Latin America and the Caribbean will continue to depend on the extractive industries for some time to come

Looking holistically, Latin America and the Caribbean will continue to depend on the extractive industries for some time to come. The region has always been a raw commodity exporter, whether that be the gold and silver of the 18^th century, the sugarcane of the 19^th or the petroleum of the present day. And as history would suggest, that extractive landscape is changing and evolving. Demand for electric vehicles is projected to grow at an unprecedented rate; so too will demand for lithium, a key component of the batteries which power EVs. For certain countries in the region this could be a game changer. 

Latin America is in a unique position to benefit from this lithium boom as over half of known resources exist in an area called the Lithium Triangle, forming parts of Argentina, Chile, and Bolivia. The relatively concentrated cornucopia is due to geologic/geographic features called salares, vast salt flats, where, because of the intense sun and dry climate, the metal can be extracted from brine pools through a process using evaporation. This type of lithium extraction varies significantly from the ‘hard rock’ mining done in Australia, which still produces the great majority of the lithium consumed today. Questions remain as to how accessible these reserves are and the potential production capacity. A combination of technological advances, process innovation and dedicated investment will be needed to see this boom realized. 

Solid and sensible regulatory framework will also be key to unlocking future potential in this space. As we’ve seen in other countries in the region, the aboveground decisions made by politicians and policymakers can influence the ultimate viability of any extractive project, either for good or bad. It’s also important to remember that oil and gas will not be completely replaced any time soon as a source of income for Latin American producers. For a longer-term perspective we still consume gold mined in Mexico and sugarcane grown in Brazil. But the world is changing, and Latin American governments need to be ‘first movers’ rather than ‘late adapters’ to reap the benefits. 

Todo lo mejor,
Houston, Texas
January 19, 2022

W. Schreiner Parker
Senior Vice President and 
Head of Latin America

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Hook, line and sinker: Stabroek duo kick-starts 2022 for ExxonMobil

US supermajor ExxonMobil has come off to a flying start to the year with two new discoveries in the Stabroek block off Guyana, shaking off last year’s mixed bag of exploration results in the basin. The Fangtooth and Lau Lau discoveries – named for fish species, like previous wells – are the 22^nd and 23^rd discoveries in the prolific block and will add to volumes that have earlier been estimated at around 10 billion barrels of oil equivalent (boe). Rystad Energy’s initial view is that these two finds together could hold over half a billion boe of recoverable hydrocarbon resources, bringing the total discovered volumes in the Guyana-Suriname basin to more than 12.5 billion boe. With numerous untapped prospects and more than a dozen wildcats lined up for drilling this year, the basin could be poised to exceed the current 13.6 billion boe estimate by the US Geological Survey.

ExxonMobil operates the Stabroek block with a 45% interest, with partners Hess on 30% and CNOOC on 25%. Fangtooth was spudded in late November by the drillship Stena DrillMax in 1,838 meters of water, about 18 kilometers northwest of the producing Liza field and east of Tullow Oil’s Orinduik block which holds the Tertiary Joe and Jethro heavy-oil discoveries. Lau Lau-1 followed soon after, drilled by the drillship Noble Don Taylor in slightly shallower waters of 1,461 meters, about 68 kilometers southeast of the Liza field. Both wells were optimally placed to target multiple stacked reservoirs of Lower Campanian and Upper Santonian sandstone. The wells encountered high-quality reservoir sections with net pay of 50 meters in Fangtooth and 96 meters in Lau Lau, according to the operator.

The unparalleled success of the Stabroek block has turned the once frontier basin into a hotbed of exploration in just five years. During this period, explorers have become pickier when choosing exploration prospects with a stronger focus on chance of success, deliverability and costs – factors that all favor the up-and-coming basin as a core area for exploration and development globally. Before ExxonMobil’s breakthrough in 2015, Guyana had seen numerous wells drilled with little success. Through more than two dozen wells in Stabroek the operator has now boosted its operational efficiency and understanding of the reservoir characteristics, enabling it to drill more than 5,000 meters of sediments in 30-45 days, which in turn reduces costs significantly compared with many other ultra-deepwater wells globally. The success has also spurred exploration interest in neighboring Suriname, which has a similar hydrocarbon system, and discoveries in Guyana’s Orinduik block haven given positive signals for the potential of deeper reservoirs that are yet to be explored.

The competitiveness of the Stabroek finds has enabled ExxonMobil to fast-track development and the partners are currently producing around 120,000 barrels of oil equivalent per day from Stabroek. Output is set to ramp up with Liza phase 2 during the first half of 2022, followed by Payara and Pacora, for which a floating production, storage and offloading (FPSO) vessel is currently being constructed by SBM in Singapore. SBM is also performing front-end engineering and design work for an FPSO for the Yellowtail project, which is expected to be approved this year and start producing by 2025-26.

Fix the roof when the sun is shining: Rio Tinto buys Rincon lithium project

World-leading mining player Rio Tinto will acquire the Rincon (Salar del Rincon) lithium project in Argentina from local company Rincon Mining.  While Rincon is only in early stages of development, Rystad Energy expects the acquisition to be mainly driven by a potential longer-term lithium supply deficit in the market caused by the demand boost from electric vehicles (EVs).

Rincon Mining is a company owned by funds managed by the private equity group Sentient Equity Partners. In addition to the Rincon project, Rincon Mining also owns Lithium Extraction Technologies (Australia), which holds certain intellectual property that may be applied in conjunction with lithium projects. The Rincon project in Salta, Argentina, comes with measured and indicated lithium brine resources of around 5.8 million tonnes of lithium carbonate equivalent (LCE). The Rio Tinto-Rincon Mining deal is for $825 million and the transaction is expected to be completed in the first half of 2022.

The acquisition of Rincon comes amid Rio Tinto’s ambitions to build its dedicated battery materials business and strengthen its portfolio for the global energy transition. Rio Tinto invested in July 2021 in the Jadar lithium-borates project in Serbia (see Figure 2), and in April 2021, it began producing battery-grade lithium from waste rock at its lithium demonstration plant in Boron, in California. The Jadar project is expected to produce first saleable output in 2026 and the output volume from the company’s Boron operations is only another drop in the bucket. Rystad Energy sees Rio Tinto’s latest investments as a plan-ahead move to tackle the anticipated lithium shortages after 2025 and gain some future pricing power – basically fixing the roof before it rains.

Colombia poised for E&P investment boost amid available resource crunch

Colombia looks set for a much-needed injection of investment in its upstream sector as the major South American producer aims to get its staple oil and gas industry back on track following the recent industry downturn. Both greenfield and brownfield investments are on course to rise sharply to the end of this decade, with state player Ecopetrol alone set to invest $13 billion in the country. Hopes are also high for the exploration sector, which has proven relatively dormant in recent years, with positive results from a recent acreage offering giving impetus to wildcatting hopes. The country is in urgent need of exploration success as proven resources have dwindled, meaning it must double these resources in the next decade if it is to continue be energy self-sufficient.

Colombia’s hydrocarbon sector is a key revenue generator for the country’s economy, representing 12% of gross domestic product (GDP). The industry , however, has struggled in the last few years with declining production and conflict zones being located in some of the territory’s most oil-rich regions, such as Catatumbo, which is estimated to hold 17 million barrels of unexplored oil reserves.

Colombia is the third-largest crude oil producer in Latin America, representing about 10% of the region’s total production in the last decade. Output rose from 525,000 barrels per day (bpd) in 2007 to close to 990,000 bpd in 2013. Since then, it has continuously declined, reaching a record monthly low of 694,100 bpd in June and averaging 733,600 bpd in the first nine months of 2021 – 7% lower than the comparable period last year. Commercialized gas production has, in contrast, shown a 5.3% recovery in the first nine months of 2021 compared to last year.