Region - Environmental pressures on Latin American energy companies
Environmental activists demonstrated they can pressure some of the world's largest oil companies. They could come for Latin America's state-owned firms next.
Exxon had two board members replaced after a shareholder fight over the company’s slow adaptation to the new energy environment. A Dutch court ruled that Shell is partially responsible for climate change and must reduce its carbon footprint, likely by reducing the amount of oil it produces.
To quote the WSJ:
The back-to-back, watershed decisions demonstrated how dramatically the landscape is shifting for oil-and-gas companies as they face increasing pressure from environmentalists, investors, lenders, politicians and regulators to transition to cleaner forms of energy.
These events may have some direct impacts in Latin America as Exxon and Shell have operations in the region. More broadly, this environmental shift occurring in the US and Europe presents a challenge to Latin American companies that are slow to adapt to the new realities presented by climate change. Whether they are publicly owned or state-owned, almost no energy company is immune from being targeted by a similar pressure campaign.
This is particularly true to the region’s state-owned firms. They have been among the slowest to adapt, least interested in climate issues, and they face a mix of political incentives and pressures from their controlling governments that make them the most likely to get blindsided by this sort of pressure in the near future.
Pemex - AMLO’s retrograde energy production and refining strategies has the country burning increasing amounts of dirty fuel oil to produce electricity. His cancelation of renewable energy credits and permits has added to the perception that he is running an anti-environmental agenda. All of this is happening while Pemex is losing money and AMLO’s reforms aren’t pushing towards profitability. Those financing concerns mean the company could be very vulnerable to outside pressure.
Petrobras - There is already a fairly large divestment campaign in Europe intended to punish Bolsonaro and businesses that profit from deforestation in the Amazon. It’s not a stretch to think that the same pressure will apply to Petrobras, a publicly traded company. Even if Bolsonaro is not reelected, activists could continue to conflate Brazil’s oil company with Amazon destruction (whether that’s fair or not) and create pressure for the firm to change its strategy.
Pdvsa - The degradation of Venezuela’s oil industry means it likely requires billions in investments if it ever hopes to produce at a substantial level again. Many analysts who have mapped out scenarios for a post-Maduro economic recovery in Venezuela have counted on the revival of Pdvsa in cooperation with private investment. That investment could be hard to come by in the new political environment. On top of the climate change concerns, Venezuela’s heavy oil mixture has a high level of sulfur content that makes it undesirable from a pollution standpoint as well.
Beyond the potential for pressure from outside investors or activists, state-run firms face an additional challenge should voters decide to influence their direction. These state-run companies thrived in an era where a pro-extraction left and an anti-regulation right had painfully similar views on environmental protections. An increasing number of voters in Latin America view climate change as a threat. Separate from climate change, in the case of Mexico in particular, the pollution from the current energy policies is likely to push voters towards cleaner energy.
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