Page 121 - STRATEGY Magazine (G)

As Guatemala pushes toward more green energy, it is estimated that 64 percent of its electricity is now produced from renewable sources.
Though many of Guatemala’s industries are well positioned for the future, perhaps the most auspicious outlook belongs to the energy sector. In 2011, 32.2 percent of Guatemala’s US $300.7 million in foreign direct investment (FDI) came from energy and oil. Production of both oil and electricity has increased substantially, making Guatemala the highest producer of these resources in all of Central America. And while production has increased significantly, the potential for further advancement and investment appears largely untapped.
A PIPELINE OF INVESTMENT OPPORTUNITIES
Unlike many investment sectors in this region, energy and oil have a clearly defined legal framework that has been in place for more than a century. And contrary to the practice of many Latin American countries, Guatemala allows private entities to extract and export hydrocarbons. In fact, the majority of its oil wells are owned by major global corporations. However, Guate- mala does not have a single refinery plant to assist in the pro- cessing of these resources; therefore, the export of these goods is still in its infant stages. A pipeline of nearly 500 miles to link the oil wells to the Atlantic for export is in place, as is a storage capacity of 600,000 barrels. If a refinery can be constructed, this disconnect between natural resource and finished product will cease to exist.
No such disconnect exists for electricity; however, it is still
in the midst of a drastic overhaul that will see Guatemala use less fossil fuels and more types of renewable energy to create electricity in the coming years. Biomass- and geothermal-based production are on the rise, and it is possible that more hydro- electric plants will be constructed as well.
Electricity does, however, come with a lofty cost for domestic users who still must rely on diesel, fuel oil, and firewood for power. The cost per kilowatt hour in Central America is twice that of the United States, with the poorest countries paying the highest rates. Analysts hope that the increase in renewable energy will have the added benefit of cutting domestic costs.
To assist in this effort, the Inter-American Development Bank (IDB) is increasing lending to energy projects geared toward
the integration of electricity grids. The IDB is optimistic that combining many of Guatemala’s natural resources will lead to a reduction of costs and further advancement in the energy sector of the region.
NEW SOURCE FOR AN OLD RESOURCE
Production of oil has increased in recent years to nearly 10,000 barrels per day, with much of this extraction coming in the form of heavy crude oil. The majority of oil is currently sourced from only a few regions of the country. Guatemala has recently opened bidding for oil extraction from new areas, and according to the Ministry of Energy and Mining, the number of barrels per day is expected to grow to 50,000 within the next few years.
Part of this expected growth is from oil wells that are already in place. Of the 153 oil wells currently in operation, only 58 are producing oil. The new international bidding is intended to increase not only the areas in which oil is being extracted, but also the number of producing wells. Some studies have esti-
mated that Guatemala has a hydrocarbon reserve of 83 million barrels, though other indicators reveal that it may be as high as 750 million.
Royalties on production must be paid to the government as established by the Hydrocarbons Law. The law also establishes a state participation that requires Guatemala to be granted stock participation for a private company to extract oil. This partici- pation is directly associated with the number of barrels the com- pany produces per day, beginning at 30 percent participation for up to 20,000 barrels per day and going as high as 90 percent for 90,001 barrels per day or more.
The gap in potential and actual extraction is likely to con- tinue, as Guatemala expands toward renewable energies. The momentum of hydro, solar, and wind energy is also helping to decrease the need for hydrocarbons. These renewable energies will increase the generation of green energy and allow for lower production of carbon emissions and an expansion of electricity capabilities. For the time being, Guatemala is still considered
a net importer of energy due to its continued dependency upon hydrocarbons for both industrial and residential use.
State Stock Participation
in Oil Extraction
SPECIAL REPORT
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SOURCE: HYDROCARBONS LAW (DECREE 109-83)