Building momentum – oil and gas in Latin America
by Rodolfo Guzman, Paola Perez, Paola Carvajal, Roberto Imperatore
May 2018
Development of unconventional oil and gas resources

Executive summary

Unconventional oil production has grown these past few years despite low oil prices since 2014. Although production in the US decreased in 2015, stabilization of prices and improvements in several operational areas allowed unconventionals to maintain a relevant role in the global supply. Last year, Arthur D. Little published a viewpoint analyzing the perspectives for unconventional resources in selected Latin American countries. While our outlook for Latin American opportunities remains positive, there are new factors to consider. The key shale players have stayed strongly focused on the US, the moderate oil price recovery expectations persist, and concerns about fracking operations are increasing. Therefore, host countries, especially in Latin America, are now under greater pressure to create conditions that favor the development of these resources.

In recent years, countries such as Mexico, Colombia and Chile with potential in unconventional hydrocarbons have been evaluating their prospective resources. However, these activities have not been enough to build momentum and attract resources to speed up the de-risking process for unconventional hydrocarbons. Building momentum requires a strategy for aligning technical, regulatory, and economic conditions to boost the de-risking process of the greenfield plays prior to the take-off of massive developments. Two major forces can, in our opinion, help build momentum: national oil company leadership and/or government promotion & incentives. Besides these levers, a deeper understanding of the local conditions of the oil & gas industry is fundamental for defining the strategy and tactics for building momentum.

In our view, the development of unconventional hydrocarbons in different geographies will continue shaping the global oil and natural gas markets. Countries with high potential and interest in expanding their production, such as Mexico, Colombia, and Chile, still need to build momentum to ensure the inflow of capital investments to speed up the exploration/evaluation phases. Although there is still uncertainty regarding the feasibility of large developments, the growing demand for hydrocarbons presents an opportunity for oil companies.

As the energy industry continues evolving, trends in supply and demand could change the incentives to develop the unconventional plays (growing share of renewable, peak of oil demand, etc.). Therefore, there is a closing window of opportunity for adopting a strategy to provide the required support to oil & gas players and take advantage of unconventional developments.