Leftwing Economic Polices in the Region,” Latin American Economy & Business, January 2006.
9 “Latin America Forecasts: Energy in 2006,” in Latin American Advisor, Latin American Forecasts: 2006, Inter-
American Dialogue, Washington, D.C., January 2006.

ventures with established public and private companies operating in the region. For example,
ONGC Videsh (OVL), a state-owned Indian energy company, recently bought a 15% stake in a
Brazilian oil field and a 30% stake in a partnership for oil and gas exploration in Cuba. The same
company is discussing a possible $1 billion investment in a Venezuelan oil field. In 2006, Sinopec
and ONGC issued a successful joint bid for a 50% stake in the Omimex oil company of
Colombia, a subsidiary of the U.S.-based Omimex Resources energy company.

Since Venezuela is the fourth major supplier of foreign oil to the United States (after Canada,
Saudi Arabia, and Mexico) providing 11.5% of U.S. crude oil imports, a key U.S. interest has
been ensuring the continued flow of oil from that country. Venezuela’s state-oil company PdVSA
also owns Citgo, which operates three crude oil refineries and a network of some 14,000 retail
gasoline stations in the United States. Although the United States traditionally has had close
relations with Venezuela, there has been tension in relations under the rule of President Hugo
Chávez, first elected in 1998. U.S. officials and human rights organizations have expressed
concerns about the deterioration of democratic institutions and threats to freedom of speech and
press under the Chávez government.
The Chávez government has benefitted from the rise in world oil prices, which has increased
government revenues and sparked an economic boom. As a result, Chávez has been able to
increase government expenditures on anti-poverty and other social programs associated with his
populist agenda. On April 15, 2008, the government approved a measure that would tax foreign
oil companies 50% when crude oil reaches $70 a barrel; the tax would rise to 60% when oil 11
exceeded $100.
Under President Chávez, the Venezuelan government has moved head with asserting greater
control over the country’s oil reserves. By March 2006, the Venezuelan government completed
the conversion of its operating agreements with foreign oil companies in marginal or low-yielding
oilfields into joint ventures with PdVSA majority ownership. Of the original 32 operating
agreements, 25 are now joint ventures, with PdVSA holding a majority share of between 60-80%.
Five of the operating agreements were voluntarily turned over to PdVSA, and two operations, run
by France’s Total and Italy’s ENI, were confiscated by the government after the companies
rejected the terms proposed by Venezuela. Under the new joint ventures, income taxes were
raised to 50% (from 34%) and are retroactive to 2001 in compliance with a hydrocarbons law 12
enacted in 2000.
In 2007, the government completed the conversion of four strategic associations involving extra-
heavy oil Orinoco River Basin projects. Six foreign companies had been involved in the
projects—U.S.-based ConocoPhillips, Chevron, and ExxonMobil, Norway’s Statoil-Hydro,
Britain’s BP, and France’s Total. In the conversion to Venezuelan government majority
ownership, Chevron and BP maintained their previous investments, Total and Statoil-Hydro 13
reduced their holdings, while ConocoPhillips and ExxonMobil chose to leave the projects.

10 For additional information, see CRS Report RL32488, Venezuela: Political Conditions and U.S. Policy, by Mark P.
11 “Venezuela Passes Tax on Oil Companies,New York Times, April 16, 2008.
12 Economist Intelligence Unit, “Venezuela Country Report,” June 2006.
13 U.S. Energy Information Administration, “Country Analysis Briefs: Venezuela,” October 2007.

However, Statoil-Hydro, Total, and Italy’s Eni have signed agreements that could result in 14
additional investments in the Orinoco Belt projects.
ExxonMobil has been in a high-profile dispute with the Venezuelan government over
compensation to be paid by Venezuela for its oil investments in the country. The company filed a
request in 2007 for arbitration with the World Bank-affiliated International Center for Settlement
of Investment Disputes. ExxonMobil initially won a UK court order in January 2008 freezing as
much as $12 billion in Venezuelan oil sector assets, but this was overturned by a UK High Court 15
order on March 18, 2008. ExxonMobil, however, also previously had won court orders in the
Netherlands and Netherlands Antilles freezing up to $12 billion in Venezuelan assets, and in
February 2008, a U.S. federal court in New York upheld a freeze of $300 million in PdVSA 16
According to some critics, majority state ownership in the oil sector has reportedly slowed the
rate of foreign investment. Production also has reportedly not been able to recover from the firing
of some 18,000 PdVSA employees in early 2003 and from continued underinvestment in 17
maintenance and repairs. PdVSA announced in early April 2008 that it would raise output to 3.5
million barrels a day (mbd), up from 3.15 mbd in 2007, but other sources, including the 18
International Energy Agency, put 2007 production at far less, just 2.4 million mbd. Some oil
analysts also question whether PdVSA is prepared to take over operation of the heavy oil fields in 19
the Orinoco.
Despite notable frictions in bilateral relations, Venezuela continues to be a major supplier of oil to
the United States. Oil and related products accounted for some 96% of Venezuela’s exports to the 20
United States in 2007. Some 65% of Venezuela’s oil exports were destined for the United States 21
in 2006, highlighting the dependency of Venezuela on the U.S. market. Even though Venezuela
opposed the Bush Administration’s Operation Iraqi Freedom, the Chávez government announced
before the military conflict that it would be a reliable wartime supplier of oil to the United States.
On numerous occasions, however, Chávez has threatened to stop selling oil to the United States.
In February 2006, he asserted that the “U.S. government should know that, if it crosses the line, it 22
will not get Venezuelan oil.” In April 2006, he warned that his government would blow up its oil 23
fields if the United States ever were to attack. In November 2006 (amid Venezuela’s presidential

14 Benedict ManderVenezuelas Oil Belt Reopens to Private Groups,” Financial Times, March 11, 2008.
15 Robert Perkins, “UK Court Overturns Asset Freeze on PdVSA,Platts Oilgram News, March 19, 2008.
16 “U.S. Court Upholds Freeze of Venezuelan Oil Firm’s Assets, EFE News Service, February 13, 2008.
17 Danna Harman, “Venezuelas Oil Model: Is Production Rising or Falling?,” Christian Science Monitor, May 31,
18Worldwide Look at Reserves and Production,” Oil & Gas Journal, December 24, 2007; Jack Chang and Kevin G.
Hall, “Falling Oil Production a Challenge for Chávez, Miami Herald, March 22, 2008;Venezuela: PdVSA-
ExxonMobil Tensions Continue,” Oxford Analytica, April 9, 2008.
19 Juan Forero, “Venezuela Set to Assume Control of Its Oil Fields, Washington Post, May 1, 2007.
20 World Trade Atlas, utilizing Department of Commerce Statistics.
21Venezuela Energy Profile,” Energy Information Administration, April 21, 2008, available at
22U.S. Warned to Back off or Risk Losing Oil Supply,” Miami Herald, February 18. 2006; “Chávez Threatens To Cut
Oil in Case U.S.Crosses Line,’ Open Source Center, Foreign Broadcast Information Service, February 18, 2006.
23 “Chávez Says He’ll Blow up Oil Fields If U.S. Attacks,Miami Herald, April 20, 2006.

election campaign), President Chávez asserted that Venezuela would “not send one more drop of
oil to the U.S.” if the United States or its “lackeys” in Venezuela try a “new coup,” fail to
recognize the elections, or try to overthrow the oil industry. Many observers believe Chávez’s
threats have been merely part of his rhetoric that is designed to bolster his domestic political
support. Venezuela’s Ambassador to the United States asserted in July 2006 that oil-cutoff
comments by Venezuelan officials, including President Chávez, only reflect what would be 24
Venezuela’s response against aggression initiated by the U.S. government. Once again in
February 2008, President Chávez once again threatened to stop oil exports to the United States,
this time if ExxonMobil was successful in freezing billions in Venezuela oil assets in a dispute
over compensation for its Orinoco oil investments. State Department officials played down the 25
threat, pointing out that Chávez has made the same threat in the past, but has never cut oil. A
week later, on February 17, Chávez said that he would only stop sending oil if the United States 26
attacked Venezuela.
Because of these comments, however, some observers have raised questions about the reliability
of Venezuela as a major supplier of foreign oil. There are also concerns that Venezuela is looking
to develop China as a replacement market, although Venezuelan officials maintain that they are
only attempting to diversify Venezuela’s oil markets. Energy analysts maintain that there are two
major difficulties with Venezuela substantially increasing its exports to China: first, China’s
limited capability to refine Venezuela’s heavy crude oil, and second, high freight costs because of 27
the large distance between the two countries. Nevertheless, PdVSA announced in May 2006 that
it would buy 18 oil tankers from China that would help Venezuela increase its oil exports to Asia.
The U.S. Energy Information Administration (EIA) estimates that Venezuela’s oil exports to
China grew from 39,000 bpd in 2005 to 80,000 bpd in 2006, low compared to Venezuela’s oil
exports to the United States, which amounted to 1.41 million bpd in 2006. According to the EIA,
“the U.S. market will likely remain Venezuela’s most important market for the foreseeable 28
In June 2006, the Government Accountability Office (GAO) issued a report, requested by Senate
Foreign Relations Committee Chairman Richard Lugar, on the issue of potential Venezuelan oil
supply disruption. The GAO report concluded that a sudden loss of all or most Venezuelan oil
from the world market could raise world prices up to $11 per barrel and decrease U.S. gross
domestic product by about $23 billion. It also concluded that if Venezuela does not maintain or
expand its current level of oil production, then the world oil market may become even tighter than 29
it is now, putting pressures on both the level and volatility of energy prices. Energy analysts
maintain, however, that Venezuela, which is dependent on the U.S. oil market, would plunge into
economic chaos if it ceased oil shipments to the United States. Venezuela’s Ambassador to the
United States Bernardo Alvarez rejected the idea that his country would take unilateral action to

24 Andy Webb-Vidal,Venezuela Will Not Cut Off Oil Despite Hostile U.S. Attitude,” Financial Times, August 1,
25 Benedict Mander, “U.S. Shrugs Off Chávez Threat Over Oil,Financial Times, February 12, 2008.
26 “Venezuela: Chávez Dials Back Threat to Halt Oil,Los Angeles Times, February 18, 2008.
27 Andy Webb-Vidal,Cvez on Oil Export Mission in China, Financial Times, August 24, 2006.
28Country Analysis Briefs: Venezuela, Energy Information Administration, October 2007.
29 U.S. Government Accountability Office,Energy Security: Issues Related to Potential Reductions in Venezuelan Oil
Production,” GAO-06-668, June 2006.

cut oil exports to the United States as absurd. He maintains that oil exports provide revenues to 30
the Venezuelan government “that are vital for its programs and essential to its very viability.”

Bolivia boasts the second-largest natural gas reserves in Latin America, but lacks the expertise
and resources necessary to develop and export its gas resources. Industry experts say Bolivia
needs technical assistance and billions of dollars in foreign direct investment (FDI) to better
exploit its natural gas reserves. Bolivia’s chronic instability, combined with President Evo
Morales’ decision to nationalize the gas industry in May 2006, have negatively impacted FDI in
the country’s oil and gas sectors. A lack of investment in exploration has meant that Bolivia has
been unable to fulfill its increasing domestic demand for gas and meet its supply commitments to
Argentina and Brazil. The Bolivian government expects recent investment pledges from several 32
state-owned energy companies to boost production by 2009.
The gradual realization that Bolivia has neither the technological nor financial capacity to exploit
its natural gas reserves on its own has forced President Morales to moderate the terms under 33
which he carries out the nationalization of his country’s hydrocarbons industry. Morales’ sudden
nationalization move significantly raised energy costs for neighboring Argentina and Brazil and
increased tax and royalty rates for companies operating in Bolivia to a level that some investors
perceive to be unprofitable. It prompted Brazil’s Petrobras and Spain’s Repsol—the largest
foreign investors in Bolivia’s energy sector—to halt all new investments in the country. It has
since become apparent that Bolivia’s state-run oil company, Yacimientos Petroliferos e Fiscales
Bolivianos (YPFB), which has had five presidents in the last two years, lacks the expertise and 34
the resources necessary to develop and export the country’s gas resources.
Some progress has been made, however. Most of the foreign companies operating in Bolivia
eventually signed new contracts to carry out joint ventures with YPFB and new investors have
pledged to invest in exploration and production projects. In May 2007, President Morales
authorized YPFB to form partnerships with new state-owned oil and gas companies. State oil
companies from a number of countries (including Petrobras and Repsol) have pledged to make
$1.5 billion in investments in Bolivia in 2008. While most of the initial investments made were
limited to maintaining existing projects, Petrobras began a new $40 million exploration project in 35
southeastern Bolivia in February 2008.

30 Andy Webb-Vidal, “Caracas Rejects U.S. Probe into Its Oil Policy,Financial Times, July 11, 2006.
31 For additional information, see CRS Report RL32580, Bolivia: Political and Economic Developments and Relations
with the United States, by Clare Ribando Seelke.
32 Richard Lapper et al, “Bolivia Stumbles on Road to Riches from Natural Gas,Financial Times, March 7, 2008.
33 “Latin America: Nationalism Revived,Economist Intelligence Unit - Business Latin America, April 16, 2007.
34 “Morales Names New Head of Struggling Bolivian State Energy Company,Associated Press, March 13, 2008.
35 Monte Reel, “Bolivia’s Irresistible Reserves,” Washington Post, February 10, 2008; “Brazil’s Petrobras Resumes
Investments in Bolivia,” Latin America News Digest, February 27, 2008.

Recent oil and gas discoveries may soon transform Brazil, already a leader in biofuels production,
into a major exporter of petroleum products. Brazil currently has a fairly balanced energy matrix,
with some 65% of its power generated by hydroelectric plants. It also has significant oil and gas
reserves, nuclear energy, and a successful alternative energy program. Petrobras, Brazil’s state-
owned oil company, is a leading energy company in Latin America, particularly in the area of
deep water drilling. In November 2007, Petrobras announced the discovery of what may be the 37
world’s largest oil field find in several years. In mid-April 2008, Brazilian officials announced a 38
second potentially large offshore oil discovery.
Brazil has already reduced its dependency on foreign oil imports by becoming the world’s largest
consumer and producer of ethanol from sugar cane, which now supplies some 40% of the
country’s motor fuel. Brazil’s sugar-based ethanol is considered more efficient and
environmentally friendly than corn-based derivatives produced in the United States. Ethanol use
has accelerated since 2003 in Brazil, when automakers introduced “flex fuel” motors that are
designed to run on ethanol, gasoline, or a mixture of the two. In 2007, flex fuel vehicles 39
accounted for some 86% of new vehicles sold in Brazil.
Brazil’s experience with ethanol has not come without its share of problems, however. For
instance, Brazil has at times had to import large amounts of ethanol when its sugarcane crop has
been damaged by drought or simply fallen short of rising demand. In addition, critics say the
expansion of sugarcane production has occurred in areas previously used for cattle ranching and
soybean production, displacing some farmers into the Amazon rainforest. Finally, human rights
groups argue that the increasing demand for sugarcane has put undue pressure on the peasants 40
forced to harvest the sugar under extremely difficult working conditions.
The primary weakness in Brazil’s energy sector has been the country’s over-reliance on natural
gas from neighboring Bolivia. Some 50% of the gas used in Brazil flows from Bolivia. Both
Petrobras and the Brazilian government seemed surprised when the Bolivian government 41
nationalized that country’s natural gas industry in May 2006. In response, Petrobras halted all
new investments in Bolivia and dramatically sped up efforts to exploit Brazilian natural gas
supplies, which appears to be working in Brazil’s favor. In February 2008, Petrobras announced
the discovery of a natural gas field in the Santos Basin of Brazil that could be as large as the oil
field it discovered nearby in the fall of 2007. As a result, while Petrobras is continuing to make
limited investments in Bolivia’s gas industry in order to ensure that Brazil’s short-term natural gas 42
needs are met, those investments may be scaled back over the medium to long term.

36 For additional information, see CRS Report RL33456, Brazil-U.S. Relations, by Clare Ribando Seelke and
Alessandra Durand, and CRS Report RL34191, Ethanol and Other Biofuels: Potential for U.S.-Brazil Energy
Cooperation, by Clare Ribando Seelke and Brent D. Yacobucci.
37 “Brazils Now a Hot Commodity, Los Angeles Times, January 3, 2008.
38 Brent Radowitz, “Petrobras Reports Major Offshore Oil Find, Wall Street Journal, April 15, 2008.
39Brazil Ethanol Demand Rises About 50% in 2007,” Reuters, February 19, 2008.
40With Big Boost From Sugar Cane, Brazil is Satisfying Its Fuel Needs,” New York Times, April 10, 2006; David
Teather, “Inside Brazil: The Ethics of Ethanol,” Guardian, March 14, 2008.
41Bolivia’s Populism Steps on Brazil,” Christian Science Monitor, May 8, 2006.
42 “Petrobras Makes Big Gas Find Near Tupi, Oil Daily, January 23, 2008.

Oil is extremely important to Ecuador’s economy, accounting for more than 50% of exports. High
oil prices fueled an economic growth rate of 4.2% in 2006, but declining production levels
resulted in growth of only about 1.5% in 2007. Production by Petroecuador, the state-owned oil
company, has fallen by 50% in the last ten years, and a lack of capital has forced the company
into a deep financial crisis. Petroecuador has reported losing some $200 million per year in 44
production due to protests and other community-related problems.
The government of President Rafael Correa, a leftist economist who took office in January 2007,
is seeking to increase state control over the energy sector. In October 2007, President Correa
issued a decree that increased the Ecuadorian state’s share of windfall oil revenues from 50% to
99% unless companies were willing to switch from production sharing agreements to new service
contracts controlled by Petroecuador. Though the Correa government has reportedly moderated
its position during the contract negotiations, many investors and foreign companies operating in 45
Ecuador are concerned about the general direction of the government’s policies. Private
companies have long experienced problems investing in the Ecuadorian oil industry, stemming
from the country’s chronic instability and tendency for conflicts with private producers.
President Correa supports the prior government’s May 2006 termination of its contract with the
U.S. firm Occidental Petroleum (Oxy) over an alleged breach of contract, a controversial move
which is currently in dispute settlement. In November 2007, the Ecuadorian government initiated
new legal proceedings against Occidental and City Oriente, another U.S.-owned oil company, for 46
allegedly failing to pay their windfall oil taxes.
Mexico was the third largest supplier of crude oil to the United States in 2007 after Canada and
Saudi Arabia, accounting for 14.1% of U.S. imports in 2007. Oil continues to be important for the
Mexican economy, accounting for almost 16% of overall exports in 2006, and with the state-oil
company, Petróleos Mexicanos (Pemex), contributing more than a third of the federal 47
government’s budget. In part because of the government’s heavy fiscal demands, Pemex has had
financial difficulties, with its debt increasing and the company registering an annual operating
loss since 1998. In 1938, Mexican President Lázaro Cárdenas nationalized the oil sector and
created Pemex. Cárdenas is still revered as a national hero for his action, and Mexicans today are
largely opposed to altering the government’s control of the oil sector.

43 For additional information on Ecuador, see CRS Report RS21687, Ecuador: Political and Economic Situation and
U.S. Relations, by Clare Ribando Seelke.
44 “DJ Petroecuador Ex-President: Company Faces Deep Financial Crisis, Dow Jones Commodities Service, February
10, 2006; “Oil Sector Protests Become Norm in Ecuador,” Platts Oilgram Price Report, March 26, 2007; Ecuador
Says State Oil Company in Crisis,” EFE, November 29, 2007.
45 “Oil and Mining Companies Faced Renewed Contract Uncertainty in Ecuador, Global Insight Daily Analysis,
November 13, 2007.Ecuador Nears Finish Line on Contract Talks with Foreign Companies, International Oil Daily,
March 11, 2008.
46 “Ecuador: Deteriorating Climate,EIU- Business Latin America, December 10, 2007.
47 Trade statistics are from the World Trade Atlas, utilizing Mexican government statistics.

There are concerns, however, that Mexico’s proven oil reserves are declining because of
insufficient funds available for maintenance and exploration. The Cantarell field in the Gulf of
Mexico, which accounts for almost two-thirds of Mexico’s crude oil production, is in steep
decline. In March 2006, the Mexican government announced a new oil find in the Gulf of Mexico
off the coast of Veracruz that could hold 10 billion barrels, but it will take substantial investment
and up to a decade to bring it into production. Pemex reportedly does not have the money or the 48
expertise to tap billions of barrels of oil in the deep waters of the Gulf.
During the 2006 presidential campaign, Felipe Calderón called for a limited opening of Pemex to
allow it to negotiate freely with private companies, while his leftist rival Andrés Manuel López
Obrador opposed any opening of Pemex to private interests. Given the closeness of the race, with
Calderón defeating Obrador by less than a quarter million votes, energy reform was not at the top
of President Calderón’s agenda, especially given the sensitive nature of the issue among
After more than a year in office, on April 8, 2008, President Calderón proposed to the Mexican
Congress some limited measures to allow Pemex to contract out to foreign companies to help
with exploration, and allow private companies to build and operate refineries, pipelines, and
storage facilities. The proposal, which was dubbed a “light reform” by industry analysts,
prompted strong political opposition from the leftist opposition, led by Andrés Manuel López
Obrador, that has literally blockaded Mexico’s Congress, paralyzing its work. López Obrador has 49
vowed to continue the blockade until the spring session ends on April 30, 2008. Some analysts
maintain that since the proposal does not include any proposals for profit sharing, even if it was
approved, it might not attractive the foreign investment needed to stem Pemex’s production 50

While oil and gas producers such as Venezuela, Mexico, Argentina, Bolivia, Colombia, Ecuador,
and Trinidad and Tobago are net energy exporters, most other Latin American and Caribbean 51
nations are net energy importers. With the exception of Trinidad and Tobago, most Caribbean
and Central American nations are highly dependent on energy imports. According to the
Department of Energy, oil dependency is a major problem among Caribbean island nations, where 52
oil accounts for more than 90% of total energy consumed.

48 Elisabeth Malkin, “Output Falling in Oil-Rich Mexico, and Politics Gets the Blame, New York Times, March 9,
49 Elisabeth Malkin, “Mexico Proposes Limited Overhaul of State Oil Monopoly,” New York Times, April 10, 2008;
James C. McKinley Jr. And Antonio Betancourt,Oil Bill Protest Shuts Mexican Congress, New York Times, April
19, 2008; “Factbox – Mexico Energy Reform Debate,” Reuters News, April 21, 2008.
50 “Mexico Industry: Energy ReformLight, EIU ViewsWire, April 10, 2008.
51 International Energy Agency, “Map Energy Indicators, Latin America, Net Imports,” available at
52 House International Relations Committee, Hearing on “Western Hemisphere Energy Security,” Testimony by Karen
A. Harbert, “Assistant Secretary for Policy and International Affairs, U.S. Department of Energy, March 2, 2006.

Many of these nations that are dependent on oil imports experienced dramatic increases in their
oil bills after oil price hikes began in 2005 and prompted such initiatives as Venezuela’s
preferential oil programs; the Mesoamerican Energy Integration Program involving Mexico,
Colombia, the Dominican Republic, and the countries of Central America; and U.S.-Brazilian
cooperation on biofuels.
President Chávez has used so-called “oil diplomacy” to provide oil to Latin American and
Caribbean nations on preferential terms, and there has been some U.S. concern that Venezuela is
using these programs to increase its influence in the region.
In a program known as PetroCaribe launched in 2005, Venezuela is providing oil to a number of
Caribbean Basin nations on preferential terms, and there has been some U.S. concern that these
programs could increase Venezuela’s influence in the region. Since 1980, Caribbean nations have
benefitted from preferential oil imports from Venezuela and Mexico under the San José Pact, and
since 2001, Venezuela has provided additional support for Caribbean oil imports under the
Caracas Energy Accord. PetroCaribe, however, goes further with the goal of putting in place a
regional supply, refining, and transportation and storage network, and establishing a development
fund for those countries participating in the program. Under the program, Venezuela is offering to
supply 190,000 barrels per day of oil to the region on preferential terms. When oil prices are over
$50 a barrel, 40% of the volume is financed over 25 years at an annual interest rate of 1%.
Most Caribbean nations are signatories of PetroCaribe, with the exception of Barbados and
Trinidad and Tobago. In Central America, Nicaragua and Honduras joined PetroCaribe in 2007.
Venezuela also signed an accord with Bolivia in mid-April 2008 under which it will provide some
8,300 bpd to the Andean nation through a joint venture known as PetroAndina. In the United
States, Venezuela has provided subsidized oil through Citgo, a subsidiary of PdVSA, to low-53
income families in 23 states plus the District of Columbia.
In addition to these preferential oil arrangements, Venezuela is investing in energy sectors in
several Latin American countries. Chávez has pledged to invest $1.5 billion in Bolivia’s gas
industry. Ecuador and Venezuela have signed agreements for joint development in oil, gas,
refining, and petrochemical sectors. In 2005, PdVSA signed an agreement to build an oil refinery
in northeastern Brazil. Construction on the 200,000 bpd refinery began in September 2007, and is
to be supplied with oil from both Brazil and Venezuela when it begins operations in 2010.
Colombia and Venezuela signed an agreement in July 2006 initiating a gas pipeline project that
would initially supply gas to Venezuela from northern Colombia, and then reverse the flow once
Venezuela develops its own natural gas reserves. Argentina and Venezuela also announced an
alliance in July 2006 involving cooperation on hydrocarbon exploration and development in both
countries. In Cuba, PdVSA helped refurbish an oil refinery in Cienfuegos, and has signed an 54
exploration and production agreement with Cupet, Cuba’s state-oil company.

53 For information on the Citgo program, see
54 “Venezuela: Oil Revenues Boost International Influence,Oxford Analytica, July 19, 2006.

In December 2005, then-Mexican President Vicente Fox and the Central American presidents at
that time met in Cancun to sign a Meso-American Energy Integration Program (PIEM), which
built upon the Plan Puebla Panama (PPP), an integration and sustainable development program
for the region that was launched in 2001. Colombia was officially accepted to the PPP process in
mid-July 2006 and, as an energy producer, has a particular interest in the energy integration
projects occurring as part of the PIEM.
The PIEM consists of two key initiatives. The first, which has received funding from the Inter-
American Development Bank (IDB) and the Central American Economic Integration Bank,
involves constructing an electricity transmission line to connect Panama to Guatemala. The
transmission line, known as the Central American Electrical Connection System (Siepac), is
currently under construction and expected to be operational by 2009. Separate efforts are
underway to connect Colombia with Panama and Guatemala with Mexico. The other main
component of the PIEM involves the construction of a new refinery to be located somewhere in
Central America at a cost that could reach as high as $7 billion. As planned, Mexico will supply
the bulk of the crude oil to be processed, which will first go to satisfy the other signatories’
energy needs, with surplus exported outside the region. In April 2007, President Calderón
indicated that Mexico will only be able to supply 80,000 bpd of oil for the refinery, rather than the
230,000 bpd that former President Fox had originally pledged, owing to declining reserves. Four
companies are currently developing investment proposals for the refinery project that they will 55
present to Mexico’s Energy Ministry for consideration in June 2008.
Ethanol and other types of biofuels have been identified as alternative energy sources that may
help some countries in Latin America reduce their dependence on imported petroleum products.
In the region, Brazil stands out as an example of a country that has become a net exporter of
energy, partially by increasing its use and production of ethanol. On March 9, 2007, the United
States and Brazil, the world’s two largest ethanol producing countries, signed a Memorandum of
Understanding to promote greater cooperation on ethanol and biofuels in the Western hemisphere.
The agreement involves (1) technology-sharing between the United States and Brazil; (2)
conducting feasability studies and providing technical assistance to build domestic biofuels
industries in third countries; and (3) working multilaterally to advance the global development of 56
Since March 2007, the United States and Brazil have moved forward on all three components of
the agreement. On the bilateral front, several high-level visits have taken place aimed at
advancing research on new biofuels feedstock and improving biofuels production and distribution
processes. U.S. and Brazilian consultants carried out feasibility studies that identified several
short-term technical assistance opportunities in Haiti, the Dominican Republic, El Salvador, and

55Mexico Slashes Supply Pledge to Planned Central American Refinery,” Platts Commodity News, April 10, 2007;
“Four Companies Show Interest in Central American Refinery Project, Oil Daily, July 10, 2007.
56Memorandum of Understanding Between the United States and Brazil to Advance Cooperation on Biofuels,” U.S.
Department of State, Office of the Spokesman, March 9, 2007, available at
81607.htm; “Joint Statement on the Occasion of the Visit by President Luiz Inácio Lula da Silva to Camp David,
White House Press Release, March 31, 2007; available at

St. Kitts and Nevis, many of which focus on using biofuels to help satisfy domestic energy needs.
Eight of the possible projects they identified are going to be funded through the U.S.-Brazil
biofuels partnership, with support from funding partners such as the IDB. On the multilateral
front, the United States and Brazil are working with other members of the International Biofuels
Forum (IBF) to make biofuels standards and codes more uniform. Despite this progress, potential
obstacles to increased U.S.-Brazil cooperation on biofuels exist, including current U.S. tariffs on
most Brazilian ethanol imports.
Analysts disagree as to whether ramping up biofuels production is a viable solution to reducing
Latin America’s oil dependency and promoting rural development in the region. According to the
IDB, while some countries in Latin America have developed research facilities and regulatory
frameworks for biofuels, at least $200 billion in investments would have to be made in order for
biofuels to provide even 5% of the region’s transport energy by 2020. Some analysts are
concerned about the huge investment outlays needed to build up biofuels industries, as well as the
potential negative effects of biofuels production on the environment, labor conditions, and costs
of competing foodstuffs in the region. Others argue that the climate, surplus of arable land, and
excess production of sugarcane and other potential biofuels crops make Latin America ideally 57
suited for an expanded biofuels industry.

Policy analysts have made several recommendations to further hemispheric energy cooperation.
Among these are broad calls for the U.S. government to make energy a high priority in its
hemispheric relations, to take into account the energy capacities and goals of hemispheric nations
when developing U.S. energy policies, and to understand that U.S. energy security will be lacking 58
if other countries in the hemisphere are lacking energy security. Many policy analysts also look
to the potential role that foreign low-cost sugarcane producers can play in U.S. energy security if
the producers can export sugar-based fuel ethanol to the United States without facing stiff tariffs.
The Council of the Americas, a U.S.-based business organization representing over 200 U.S.
companies invested in Latin America, issued a report in 2005 making specific recommendations 59
regarding hemispheric cooperation on energy. In the report, the Council maintains that the
proper development of the hemisphere’s abundant energy resources could be an engine for
economic development in the region and also contribute to advancing hemispheric energy
security. The Council called for the United States to make a priority of increasing hemispheric
partnerships in Latin America. It also recommended that, in order to increase energy investment
in the region, that Latin American nations improve their investment climates by committing to
energy sector stability, transparency, and an appropriate role for state-owned energy companies.
The report called for trilateral energy coordination among the three NAFTA countries as well as
an increase in Mexican energy exploration and production. It also called for energy
diversification utilizing renewable resources in order to lessen the impact of supply shortages in

57 Inter-American Development Bank (IDB), A Blueprint for Green Energy in the Americas, April 2007, available at
58 Sidney Weintraub, Testimony before the House Committee on International Relations, Subcommittee on the Western
Hemisphere, “The Role of the Western Hemisphere in Fostering U.S. Energy Security,” March 2, 2006.
59Energy in the Americas, Building a Lasting Partnership for Security and Prosperity,” Council of the Americas,
October 2005.

the Americas. The Council also recommended that multilateral organizations such as the IDB to
make energy infrastructure development a priority throughout the region.
Concerns about the effect of Latin America’s political environment on energy production in the
region also prompted the U.S. Southern Command to issue a study in 2006 focusing on long-term
oil production in several Latin American countries. The report warns against the dangers of
reemerging state control in the energy sectors of several Latin American countries—especially
Venezuela and Ecuador—that will likely thwart investment, increase inefficiencies, and hamper
efforts to increase supplies and production. In Mexico, the report notes that the current regulatory
environment and laws prohibiting foreign investment in the energy sector have dampened
prospects for increasing oil reserves. The report asserts that pending any favorable changes to the
investment climate, prospects for long-term energy production in Venezuela, Ecuador, and
Mexico are at risk, while countries that have opened their energy sectors to foreign investment, 60
like Trinidad and Tobago, will see increased reserves and production.
An April 2007 study by the Inter-American Development Bank, A Blueprint for Green Energy in
the Americas, reports that Latin American and Caribbean countries have shown great interest and
promise in the development of biofuels that could contribute to the reduction of greenhouse gases
from transport as well as the economic development of rural sectors in the region. Beyond Brazil,
which has been the leader in ethanol development and production, the study also highlighted
several other countries with great potential for biofuels development: Guatemala and Jamaica,
with ethanol production from sugar; Colombia, with biodiesel production from palm oil; and
Chile, with second-generation ethanol production from woodchips. The study also suggests ways
the IDB could support the development of biofuels production in the region, including support for
a biofuels development fund, the development of regulatory frameworks, and research and 61
The Center for Strategic and International Studies (CSIS ) also published a book in April 2007,
Energy Cooperation in the Western Hemisphere, Benefits and Impediments, that examines the
current state of energy cooperation among the hemisphere’s oil and gas producers and the
opportunities for greater cooperation. The study concludes that hemispheric energy cooperation
would benefit from, among other things, greater harmonization of regulatory frameworks;
improved infrastructure (such as new pipelines and LNG facilities); greater attention to the
environmental effects of energy operations; the avoidance of populist measures that provide
widespread subsidization of energy consumption; and recognition by the United States that its
own energy independence is not viable without taking into account the needs of other countries in
the hemisphere.

Over the past several years, there has been ongoing congressional interest in energy security
issues. Some of that interest has focused on how to ensure that countries in the Western
Hemisphere, which currently supply about half of U.S. imports of crude oil and petroleum

60 U.S. Southern Command, “Long-Term Oil Production: Venezuela, Ecuador, Mexico, and Trinidad and Tobago,”
internal report, June 2006; Andy Webb-Vidal,Resource Nationalism Creates Supply Threat, Warns U.S. Military,”
Financial Times, June 26, 2006.
61 Inter-American Development Bank (IDB), A Blueprint for Green Energy in the Americas, April 2007.

products, remain reliable sources of energy for the United States. Another area of interest has
been to promote cooperation among Latin American countries, which are divided between net
energy exporting and importing nations, to ensure that enough clean, affordable, and reliable
energy sources are exploited to support regional growth and development. Members have
expressed support for developing a cohesive regional energy security framework, and also have
expressed concerns about the effects of political instability, resource nationalism, and the
increasing interest in the hemisphere’s energy resources by such countries as China and India.
Committees in both houses held several hearings in 2006 focusing on Western Hemisphere
energy security issues, while in March 2006, Senator Richard Lugar introduced S. 2435, the
Energy Diplomacy and Security Act of 2006, which included provisions to increase hemispheric
cooperation on energy (see legislative section below for details).
Several themes emerged from the congressional hearings. Several Members expressed concerns
that recent events in Latin America—particularly in Bolivia and Venezuela—have demonstrated
how political events can undermine the reliability of energy producing countries. At a May 16,
2006 hearing, Representative Darrell Issa, Chairman of the House Energy and Resources
Subcommittee, said that the United States was at risk of being “boxed in by Iran, Venezuela,
Russia, Nigeria, and Bolivia...[such that] we cannot effectively counter the use of energy as a
weapon.” Representative Stephen F. Lynch expressed concerns about the possibility that President
Chávez might take “retaliatory oil-related actions...[against the United States] stemming from his
opposition to U.S. policy.” While Bush Administration officials tried to allay these congressional
concerns, other witnesses, including David Goldwyn, a private energy analyst, pointed out several
key threats to U.S. interests that have emerged in Latin America. He described how companies
and their shareholders are seeing their asset values cut in half as a result of resource nationalism,
oil and gas production is leveling off or declining, and U.S. influence in the region is declining 62
(as Venezuela’s power has increased).
Another theme that emerged was the need for improved investment climates in the region in order
to increase investment in energy sectors. At a March 2, 2006 hearing of the House Western
Hemisphere Subcommittee, Eric Farnsworth of the Council of the Americas, asserted that
countries in the region need to improve their investment climates in order to attract foreign
investment and boost their competitiveness, echoing the recommendations of the Council’s
October 2005 report described above. Department of Energy Assistant Secretary for Policy and
International Affairs Karen Harbert warned about the negative effects of unpredictable and non-
transparent legal and regulatory frameworks, resource nationalism, and a lack of investment in 63
exploration and maintenance on regional energy markets. At a June 22, 2006 hearing by the
Senate Foreign Relations Committee, Luis Giusti, former chairman of PdVSA and currently an
adviser with the Center for Strategic and International Studies, asserted that unless investment
climates across Latin America improve dramatically, foreign investment will continue to move to 64
other regional energy markets.

62 House Committee on Government Reform: Subcommittee on Energy and Resources and Subcommittee on National
Security, Emerging Threats, and International Relations, Hearing onEnergy as a Weapon: Implications for U.S.
Policy, Federal News Service, May 16, 2006.
63 U.S. Congress, 109th Congress, Second Session. House Committee on International Relations Committee,
Subcommittee on the Western Hemisphere. Hearing on “Western Hemisphere Energy Security,” Serial No. 109-204,
March 2, 2006.
64 Testimony by Luis Giusti before Senate Foreign Relations Committee, Hearing on “Energy Security in Latin
America,CQ Congressional Testimony, June 22, 2006.

A third theme that emerged from the hearings focused on identifying obstacles and generating
possible solutions to improve hemispheric cooperation on energy-related issues. At a June 22,
2006 hearing of the Senate Foreign Relations Committee, Senator Richard Lugar asserted that his
proposed Energy Diplomacy and Security Act would stimulate energy partnerships among energy
producers and consumers. Senator Ken Salazar testified that our shared interests with countries in
the Western Hemisphere “should be obvious, but too often they are obscured by politicized
rhetoric, mis-perceptions, and old grievances.” Another witness suggested that U.S. energy
diplomacy, which thus far has been focused on engaging Canada and Mexico, should be
expanded, focusing on finding common ground with energy producing and consuming nations 65
across the region.
Two legislative initiatives in the 110th Congress would increase hemispheric cooperation on
energy. Although global in scope, S. 193 (Lugar), the Energy Diplomacy and Security Act of
2007, has provisions calling for the establishment of a Western Hemisphere energy crisis response
mechanism and a regional-based ministerial forum known as the Hemisphere Energy Cooperation
Forum that would be involved in responding to temporary energy supply disruption, fostering
long-term supply security, and promoting energy access for undeveloped areas. The bill also calls
for the establishment of a Hemisphere Energy Industry Group to increase public-private
partnerships, foster private investment, and enable countries to devise energy agendas that are
compatible with industry capacity and cognizant of industry goals. The Senate Foreign Relations 66
favorably reported the bill on April 12, 2007 without amendment (S.Rept. 110-54).
Another initiative, S. 1007 (Lugar), the United States-Brazil Energy Cooperation Pact of 2007,
calls for the same cooperation groups in S. 193 and also directs the Secretary of State to work
with Brazil and other Western Hemisphere countries to develop partnerships to accelerate the
development of biofuels production, research, and infrastructure. The bill was introduced March

28, 2007, and referred to the Senate Foreign Relations Committee.

In addition to legislation calling for greater hemispheric cooperation on energy security issues,
there has been some debate within Congress concerning whether or not to lift existing taxes and
tariffs on foreign ethanol imports. The United States currently allows duty-free access on sugar-
based ethanol imports from many countries through the Caribbean Basin Initiative, Central 67
American Free Trade Agreement, and the Andean Trade Preferences Act, among others. Brazil
is currently the world’s largest consumer and producer of ethanol from sugarcane. Some Brazilian
ethanol is processed at plants in the Caribbean for duty-free entry into the United States, but
exports arriving directly from Brazil are currently subject to a 54-cent-per-gallon tax, plus a 2.5%
tariff. Some Members of Congress favor an elimination of taxes on inexpensive imported ethanol
in order to help displace gasoline consumption and contend with rising fuel prices, while other
Members who support the U.S. ethanol industry oppose such action.

65 U.S. Senate Committee on Foreign Relations, Hearing on “Energy Security in Latin America, June 22, 2006.
66 A previous version of the bill was introduced in the 109th Congress as S. 2435 (Lugar), and the Senate Foreign
Relations Committee held several hearings on energy security in the 109th Congress.
67 For more information, see CRS Report RS21930, Ethanol Imports and the Caribbean Basin Initiative (CBI), by
Brent D. Yacobucci.

Mark P. Sullivan Clare Ribando Seelke
Specialist in Latin American Affairs Specialist in Latin American Affairs, 7-7689, 7-5229
Rebecca G. Rush