Duke Energy’s vice president of commercial legal support, John Barquin, discusses the opportunities and challenges in supplying power to Latin America and provides his forecast for energy growth in emerging economies.
How would you describe the current energy situation in Latin America?
Overall there’s strong demand growth in Latin America, and Duke recognizes that meeting that demand is the key to continued economic growth. There is tremendous opportunity on many fronts: offshore gas and oil developments in Brazil, shale gas potential in Mexico and Argentina, unprecedented energy sector reform in Mexico, and increased viability of renewable energy throughout the region. It’s an exciting environment for business right now.
But what about perceptions of turbulence and volatility in Latin American energy markets?
Sometimes concern is placed on parts of the region that are experiencing serious turbulence, such as Venezuela, but this broad political turbulence specific to one or two countries is not reflective of the Latin American energy market as a whole. Latin American countries—just like the United States and other countries—experience business cycles and volatility (consider natural gas prices in America). Broad trends in commodities impact Latin America more than the United States or Europe, so Latin American market cycles don’t necessarily correlate to US market cycles. From the US perspective, Latin America may seem “turbulent,” but remember, during the financial crisis of 2008-09, Latin America appeared relatively unscathed while the United States experienced some scary conditions. One takeaway from all this is, apart from strong, long-term growth opportunities, is that Latin America also offers investors something of a hedge to the US and European economies.
How is Duke Energy specifically impacting the Latin American regions it serves?
Duke has generation assets in Argentina, Brazil, Chile, Ecuador, El Salvador, Guatemala, and Peru. We have close to 5,000 megawatts of generating capacity (more than 70 percent of which is hydro, and a significant portion of our thermal capacity is gas-fired). We invest heavily in social development and environmental programs, and we’re also consistently ranked as one of the best companies to work for in all the countries in which we operate. While we’re not the largest private player in most of our markets, our impact is significantly greater than our size might suggest. We lead by example.
How does energy consumption in Latin America differ from consumption in the United States?
Per capita energy consumption is much, much lower in Latin America. For example, by some measures, per capita power consumption in 2012 was about six times higher in the United States than in Brazil. In other words, there’s a lot of room for demand growth in Latin America, and you’re going to see demand growth exceed gross domestic product growth for some time. In the United States and Europe, demand growth will be much flatter.
How does the increasing energy demand affect Latin American businesses’ ability to grow?
Power demand is increasing because of overall economic growth in Latin America. But if generation capacity doesn’t meet growing demand, we’re going to see—and some countries have seen it already—increased power prices that can slow economic growth. Economic growth and increased power demand can be either a vicious or a virtuous cycle, depending on how the various Latin American markets react to an increased demand. Some have tried to increase state intervention to manage power prices, and I think they are seeing that interventionist approach backfiring—investors are scared off, capacity doesn’t grow as much as needed, and ultimately price pressures actually rise.
What kind of business opportunities exist for energy generation and supply in Latin America?
Given the pace at which demand is growing, there’s no shortage of opportunities for anyone willing to do the proper homework. Although gas supply issues can make thermal development trickier than it should be, some large offtakers (those who agree to buy the gas once it’s produced) are willing to provide tolling arrangements for gas. And unconventional renewables, like solar and wind, are or will become increasingly common, especially in regions where there’s a happy confluence of wind or solar resources and pricing.
What nuances must an entrepreneur be aware of to be successful in this region?
I would advise entrepreneurs in this area to be as multicultural as possible. Be prepared to adjust your own style and worldview to local norms, and try your best to understand and appreciate them. Speaking the language clearly helps: I’ve had conversations with the same person in English and in Spanish, and depending on the language, I would have thought I was speaking to two different people. You can’t overemphasize the ability to connect with people in their native language, but understanding their perspectives and expectations is even more critical.