This month, we have decided to focus our monthly REview on Latin America's new 'Pink Tide', following recent election results in Colombia and Brazil.

Since expert political history knowledge was required of the countries involved, we asked for help. Our colleague Schreiner Parker, Head of Latin America at Rystad Energy, accepted our invitation to contribute to the November REview issue, and brought with him - for the first time - a guest writer: Francisco Monaldi, Ph.D., director of the Latin American Energy Program of the Center for Energy Studies at Rice University's Baker Institute for Public Policy in Houston.

We are happy to share with you their views on the new ’pink tide’ that has again swept across Latin America, and the comparison with the previous sweep that occurred more than 20 years ago, and again around 10 years ago. At the cost of perhaps failing to do justice to their in-depth analysis, if we were to condense the ’so what’ for energy markets in just a few sentences, they would be:  – 1) the macro-economic environment is profoundly different now in comparison to the early 2010s; and 2) the energy transition theme is now a reality to be reckoned with, unlike the 2010s. These differences will impact the economic and energy policies these governments could pursue in the coming years. China, by far the most important commercial partner for Latin America for the past 20 years, has been hobbled by a profound real-estate crisis and by its zero-Covid-19 policy, limiting its demand for commodity imports from Latin America. This, in turns, is expected to limit the strength of Latin America’s economic growth, in stark contrast to the early 2010s when a commodity and energy-hungry China was industrializing and urbanizing at a fast clip, pulling Latin America up along with it. Moreover, while in the 2010s alternatives to fossil fuels were still considered a pipedream for most sectors, an undeniable momentum has built around the electrification of road transport at a global level along with the decarbonization of many other sectors, even those considered hard to abate, like steel. Therefore, the momentum behind the energy transition might paradoxically force these governments in Latin America to fast-forward the development of oil & gas projects in their respective countries so to avoid the “stranded assets” trap, should oil and gas demand begin to plateau and then decrease in the late-2030s and 2040s, which is only one of the many alternative scenarios. This is indeed a paradox as most of the new ’pink tide’ governments have been elected on a ’greener’ ticket than their predecessors, but in the end, we may end up with a similar commitment to develop oil & gas. This would be another instance where global macro-trends and vicissitudes end up trumping the intentions and promises of newly elected governments.

The 'pink tide'
Presidential elections in Colombia and Brazil this year confirmed the resurgence of the famous ‘pink tide’ that washed across Latin America in the early 2000s. This renaissance has been widely celebrated by global leftists as these governments seek to institutionalize social progress. It has also been much maligned by world-wide rightists, including some in the international business community, for the perceived muzzling of the private sector in national development.  The truth lies somewhere in between -  and for the energy sector in the region each country will have a unique approach to managing their resources wealth versus embracing the energy transition.

The earlier ‘pink tide’ was no monolith, and neither is this current turn to the left. From the outside, it’s easy to categorize Latin America as a single unit. Most countries in the region share a common experience of conquest and colonization by the Iberian Peninsula and through that, share overarching linguistic and cultural commonality. There are, of course, macro trends that can be observed and interpreted that hold true for Latin America in general. For instance, most countries have principally been raw commodity exporters from the time of colonization until today. This is a legacy of both natural endowments - being blessed with large reserves of commodities such as fertile land, wood, gold, silver, copper, iron ore and oil - as well as colonialism, which was a system built on extracting wealth from one place and sending it off to another. From a governance perspective, the countries of the region have broadly evolved on a similar trend line as well, from independence movements to the age of the caudillo and then the periods of republicanism and military dictatorships before emerging into democracies. But each country that comprises Latin America has its own unique social, cultural, and economic history and a distinctive relationship with balancing liberal and conservative elements within their own borders. To really understand the macro shift in politics in the region, and the impacts on society, economy, and energy, it is imperative to examine each component case and analyze the subtle nuances that paved the road to the present day.

Overview
The ‘pink tide’ in general is a somewhat ambiguous term and is hard to characterize as such. The Concise Oxford Dictionary on Politics by Ian McLean and Alister McMillian defines it as the emergence of “… ‘left‐of‐centre’, ‘left‐leaning’, and ‘radical social democratic’ governments in Latin America”. The first wave of the ‘pink tide’ was seen as a turn away from neoliberalism and an embrace of more economic and socially progressive policies. Put another way, it was a decoupling with the capitalist foundations build in the region during the post-World War II era and especially a response to the the neoliberal reforms of the 1990s, which followed the “Washington Consensus” of fiscal orthodoxy, free trade, and privatization. Instead, it was a move to emphasize the state’s role in maintaining and elevating society, especially its most vulnerable elements, through social spending such as the subsidization of health care, housing, and fuel costs. The phenomenon began to manifest itself in the late 1990s in Venezuela and quickly spread through to the rest of the region by the late 2000s. By 2008, leftist governments controlled most of South America with Hugo Chavez in Venezuela, Nestor Kirchner (followed by his wife Cristina Kirchner) in Argentina, Lula da Silva (followed by Dilma Rousseff) in Brazil, Evo Morales in Bolivia, Tabare Vazquez (followed by Jose Mujica) in Uruguay, Michelle Bachelet in Chile, Fernando Lugo in Paraguay, and Rafael Correa in Ecuador. Among the larger countries, only Colombia and Mexico remained governed by the center-rightists parties.

That type of unprecedented electoral success, in such a short amount of time, had three key drivers. The first was a general opening of the region to participatory democracy. Latin America spent decades as a Cold War battleground where leftist parties and even rebel groups backed by Moscow and Havana fought against Washington sponsored democracies and often dictatorships for political and economic power. After the collapse of the Soviet Union, societies in Latin America felt a ‘communist takeover’ was not the existential threat it had been previously and were more inclined to allow a broader spectrum of leftist ideologies to participate in the electoral process.

The second driver was a reaction to the governments that had implemented neoliberal reforms in the 1990s, which required some tough fiscal and monetary measures to tame inflation; combined with the low commodity prices of the late 1990s. In contrast, the first pink tide governments benefited from the commodities super cycle of 2003-2014, allowing them to implement expansive social programs and become very popular.  

A third driver was organization. The Foro de Sao Paulo is a confederation of over 100 left leaning political parties from across Latin America that first convened in Sao Paulo in 1990 at the invitation of the Brazilian Workers Party. Since the 1991 meeting in Mexico City, the group expanded upon its initial objectives. It now works toward a Latin American integration of like-minded leftist ideologies by exchanging experiences and learnings and supporting the common cause of promoting its member parties to the presidency in their respective countries. And they’ve had unbelievable success in doing just that, both during the initial pink tide and today. But what’s interesting is that each of these 100+ parties that make up the Foro de Sao Paulo come from distinct parts of the leftist continuum. The Workers Party in Brazil, the Justicialist (Peronist) Party in Argentina, the Historic Pact for Colombia Party in Colombia, and the National Regeneration Movement Party (MORENA) in Mexico represent diverse shades of pink. These differences are explained through their history but also their outlook and goals for the future.

Figure 1

Red = FSP member party controls presidency
Blue = non FSP member party controls presidency

Hydrocarbons policy then and now
In the 1990s most countries in the region liberalized and some partially or fully privatized their hydrocarbon sectors. The only major exception was Mexico, which despite pursuing neoliberal reforms in most other sectors, preserved the state monopoly in the energy sector.

In contrast, the pink tide of the first decade of this century, was characterized in many countries by a resource nationalism wave, in which governments partially nationalized their oil sectors, forcefully renegotiated contracts, and increased the government-take. That was particularly the case in Venezuela, Bolivia, Ecuador, and Argentina. In Brazil, property rights were preserved, there were no expropriations or retroactive change in contract conditions, but the state intervention increased.

Among the oil producers that were not part of the pink tide, like Colombia and Mexico, there was no increase in state intervention. In fact, the only country in the region moving clearly in the opposite direction, to liberalize the oil sector, was Colombia, with rightist president Álvaro Uribe at the helm. While, Mexico, ruled by the center right PAN, kept the sector in the hands of PEMEX, the state monopoly, despite some minor liberalization initiated by President Calderon.

In addition to the left-right ideological distinction, other contributing factors that determined policy direction included: the different shades in ideology, the variations in institutions and governance, the different structural conditions of their hydrocarbons sectors, and the changing conditions of world oil markets.

• Countries ruled by a more radical-populist brand of left, like Chavez’s Venezuela and Morales’ Bolivia, moved further towards state control than the center-left, more pragmatic governments like in Brazil under Lula.

• Countries with weaker rule of law and less institutional checks, like Venezuela, were less inclined to acknowledge previously accepted property rights.

• Countries that benefitted from the oil openings of the 1990s, like Argentina, Bolivia, and Venezuela, obtaining higher reserves and production, could particularly benefit from opportunistically reneging on foreign investors after they had sunken significant assets. 

• In general, high oil prices can be a fuel for resource nationalism, as governments may benefit from increasing state control and the government-take on rising oil profits.  

So, from the lessons learned from the previous left-turn, it can be said that higher oil prices may increase resource nationalist pressures, but the need to promote a new cycle of large investments in the hydrocarbon sector serves as a counterweight. After the economic decline brought by the fall of commodities in 2014-2015 and the Covid-19 pandemic, governments and national oil companies do not have the financial capacity to expand oil production by themselves. In countries with stronger institutions and governmental checks, like Brazil and Colombia, sharp changes in policy are less likely than what has been observed in countries such as Venezuela or Bolivia. Finally, there are significant differences between the shades of pink ideology. There are noticeable differences between the old-fashioned autarkical resource nationalism of Mexico’s President Andres Manuel Lopez Obrador, popularly referred to by his initials AMLO, the blend of anti-capitalist and climate change ideology of Petro in Colombia, the pragmatist developmentalist ideology of Lula in Brazil, or the catch-all Peronist ideology pro-oil-development in Argentina.

Mexico
Mexico was one of the very few countries in the region that did not liberalize its oil sector in the 1990s. It was also one of the first to nationalize the sector, in the 1930s, creating the state oil monopoly PEMEX. State ownership of the oil industry became part of the country’s identity and that of its ruling party, the PRI, for the next seven decades.

PEMEX benefited from the highly productive discoveries in shallow waters in the 1970s, which allowed for a dramatic increase in production. Production reached a plateau in the 1980s and early 1990s, but then continued increasing until it peaked in the mid-2000s. The prolific production of the Cantarell field, which surpassed 2 million barrels per day (bpd) at its peak, allowed the Mexican government to overtax PEMEX, lose money in refining, and invest relatively little in exploration and production, without, for many years, facing a production fall. But it all came to an end when Cantarell initiated its rapid decline.

The center-right administration of Felipe Calderon attempted to liberalize the sector in 2008, but it was only able to pass through Congress a modest reform, authorizing service contracts, with very limited results. The super cycle of high oil prices allowed the Mexican government to keep receiving oil revenues despite the production collapse. By 2013, the new administration of President Peña Nieto, from the PRI which had opposed the liberalization attempted by Calderon, was able to pass a major constitutional reform to open the oil sector to foreign investment. Unluckily, oil prices collapsed before the opening materialized. But still multiple very successful bidding rounds competitively allocated exploration and production licenses, production sharing agreements, and joint ventures with Pemex, with commitments of billions of dollars in investments.

There was one very prominent opponent of the constitutional energy reform, - AMLO - a former mayor of Mexico City and a twice defeated presidential candidate. A leftist dissident from the PRI, AMLO, had been a critic of the “neoliberal” turn of the party in the 1980s and 1990s. A believer in state intervention in the economy, AMLO had a deep personal conviction favoring state control of the energy sector. A native of Tabasco, in the oil patch, he was raised in the shadows of the all-powerful PEMEX. He attributed the decline of the oil industry mainly to a deliberate neoliberal effort to justify the privatization of the oil sector. 

When AMLO was elected in 2018 there were some concerns that he might cancel the private oil contracts. However, learning from his previous two failed attempts, he had become more pragmatic. To be sure, there were plenty of pragmatic reasons not to reverse the opening of the oil sector. Major oil companies had planned to invest billions of dollars in exploration and production. Mexico’s oil reserves and production had been declining for years, and PEMEX was in difficult financial shape. In addition, the strong economic ties between Mexico and the US could be hurt by reneging on contracts with American oil companies. In contrast with Chávez and Morales in the previous decade, AMLO did not have enjoy any opportunistic incentive to expropriate - there were no significant assets deployed, and prices were low.

AMLO settled for not touching the existing contracts but stopped the auctions of new oil contracts and instead aimed to provide more resources to PEMEX. Ironically, instead of focusing on strengthening PEMEX’s upstream budget, to reverse the decline of production and reserves, he directed the national oil company to focus in building a new refinery in his home state of Tabasco. A project that, after massive overruns, has ended up costing upwards of $17 billion and is still unfinished. Unfortunately, for the Mexican oil industry, private exploration has not been as successful as had been hoped and AMLO’s aversion towards foreign involvement in the oil sector further disincentivized investors. In addition, the most successful discovery, in the Zama field (by Texas based Talos), has been hindered by the announcement that PEMEX would take over its operation due to its unitization with a neighboring block they hold.

The government has further battered foreign investor appetite by attempting a reversal of the constitutional reform that allowed the opening of the oil sector. Even though it did not obtain the required majority in Congress, the government has continued to gradually but surely wear down the institutional, legal, and regulatory structure built to provide guarantees to investors in the energy sector. In the power sector, it has gone even further by revoking contractual arrangements in renewables generation. The result of AMLO’s policies could ultimately produce a decline in oil production and reserves in the next decade, after a brief period of stability produced by the limited success of investments coming out of the energy reform.

It is important to distinguish AMLO’s brand of leftist resource nationalism from the other shades of pink in the region. AMLO is a champion of the hydrocarbon industry, but in the hands of the state, not the private sector. He is very ambivalent on his support for renewables or other investments required for the energy transition. He has nationalized lithium extraction, which will likely delay the development of this extractive sector critical for battery manufacturing. AMLO is also a champion of energy independence. His aim is not to increase oil exports to maximize oil revenues, but to minimize the dependence on imports of refined products. In this sense, he departs from the objective of other oil exporters. His brand of nationalist populism, with an added dose of pragmatism in fiscal and trade policies, appears to be rooted in his formative political years, in the 1960s and 1970s, when PEMEX was a powerful rising national champion.

Colombia
There are some parallels, as well as some significant differences, between the trajectories of Colombia and Mexico. As with Mexico, but at a smaller scale, Colombia was able to significantly increase production, in the late 1980s and 1990s following the discovery and development of the Caño Limón and Cusiana fields. With the decline of these fields by the 2000s, the oil sector faced a concerning slide in production and reserves. Right-wing president Alvaro Uribe implemented a significant oil reform, partially privatizing ECOPETROL, creating an independent regulatory agency, and auctioning oil blocks to private companies. The reforms, as later mirrored in Mexico, were modeled on the opening of the oil sector by President Cardoso in Brazil in the 1990s. The combination of these reforms, with high oil prices and security improvements in the country led to an oil investment and production boom. As a result, Colombia became more dependent on oil (and coal) exports. Uribe’s Colombia departed from the resource nationalist trend during the 2000s. Uribe’s anointed candidate, successor, and later foe, President Santos, provided some policy continuity but was much less focused on oil development and more concerned with the peace process with the FARC and environmental issues. His successor, President Duque, a disciple of Uribe, attempted to revive oil investment but the low oil price environment and the Covid-19 crisis did not help.

As AMLO, Gustavo Petro had run for president and lost twice in the past. A former guerilla leader of the M19 group and former Mayor of Bogota, the parallel between their careers are hard to miss. Although, Petro had always been an outsider in the political establishment that ruled Colombia for seven decades, whereas AMLO was a dissident rising from within the PRI ranks. Petro also had to build a more pragmatic centrist coalition to be able to finally get elected in 2022 in the new pink tide. Like AMLO, Petro announced that he would stop oil bidding rounds and ban fracking, creating concerns that Colombia’s already dwindling oil production and reserves could eventually lead the country to become a net importer of hydrocarbons. the similarities between the ideologies of AMLO and Petro, however, stop there.

Petro’s anti-hydrocarbons philosophy is rooted in the traditional view among the radical left in Colombia that sees oil as an “extractivist” activity that generates few benefits to the country and the poor communities that often reside around the location of the reserves. These views – more recently combined with climate concerns - form an anti-hydrocarbon extraction view. This perspective is clearly embodied by the country’s Energy Minister Irene Velez who argues that the capitalist extractive development model has endangered the planet. Velez further argues that to halt climate change it is necessary to reduce economic activity in wealthy countries and stop the production of fossil fuels. The contrast with AMLO and Chavez, with whom Petro has had strong ties, cannot be overlooked. In fact, Petro has openly criticized President Maduro of Venezuela for following an extractivist model incompatible with climate concerns.

As with AMLO, Petro has shown some fiscal pragmatism by appointing a well-respected economist, Jose Antonio Ocampo, as finance minister. But as in the case of AMLO, his choice to head energy policy is much more ideological. Ocampo has declared that he favors encouraging the energy transition in the country, but in terms of hydrocarbon policy, he wants to continue with the exploration and production bidding rounds and prefers a more gradual reduction in the country’s dependence on oil and coal exports.

One of Ocampo’s initial tasks has been negotiating a fiscal reform through Congress. His initial proposal significantly increased the government take on oil, by adding a special over-tax rate on profits applicable to the oil sector and making royalties non-deductible as costs to calculate taxable profits. After some negotiations and push back from the oil sector, the approved bill made the additional tax rate variable with the price of oil, limiting its negative regressive effects. Still, the reform is perhaps the most significant retroactive change in the government-take in the history of the Colombian oil industry. Colombia has never previously moved unilaterally or forcefully renegotiated contractual terms, unlike most countries in the region. Arguably, the nature of these tax reforms over the oil sector constitutes a form of de facto expropriation. In a show of pragmatism, the Petro administration has announced a plan to reduce subsides on transport fuels, which increased significantly during the Duque administration.

President Petro has become an advocate in international forums for an acceleration in the energy transition. And, unlike other leaders that emphasize the deployment of clean energies, he has made a point of arguing for a rapid phasing out of oil production. As in the case of Mexico, some degree of pragmatism, along with significant institutional checks, would probably limit the impact over existing oil investments and ECOPETROL. Still, the combination of policies announced by the administration, particularly the ban on fracking - which limits the prospect of developments in the Magdalena Valley - the tax reform and the possible slowdown in exploration bids pose a significant challenge. That’s at a time when the industry is already facing the challenges of high extraction costs, community/environmental obstacles, and limited reserves/prospectivity.

Brazil
Over the last few decades, Brazil has had the most successful oil industry in Latin America. Petrobras has been one of the most effective and capable national oil companies in the world, despite some episodes of political influence on management and corruption scandals. In the 1990s, President Cardoso executed the most comprehensive oil reform to liberalize the sector, eliminating the state’s monopoly, creating an independent regulatory agency and partially privatizing Petrobras. Even though Petrobras continues to be the dominant player, the reform created the conditions for a significant increase in investments that added significant reserves and production.

President Lula came to power in 2003, and like AMLO and Petro, he had some failed runs under his belt - it was his fourth attempt after three previous defeats. He had markedly moderated from the more radical leftist positions he and his Workers Party had previously advocated. In many ways Lula’s rise to power as the first leftist president of Brazil, served as a blueprint for the eventual rise of AMLO and Petro.

Lula did not reverse the energy reforms initiated by Cardoso and benefitted from the start of the commodities super cycle. However, the discovery of massive resources in deep waters in the pre-salt formations in 2006, combined with the high oil prices, created some resource nationalism pressures. Lula talked about joining OPEC and some in his party advocated for a re-nationalization of the private shares in Petrobras. Notably, Lula did not breach any contracts or threaten foreign investors. But he, and his handpicked successor, President Rousseff, did change conditions for new contracts in the prolific pre-salt area, changing the model from concessions to production sharing; requiring Petrobras to be the operator and 30%+ shareholder; and prioritizing local content requirements. These policies led to cost increases and development delays. Lula also directed Petrobras to increase its refining investments and to subsidize the domestic market of transport fuels.

As it was later uncovered, a wide-ranging corruption scheme occurred in Petrobras during the Lula and Rousseff administrations. The ensuing scandal threatened to bankrupt the company. In addition, minority shareholders in Petrobras often complained that the government took decisions that undermined their interests. The scandals and politization of Petrobras negatively impacted the market capitalization of the company. It’s plausible that had private sector participation been bigger there would have likely occurred faster growth in the sector. Even so, Brazil has been the most successful country overall in the region in developing its upstream industry.

Rousseff was ousted in 2016, which was followed by the pro-business administrations of Michel Temer and Jair Bolsonaro, which implemented some reforms, including allowing foreign oil companies to operate the pre-salt fields without requiring Petrobras as partner; loosening local content requirements and privatizing some segments of the refining and natural gas value chains, which were a Petrobras monopoly.

Lula’s recent victory has revived some concerns that he might seek to reverse some of the preceding liberalization. It is likely that the new Lula administration will slow down or stop the privatization plans in the downstream. He continues to be an advocate of the developmental role of Petrobras. He will probably redirect some investments to downstream, biofuels, fertilizers, gas and renewable energies. That deviates from the company’s strong focus on developing their most profitable offshore assets. But if history is a guide, Lula will be a pragmatist that would aim to take advantage of developing the massive potential of the Brazilian upstream sector to accomplish some of his other policy goals. Also, he has signaled his moderation by picking his former rival, centrist Geraldo Alckmin, as vice-president and giving him some major role overseeing economic policy. Moreover, there are significant limits to Lula’s power, he faces a stronger opposition from the right in Congress. Finally, the previous corruption scandals imply that the government will be more cautious and monitored in the implementation of developmentalist policies.

Argentina
Argentina’s Peronism is a different category from the other leftist parties discussed above. General Juan Domingo Peron was elected in 1946 and overthrown by his fellow military in 1955. After being banned from Argentina’s politics for almost two decades, he came back to be elected president in 1973, just to die a few months later. He and his wife Evita created one of the most powerful and long-lasting populist movements in the region’s history. Peronism, the ideology founded by Juan Peron, can seemingly shape-shift from left to right, from nationalization to privatization, without losing its supporters. Peron, who had some fascist proclivities before the WW II, opened the oil sector to private companies, just before he was overthrown. When Peron returned, he was supported by radical left and radical right factions in his movement.

The next Peronist president, Carlos Menem, privatized the oil industry in the 1990s, leading to a significant increase in production. A catastrophic macroeconomic crisis in 2001-2002 led to the resignation of his non-Peronist successor, President De La Rua, and the return of Peronism. As a result of the crisis, the government reneged on all dollar denominated contracts, subsidized domestic energy prices, and levied a special tax on hydrocarbon exports (before the oil industry? paid only regular income taxes to the federal government and royalties to provinces). In 2003, President Nestor Kirchner, from the leftist faction of Peronism, was elected. He initially implemented a pragmatic economic policy, with a moderate finance minister, Roberto Lavagna, but eventually introduced more populist policies during his term and the two terms of his anointed successor, his wife Cristina Fernandez. As many others during the initial pink tide, they benefited from the commodities super cycle in the agricultural sector and used the windfall to implement popular social transfer programs, gradually increasing state intervention in the economy. Their policies of price controls, subsidies to domestic fuels, and eventually currency controls, dampened private investment in oil and gas. Argentina turned from the third-largest exporter of hydrocarbons in Latin America, to a significant net importer. Eventually, President Cristina Fernandez decided to re-nationalize YPF in 2012 - the national oil company that Menem had privatized and was by then majority-controlled by the Spanish company Repsol. She had become frustrated by Repsol’s failure to invest in oil infrastructure and develop the massive shale resources in the Vaca Muerta basin. In a show of the legendary Peronist pragmatism, she immediately turned to Chevron as partner to develop Vaca Muerta, signing a contract providing a series of guarantees, to limit the risk of regulatory expropriation.

In 2015, center-right President Mauricio Macri was elected with a more pro-business platform. Despite improvements in the business climate, another macroeconomic crisis - a cyclical feature of Argentina - partly the result of the commodities bust, impeded the fulfillment of Macri’s ambitious energy targets. In 2019, President Alberto Fernandez was elected, from a moderate faction of Peronism, in alliance with former president Cristina Fernandez de Kirchner (no relation) as his vice-presidential running mate. Fernandez faced the Covid-19 crisis and ran into another macroeconomic crisis, reestablishing the currency controls that Macri had lifted. Currently, with low approval ratings, he is unlikely to seek re-election and the opposition on the right appears to have better chances of coming back into power.

Interestingly, the very attractive resource base of Vaca Muerta, with short-cycle fracking in shale/tight oil and gas reservoirs, has proven somehow resilient to the above ground risks of Argentinian politics and its recurrent macroeconomic crises. No other shale basin outside of the US has attracted more interest and investment. The modular, low sunk cost – the very nature of shale extraction – provides a hedge against high political risks. Therefore, it is likely that some significant investments will continue to be deployed and production will keep increasing. The limits to development, particularly on the gas side, would be determined by the capacity to attract the necessary investments in infrastructure: pipelines, liquefied natural gas (LNG) export trains, and other off takers like petrochemicals.  

It also helps that – despite the Argentinian governments’ incapacity to commit to long-term policies -there exists a significant consensus among the different factions of Peronism and the opposition parties, for developing the oil and gas sector in general, and Vaca Muerta in particular. That includes granting a significant role to the private sector, with the understanding that YPF would not be able to do it alone. This is in stark contrast to the anti-hydrocarbon ideology of Petro or the statist ideology of AMLO. Like the Brazilian left, Peronism wants to develop as much as possible the nation’s hydrocarbon resources, in the window of opportunity given by the energy transition. The problem in Argentina has been a lack of a political and institutional framework to guarantee macro stability and the property rights of investors. That’s why, despite some significant offshore exploration potential, Argentina is much less likely to develop it than Brazil or than its very own shale resources.

Conclusion
Figure 1

Overall, the different shades of pink are very relevant to understand each country’s trajectory, both in general and with regards to their energy policies. It is also important to note that this pink tide differs structurally from the first iteration in the sense that it’s more of an ‘anti-incumbent’ wave than a true embrace of socialistic ideals (see Fig. 2). Bolsonaro and Macri were the first presidents to lose a re-election bid in Latin America’s democratic history, and looking through a broader lens, the party in power has lost the last ten elections in the region. This visceral and immediate reaction from the electorate to near-term hardships can in fact make politicians shortsighted in their thinking, which has a knock-on effect for energy policy, which is typically long term in nature. Commodity prices do play a role, too. While the industry is currently in a high price cycle, it is not the commodities boom of the early 2000s. Today’s pink tide governments must deal with headwinds such as inflation, high debt, and high borrowing rates for international financing. Most countries in the region badly need private oil investment, which differs from the early 2000s, when countries could benefit from the investment cycle brought in by the 1990s reforms.

Time is also a factor. The global energy transition means there is a limited window of opportunity to develop these hydrocarbon resources. There is no sense to play the waiting game with a view that what is in the ground today might become more valuable tomorrow. What is left in the ground after the energy transition window has closed, will stay there, and the population will not benefit from a national resource that is not monetized. Whether this generation of pink tide leaders grasps this concept, or whether this will it be lost in the rhetoric remains to be seen.

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Authors: 

Claudio Galimberti  

Senior Vice President of Oil Markets, Head of Americas Research 
claudio.galimberti@rystadenergy.com

Schreiner Parker

Head of Latin America 
schreiner.parker@rystadenergy.com 

Francisco Monaldi, Ph.D.

Director of the Latin American Energy Program of the Center for Energy Studies at Rice University's Baker Institute for Public Policy

(The data and forecasts contained in this column are Rystad Energy’s and the opinions are of the authors.)