The Next Middle East: Latin America

06/28/2011 7:30 am EST


Rudy Martin

Editor, Investing Insight

While cheap oil may be a thing of the past, there's plenty of oil and natural gas out there—and most of it is in Latin America, notes Rudy Martin of Latin Stock Investing.

No one seems to be very sure of how much petroleum lies beneath the ground and offshore waters of Latin America. Most experts feel that the region’s oil reserves amount to something between:

  • a lot
  • an enormous amount

Existing production from Venezuela, Brazil, and Mexico establish Latin America as a serious source of the world’s crude oil output. But major discoveries—especially onshore, as well as beneath the Atlantic off the coast of Brazil—lead some to view the region as a major exporter for decades to come.
For investors, the uncertainty about the metrics of Latin America’s hydrocarbon reserves helps neutralize any advantages held by organizations with links to armies of geologists.

There are always risks involved in the oil-drilling business, but the right call on Latin America’s future in energy production is likely to produce impressive returns. Dutch geologists Peter Odell and Keneth Rosing, noted experts in world energy reserves, agree that Latin America's oil resources have been underestimated.

In Brazil, all that is changing. The nation, which imported an estimated 90% of its energy four decades ago, is now an exporter, according to the Oil & Gas Journal. (Brazil’s unique ability to mass-produce ethanol economically, and in an energy-positive manner, helps in this regard.)

Petroleo Brasileiro (PBR) is now a “major” among the world’s energy giants, with Petrobras’s reserves, revenue, and production in the same league as ExxonMobil (XOM) and Royal Dutch Shell (RDS.A). The firm, which reportedly has attracted legendary George Soros as an investor, just seems to find big oil deposits wherever it looks.

In 2006 Petrobras began development of Brazil’s Tupi oil field, located in the Santos Basin, 160 miles off the coast of Rio de Janeiro. Some experts consider this to be the Western Hemisphere's largest oil discovery of the last 30 years.

Just two years later, Petrobras announced the discovery of the Jupiter field, a huge natural gas and oil field which it feels could match the size of the Tupi field.

The Brazilians can’t seem to miss. This month, a study team from the Rio de Janeiro State University set out to prove that deposits in the Atlantic Ocean off Brazil held less oil than the government estimated.

Were they ever wrong! Their final conclusion was that the field likely contains greater than 120 billion barrels of reserves, more than double the Brazilian government’s estimate of 50 billion barrels.

Brazil isn’t alone in Latin America in boosting its petroleum output. Earlier this month, the Paris-based International Energy Agency said it expects Colombia to hike its production of crude by 300,000 barrels per day within five years.

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