The NIMBY ("not in my back yard") attitude is usually thought of as a curiously British phenomenon. But last month it was U.S. Secretary of State John Kerry who came under fire for referring to Latin America as the nation's "backyard" at a Senate committee hearing. Bolivian president Evo Morales swiftly took the opportunity to throw the Bolivian branch of USAID out of his country in retaliation. But the ill-judged choice of words may call for a reassessment of North America's attitude towards its southern neighbors — and no more so than in the energy sphere, where the rise of China as an increasingly dominant trading partner with Latin America's resource-rich nations is already having a visible impact on U.S. crude imports.
For anyone watching the South American region, each month is marked by reports of another high-level visit between South American and Chinese leaders to conclude trade and investment deals, symbols of increasingly cozy Sino-Latin American relations that shift the balance of power on the continent. The impact of these shifting dynamics influences the U.S.-China-Latin America triangle on the economic, political and social planes.
In 2009, The Economist officially declared the death of almost two centuries of the Monroe Doctrine, which understands Latin America as falling within the U.S. sphere of influence, taking priority over other global players. This was announced on the occasion of China replacing the U.S. as Brazil's largest trading partner. But since then the trend has continued, and indeed accelerated, as China continues to seek a foothold in the continent's vast natural resources (the second-largest reserves on the planet after the Middle East). The implications of this for America's role as power broker in the region and for future political leverage causes obvious nerves in Washington, but there are also concrete implications for sourcing of American fuel imports.
When it comes to the energy sector, of course the U.S. energy mix is gradually shifting toward natural gas as a result of the domestic shale boom. But in the meantime the impact on the map of crude import sources is clear if we look at data from the U.S. Energy Information Administration. Of the top five exporting countries (accounting for 80 percent of U.S. imports), two are currently Latin American nations — Mexico and Venezuela. Of the top 10 exporters (accounting for 96 percent of all imports), four are from Latin America — adding Colombia and Ecuador to the list.
But looking at the time-adjusted data, crude imports from these countries have fallen significantly over the last year. Imports from Brazil fell particularly dramatically, from 281,000 barrels per day (bpd) in February 2012 to only 69,000 this year. Imports from Venezuela fell from 890,000 bpd to 579,000. Some of this drop was soaked up by rising imports from Iraq and Canada.
Even Colombia, experiencing its own energy boom and traditionally a staunch ally of Washington, saw exports fall from 445,000 bpd to 360,000 over the same period. Traditionally reliant on sending supplies to the north, Colombian policy makers have openly stated they are rethinking this dependence. Sinochem's purchase of Total's Colombian production units is the latest in a spate of purchases and investments by the Chinese in infrastructure as well as exploration and production.
The importance of energy supplies from the South is down to several factors. From a purely geographical perspective, the U.S. does not want to find itself in a position where it needs to seek out farther-flung locations to fill any supply gaps, with the extra transportation burden that entails. But U.S. refineries are also currently geared to process heavy crude grades, such as those produced in Venezuela's Orinoco basin, in Mexico, or in Colombia's llanos.
Of the Mexican crude imports, much of what is processed at these refineries is exported back into Mexico as lighter, higher-grade products such as diesel or gasoline. In 2012, Mexico imported nearly one-fifth of all U.S. petroleum product exports, despite its status as one of the world's largest crude oil exporters. So the U.S. interest lies not only in securing supplies for its own economy, but in how midstream economic activity can be stimulated by trade arrangements.
So what of the operations of U.S.-based multinationals in South America? According to a briefing by the Inter-American Dialogue, Western multinationals still enjoy comparatively strong positions where they operate, so the extent of damage felt by the U.S. as a result of Chinese investment in Latin America is "limited at best." But the latest multiweek series by Today in Energy (an EIA bulletin) on ongoing Mexico-U.S. trade relations hints that the relations built up over years by the U.S. in its "backyard" won't be given up easily. The U.S. may be on the path to energy independence, but the Chinese companies scrabbling around at the bottom of the garden is unlikely to go unnoticed.
