Contents

Overview

With new governments in Mexico and Brazil, presidential elections in Argentina and Bolivia that could change perspectives for their respective hydrocarbon industries, and high political volatility in Venezuela, Latin America's oil and gas sector is set for an intense 2019. These expectations have been reinforced further by strong fluctuations in crude oil prices. After reaching a four-year high in early October, the price of oil fell by around 30% in the following seven weeks amid fears of a slowdown in world demand.

Even in this scenario of instability, the industry consensus is that crude values will remain significantly lower than the maximum levels reached in 2011 and the minimum observed in 2016. "When prices approach the US$80 per barrel mark, incentives to raise shale production in the United States grow and that increases supply again," says Horacio Cuenca, Wood Mackenzie's director of Latin America upstream research. "We estimate that in 2019 the high variability that we have seen this year will continue, but on average the price will be similar to that of 2018."

Once again, political and regulatory issues will be crucial to oil and gas markets within the region. Promises to continue, at least in the short term, with free-market policies in Brazil, the multiplication of investments in Argentina's Vaca Muerta shale prospect, the return of production sharing contracts in Ecuador and the development of projects in Guyana's Stabroek block are causes for optimism. 

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Conversely, everything indicates that Venezuela's oil produciton decline will accelerate in 2019 and that the effects of insufficient exploratory investment in Bolivia will be increasingly visible. Finally, straying from both optimistic and pessimistic expectations, uncertainty prevails in Mexico. While the campaign promises of President Andrés Manuel López Obrador to revise contracts have lost strength, doubts persist about the regularity of future auctions and the strategy of the new administration regarding state company Pemex.

In this report, we will analyze the different challenges that the main hydrocarbon-producing countries in Latin America will face in 2019. In addition, we will identify segments that will attract the bulk of investments while previewing upcoming auctions for exploration and production licenses. 

The election of leftist Andrés Manuel López Obrador as Mexico's new president has prompted doubts about the future of the country's market-friendly policies.

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