Jorge Piñon spent 32 years working in the oil and gas sector and is now a senior research fellow at The University of Texas at Austin’s Energy Institute. In this episode, Piñon, who spent much of his career working in Latin America and Spain, talks about Cuba’s energy crisis, the devastation of Venezuela’s economy by the Chavistas, geothermal, South America’s dependence on hydropower, and how the U.S. became “the de facto refiner for Latin America.” (Recorded September 1, 2022.)
Robert Bryce 0:04
Hi, everyone, welcome to the power hungry Podcast. I’m Robert Bryce. On this podcast we talk about energy, power, innovation and politics. And I’m pleased to welcome Jorge pinion he is a senior research fellow at the Energy Institute and here at the University of Texas at Austin. Jorge, welcome to the power hungry podcast.
Jorge Piñon 0:22
Thank you, Robert, a pleasure to be with you today.
Robert Bryce 0:25
We’re going to talk about Latin America and energy politics in, in south of the US. But Jorge, if you don’t mind, please introduce yourself. I didn’t warn you. I’m ambushing you here. But all the guests on the podcast introduce themselves. So imagine you’ve arrived somewhere. And you have maybe 45 seconds or a minute to introduce yourself, please go ahead.
Jorge Piñon 0:43
Yeah, I’m, I’m a Cuban American. I went to school at the University of Florida in Gainesville. I have a degree in economics and in Latin American Studies. And right out of school, I went to work for Shell Oil. And that beginning took me through a 32 year career in the oil industry, worked for Shell worked for Amoco. In Latin America, I was in Mexico City for about five years. And then after the merger between amicale and BP, I got transferred to Madrid, Spain and work for BP another five years or so. So yeah, I’ve been basically on the downstream side of the business throughout Latin America for about 32 years, retired from BP. And then did research work at the University of Miami, and Florida International University before joining the University of Texas about 10 years ago. So today in academia, doing energy research in the region. But with a background in the business, that gives me a different perspective than that from 100%. Academic.
Robert Bryce 1:54
Sure. And so when you say downstream, you’re talking about refined products, gasoline, diesel, fuel, propane, those kinds of things, retail, retail marketing of those things. Right.
Jorge Piñon 2:03
And also worked for the corporation quite a bit. So I’m familiar with the upstream and the petrochemical. Both of the business units, I was always linked to business unit with the oil business, so they are the downstream. Yes.
Robert Bryce 2:16
Gotcha. So we’ll look I’m glad to have you on because I’ve been done 130 some odd podcasts I don’t know have I’ve been ignoring Latin America, but the time to talk about it is now tell me what’s going on in Cuba. We we touched base a few weeks ago about because last month there was an explosion at the port of Matanzas. In Cuba. And it looks like the situation in Cuba is very bad. Because of the this explosion that destroyed the storage facilities for oil in Cuba. Bring us up to date, if you don’t mind. What’s What, what’s happening in Cuba today? How bad are the electricity shortages and the overall situation in Cuba?
Jorge Piñon 2:54
Well, the firing metathesis, which took out about a million barrels of storage in their main transshipment port really was another, you know, cherry on top of this pie that they’ve been having problems for a long, long time. As you know, today, they depend on about 100% of the oil deficit from Venezuela. Of course, Venezuela is losing production. So they used to get about 100,000 barrels a day of oil from Venezuela. Now that’s down to 50,000 barrels a day of oil. Their demand, by the way, it’s about 100 and 10,000 barrels a day. So still, they rely on about 50% of their oil demand from Venezuela. That’s a major risk. They’re putting all their eggs in one basket just like they did with the former Soviet Union.
Robert Bryce 3:47
And they were getting and they were getting very different. And they were getting sorry to interrupt but they’re getting very preferential pricing from Venezuela as well. No, because it’s not just for free.
Jorge Piñon 3:55
Well, more than preferential prices is zero cash flow. In other words, he’s actually a barter deal for services, okay. And they get oil return on those services or doctors for trainer, a bunch of people that they sent over. So no, there is no cash flow impact on keyless economy for this 50,000 or 100,000 barrels of oil a day that they were getting from Venezuela. So it’s a it’s a very sweet, very, very sweet deal from them. So that’s their main risk their dependency on Venezuela, what happens if there is a change in the Maduro government in Caracas? What is killer going to do? But closer to home now, today? Yes, the last of my time says, brought about a major crisis that they were already having in their electric power sector. About half of their baseload electric generation is over 445 years old. These are old equipment that they put down when from Russia and from Czechoslovakia. They lack capital maintenance. So they’d be having power plants. Basically baseload thermoelectric oil, power plant trouble for the last three or five years. Now all of this is complicated because a lot of those power those power plants are going out of out of service. They need capital maintenance. And Cuba doesn’t have the money. So they lose main storage facility. They’re losing a lot of electricity from at least 50% of their power generation. And now they’re bringing these floating power plants from Turkey to supply them with the power they needed. By the way, yesterday’s last night’s peak, our deficit was 1000 megawatts
Robert Bryce 5:45
in Cuba. Right? That’s roughly half of their load, something like that. Yeah. So
Jorge Piñon 5:50
So now they’re having anywhere between eight to 12 hours of blackouts, including Havana, you know, in the six months ago, 12 months ago, they were trying to keep Havana steady because of the tourist rate. Right. But now, even Havana is going into a 10 hour blackouts. So yes, the situation is critical. And he’s certainly not getting any better. Robert,
Robert Bryce 6:15
Will. And to add to that, because as I’ve read about this, the the key issue here for foreign trade is the dollars and other hard currency that’s brought in by tourists. But you’re not going to attract tourists if you don’t have power at the hotel, right. So this problem feeds on itself as the worst the electricity crisis gets, the less money there is to bait pay for oil or to pay for maintenance on the on the power plants. And so this problem seems like it only goes gets worse the longer it goes on. Is that fair?
Jorge Piñon 6:45
That is fair. And even their own. For example, they have a major strategy, which the executor about two or three years ago, very smart. We support it, which was biomass. You know, Cuba is a big producer of sugarcane. Yeah. And just like Brazil, they started building this biomass generating facilities at some of their sugar mills. Well, guess what, this year, all of those facilities are shut down. Because there is no sugar cane, Cuba this year had their lowest sugarcane harvest, since the Republic was founded back in 1902. So all of this renewable plant that they had in place with biomass is now not given fruit. Why? Because there’s no sugarcane.
Robert Bryce 7:34
And why is that? And why? Why is such a bad harvest?
Jorge Piñon 7:38
It’s it’s the economic model. You know, there’s no question by the way, let’s talk about also the 800 pound gorilla that sometimes we try to avoid, which is the US embargo. Yes, the US embargo and other sanctions that the government of the US has put against Cuba? Yes, that that hurts, and that pushes back the economy. But they have a lot of projects from Russia. They have a lot of projects from China, that are not impacted by the embargo. And they’re not materializing. It’s just like of management is a centralized economy. And that regrettably well with the embargo, all without the embargo. Robert, he doesn’t work. So yes, the problem with them, even renewable projects like biomass, which will be fantastic. If they’re not working,
Robert Bryce 8:32
but they’re not going to be able to fill that void that 1000 megawatts with biomass, are they I mean, this biomass is going to be what a few 10s, or maybe 100, or 200, MeV? I mean, this biomass is very limited in terms of its overall ability to scale No, correct.
Jorge Piñon 8:45
And they’re not even going to solve the problem with getting this this power barges that they’re bringing in from from Turkey. I call this the Home Depot strategy. In other words, let’s go to Home Depot and buy some small generators. So they can keep keep us going. They need a total recapitalization of the electric power sector. We were very excited when Siemens the German company and total were talking to the Cubans about building a combined cycle LNG plant in metathesis, by the way, and that did not go forward. Because the Cuban people cannot afford the electricity at the price that totaal and Siemens needed to charge in order to build a 600 megawatt combined cycle LNG plant, right. So even that project now he is dead.
Robert Bryce 9:42
And the price of and the price of LNG in the international market has been soaring, right where it’s also has been going up, but it’s 3030 or $40 into the Asian market now, right I haven’t checked it today but the jKm marker something on that order. No, it’s something like I didn’t you know, like I said, I haven’t checked it but it’s very expensive way to produce power.
Jorge Piñon 9:58
Correct and Remember that 80% of Cuba’s current electricity generation is generated by oil, right? Half of that Cuban crude oil, which is very heavy. It’s about a 10 API about 5%. Sulfur, which is really awful on those thermoelectric power plants. So even the oil that they burned today, about 80% of their thermoelectric production is oil base is with high sulfur fuel oil. So we were really excited when we saw Siemens and Tatau. Talking to the key ones about natural gas against the other fossil fuels are much cleaner than the oil that they’re burning. And also it gets them it diversifies their their energy sources are there, instead of oil from Venezuela now at least you have LNG, which is more of a global wide commodity.
Robert Bryce 10:53
Right. Well, let’s talk you mentioned domestic production. We’ll talk about CupIt. Are they as I saw them, I have a cute pet hat that I got at a conference some time ago, I think was a World Petroleum Congress several years ago. Are they able to increase their petroleum production? I mean, they know it’s been an objective of the Cuban government for a long time, particularly offshore. Have they made any headway in that regard?
Jorge Piñon 11:16
No. And the 2012 campaign, there were four offshore deepwater prospects, by companies like represent Repsol, stat oil, PETRONAS, from Malaysia, or NGC from India and other companies and those four wells that were drilled offshore, proved to be non commercial. So there is no activity whatsoever. going offshore, Cuba’s current production is mature, it’s been around for about 40 years, is basically shallow feels right offshore, that are drilled horizontally from shore. And that production is dropping, Canada’s share it, which as you know, is in the nickel business, but they’re also in the oil business was their partner for a number of years, and they’re really the ones that help Capet bring or monetize that, that shallow water production. They’re gone. Now the oil business, they’re still in the nickel business, but share it is no longer in the oil business. But don’t Capet SAP or Cuba’s oil production is limited. Again, like 38 40,000 barrels a day of heavy oil from shallow fields. And we don’t have vision, anything further here in the next few years.
Robert Bryce 12:31
And because it’s heavy, it’s going to be heavy and high sulfur, it’s going to be hard on the power plants, right? Because it’s going to require more maintenance on the boilers. The rest of this if you’re if you’re running that grade of crude, and it’s also going to be more highly polluting, just in terms of particular and so on for the people who live near the plants. No,
Jorge Piñon 12:49
correct. But that’s the only option that they have. There was no US embargo. Of course, they could bring it down to our former refinery and McAllen, Texas City, which loves that kind of heavy crude. I mean, I might go to Texas City used to run crude from Guatemala, Guatemala crude is probably one of the worst groups around. So again, even the Cuban refiners that you have today, which are the old Texaco refinery in Santiago, and the old Exxon refinery in Havana. Those are basically topping plants with very little if any conversion capacity. So the only option that they have for the heavy cube and crude oil is really to burn it as fuel in their electric power plants. Because they can refine it, and they can export it.
Robert Bryce 13:35
So explain what you mean by a topping refinery please.
Jorge Piñon 13:38
It’s helping refineries that refinery that just have a distillation unit and has your basic cuts of light ends NAFTA, I think a lot of fuel on the bottom that might have a vacuum tower to produce some middle distillates, but no hydrocracker, no reformer, no heavy no conversion capacity, or for that matter hydro treaty capacity that can take the sulfur out of the diesel for example. So no, Cuba’s refiners are very elementary with again, no conversion capacity, being able to extract high value light products or hydro trading for sale facilities to take the sulfur out of for example a lot of diesel and produce low sulfur diesel. Sure.
Robert Bryce 14:27
So let’s talk about the power ships I’m passingly familiar in my latest book and also in our documentary The documentary documentary I made with my colleague Tyson Culver juice, we went to Beirut and we saw the power ships that are run by the Turks car power ship is the name of the company but it’s Lebanon and Cuba that there what I see these these power ships that were they are deployed they’re generally deployed deployed to and I’m gonna say the the failed states right that they that Lebanon is a failed state they did they can’t they don’t have enough capital enough civil society I’ll use that is to be able to to build their own power plant. So they’re they’re leasing these power plants from the Turks. But is Cuba even do this? I mean, do they even have the capital to get the Turks to lease them a power plant? And if they do, where’s the foreign word they’re gonna have to pay in dollars, right? I mean, they’re, they’re gonna need hard currency to pay for the lease and for the fuel oil. So is this even a viable option? And you’re quoted in an article that was published today, September 1 and Reuters on this very issue? How do you see it?
Jorge Piñon 15:36
Well, that’s that’s the whole problem. They currently have four power barges. They have three in Marielle. And wanting Havana, for a total of about 300 megawatts. The President Diaz canal was on TV about all three weeks ago, he was talking about an additional 500 megawatts of new financial projects that he was bringing on by the end of the year. What that Reuters article say that those 500 megawatts was basically additional floating power stations that they were discussing with the Turks. But their problem was just exactly what you just said. The Turks says, Wait a minute, we’re putting a lot of eggs in your basket, we want some sort of guarantee that you’re going to be able to pay us right now the heel is provided by the Cubans. So that’s not a problem. But as far as the lease agreements, I think what the turrets now one is some sort of guarantee, because this could be as high as 800 megawatts of floating capacity capacity. Right? That somehow you said the Cubans are gonna have to pay for it. So Detroit right now I understand like the Reuters article say, they’re in conversations and older. The third one is a give me some sort of guarantee that you go and pay my bill.
Robert Bryce 16:54
Sure. And so those you said they’re for power barges that 300 megawatts is the is that all car car power ship or all those are? Okay, so I didn’t realize that Cubans already had four power ships that are already offshore, there are three at Maryellen. One, Havana, you said that is correct. So there, but they’re going to need hard currency to get more more, more, more more capacity. But as I see it in something we talked about in the film in Lebanon, where if the if the that had happened, the Lebanese couldn’t pay their pay their bills, so the Turks took the power chips and went back to Turkey. So this is the other option that if they may not be able to afford any more, any more capacity is that man, that’s how I read what you told Reuters was that where the Cubans gonna get the money?
Jorge Piñon 17:38
Well, I got in trouble with an article, that interview that I had at the Wall Street Journal, and they quoted me using the word that, to me, the imminent collapse of Cuba’s electric power system, was facing us. Someone in Havana got a little bit upset at that. But if you look at it was what the problem is that as some of these units come down, that puts more pressure on the ones that are already working without the necessary maintenance or capital maintenance that they require. Right? So it’s a domino effect. When one of them goes down, the other ones are put on more pressure, because they have to pick up that deficit. Right. So and they’re all in the same boat. I mean, right now, as of this morning, of the 20 units in the eight thermoelectric power plants, only 12 were working, only 12 were working, and those are working in less than 75% of ready capacity. So the more pressure you put up those units, the worse is going to get. I just don’t see short term without this power barges, a solution to the problem, and then they don’t have money to do what they need to do, which is to recapitalize the whole system. Right. Well, well,
Robert Bryce 18:55
I’ll ask this question, because it’s one that I mentioned. This is Cuba, a failed state.
Jorge Piñon 19:03
Sir, they’re close to it. You know, the problem with Cuba. I tried to put us whenever by the way, I go, I haven’t gone to Cuba in two or three years. But I used to go every other year. They let me in I still have my Cuba passport. So I’m not being political here. But
Robert Bryce 19:24
so I’m sorry, I didn’t read that. You have a you have an American passport and a Cuban passport.
Jorge Piñon 19:28
The Cuban constitution. The Cuban constitution says that when you’re born in Cuba, it doesn’t matter where you live. It doesn’t matter what other citizen ship you have. You’re always a Cuba. And if you ever want to come back to Cuba, you need to do it with the Cuban passport. So yes, I have a dual. I have a Cuban passport, which is valid. And of course I also have my US passport to keep a passport. I only use it to go in and out of out of out of Havana. But again, the problem here is that if they want to socialist state with socialized medicine and social education, that’s fine. But open up the economy be centralized the economic system and lead PPP projects that’s a public private partnership projects come in, as long as the state is a regulator. I don’t have any problem. But no, they’re they’re still back in the old styling, or establishing this model of you know, this is this is a central, you know, economy. Robert, last year, the tomato, the tomato harvest fail. You know why? Because when the tomatoes were ready to be picked up from the agricultural cooperatives, there were no trucks, because the trucks belong to another ministry, and they were doing something else. And the tomatoes heavily tomato harvest last year, rot in the fields.
Robert Bryce 20:57
Man that just it’s
Jorge Piñon 20:59
embargo. That wasn’t the embargo. That was that the trucks belong to another ministry, and they had not to talk to the agricultural ministry, and the trucks never showed up.
Robert Bryce 21:09
Man, that’s just hard to hear. I mean, it’s just hard to hear the amount of labor that went into producing all those that that produce, and yet it rots in the field because of just this lack of coordination. And and, I mean, how does that feel? I have to ask you the personal question, because you’re Kumano by heritage. I mean, what does, how do you feel about I mean, I’ve not been to Cuba, but I, you know, the culture is amazing. They’re ballet, they’re baseball, they’re, I mean, they have these amazing cultural things. And yet the economy and the way it’s running just seems like it’s,
Jorge Piñon 21:39
that shows me that shows me the future that the country has, what do you mean, I’m here today, and that’s what we all get excited. And that’s why we all want to get into the politics, if they want, if the Cuban people, at the end of the day want a socialist government, as far as education and Medicare and all of that, that’s fine, but open up the economy. So like, you know, Cubans today, they can open a restaurant, you know, that that Apalla lot of Cuba can open a panel today, but they can only open a polygon that has no more than 10 tables. And they cannot open one that more than one part of that. So they tell you open your little restaurant in Havana. And they are and they’re making money. But by the way, you can only have a maximum seating of 10 tables, because then what happens is you become you know, a sword, you become a cop, you become a capitalist. And that goes against our, you know,
Robert Bryce 22:32
so like, I mean, just was you say that Jorge, I’m just thinking, Well, why 10? You know, no, why not? 11? You know, and then do they count the chairs? Can the chairs be comfortable? All
Jorge Piñon 22:41
these factors, all these vectors come and I have seen bolivares being shut down because they were serving more people than the government allow them to serve.
Robert Bryce 22:51
It’s truly, you know, it’s just hard to having not seen that kind of system. It’s hard to get my mind around it. Right. That will then so I don’t want to You said you want to stay away from politics. But I mean, is this regime going to last? I mean, is it or is this just being undermined by all of these effects that are, I want to talk about emigrate out? Migration in a minute, but I mean, as this Fidel held on for longer than anyone ever expected, is this regime gonna help hold on to?
Jorge Piñon 23:22
I, you know, not only is already his late, late 80s, by the way he came out, I don’t know if you saw him or not, but he came out last week and visited one of the power plants, you know, urging the workers to fix it, you know, as quick as they could. So he’s not in but he’s still around, right? I think when he passes away, and two or three others that are in their 80s, from the old guard. I don’t know. It’s, it’s going to be difficult. There was also an article recently, that so far this year 177,000, Cubans have crossed the border through Mexico. Cuban immigration this year, is the largest immigration that there has been since the 60s. But that, by the way, helps the Cuban because it avoids a lot of street and social unrest. So the Cubans are certainly in a way promoting for people to get out through Nicaragua anyway. Because that’s the escape valve that’s about that, in a way helps the government keep control of what’s going on.
Robert Bryce 24:33
Let me interrupt there because it seems like it’s the that’s the way the government keeps control, but who are going to be the people that are leaving it would be the ones that maybe have skills, or the ones who are ambitious or and who’s going to be left behind? It’s going to be I’m just musing here. I don’t know this for a fact. But it would be the old the young, the people that aren’t going to be productive. I mean, is that is that how you see
Jorge Piñon 24:55
and I guess what because the Wall Street Journal also addresses the issue. that the ones that are staying behind the ones that are not leaving are the Afro Cubans. Because most of the Cubans in the US are white, and they’re no sending remittances to their families. So the ones that are leaving now are people that have families in the US, and send them money for them to get out. And those happen to be white Cubans. Afro Cubans are very, very few in the US. Very, very few. So now, in fact, the article says that Cuba is getting darker and darker because again, of the Afro Cubans that are staying behind, because they don’t have money to get out. And they don’t have money that has been sent from the relatives outside of outside of Cuba. So if there is a revolution in Cuba, or another revolution in Cuba, let me tell you what the article and other social I’m not a social scientist, but are predicting that is going to be the Afro Cubans, the ones that are really going to rebel against this government.
Robert Bryce 26:00
Let me follow up because there’s a peace and fortune I just want to follow up on what you just said, because the numbers are about the same, but it says border officials have encountered nearly 178,000, you said 177,000 people fleeing the communist run Caribbean nation of 11 million so far this fiscal year. Most are coming by land after leaving the island for other Latin American nations that don’t require visas. The current wave this is a quote from newsletter from the Center for Democracy in the Americas. The current wave of Cuban migrants has officially surpassed the previous two largest ways of Cuban migration to the US, the Mariel Boatlift in 1980. And the falsetto crisis of 1994 combined. So the Cuban the Cuban out migration is adding to the immigration pressure at the southern US border. Because of like other countries in Latin America, the they’re trying to find a better place. Men. I just I just wasn’t aware of the dimensions or the numbers on Cuba. But is is could this be good? Those numbers go up even from here if this these electricity prices and shortages continue?
Jorge Piñon 27:03
Oh, yes, no question about it. By the way, one of the major problems that the State Department or issues that the State Department has always face is what happens when there’s a total social collapse in Cuba, either because Venezuela is no longer there to supply the 50,000 barrels a day, when there’s really a crisis in Cuba? How are we the US going to handle it? Because then you’re going to have a bunch of bad settles coming to the US. People across the border through Mexico. I mean, that could very well be a political problem, even here in the US. So there are folks that saying, hey, we need to help Cuba in order to avoid this crisis. That could be a crisis for us domestically here in the US.
Robert Bryce 27:50
Because the social systems would be overwhelmed by all the migrants, which was what happened initially for Mario, right and back in.
Jorge Piñon 27:58
Right, the difference is, and there’s a family nearby here, that most of these key ones that are coming, by the way do have relatives back in the US. And and there’s already a support infrastructure, right, by friends and relatives. But still, but still, yes, it’s going to be impacted in the US, particularly in South Florida. And we’ll see what happens.
Robert Bryce 28:24
Right. So we talked about Venezuela. So I found that I wrote about Google Chavez some many years ago. And Chavez initially, when he came into office appeared to be an ally of the US and then wasn’t and now he’s dead, succeeded by Nicolas Maduro, who’s now famously been, I don’t know, I don’t know if he’s been indicted, or he’s, it’s clearly he’s a narco. It’s from everything that I’ve read. Venezuela was one of the jewels of Latin America and ped of Asa was one of the most successful national oil companies in the world. It’s pervasive. Ryland and Kenneth recover.
Jorge Piñon 29:03
You know, bit of ESA when I came into this business, bit of ESA was the top NOC was a national oil company. It was well run. But remember, that is the former libel vein and Corporal being a matter of n, which are the former shell, Texaco and Chevron entities that got, you know, nationalized and then they became for the visa. So the key was been the visa was that it was run like an oil company. He wasn’t run like a national oil company. And the government’s until Chavez came to power. Stay away from it. They recognize the value of Mesa and they say, Listen, I don’t care who’s running it. I just want to monetize by the VESA, so I can have them my social strategy, whatever my political strategy is, and what happened in 2003.
Robert Bryce 29:54
And so I’m sorry to interrupt but so PenaVega became the economic engine that allowed for my daughter when the To fund social programs, so the government took a light hand and they let the technocrats run the business is everything that I’ve read. And I think I’m just just repeating what you said. But I wanted to drive that point home because it was the Venezuela has enormous oil reserves. And they’ve been successful in developing but it’s heavy oil. And it requires a lot of refining and technology to get it out of the ground and into the marketplace. But that but anyway, I interrupted, please go ahead.
Jorge Piñon 30:25
No, no, no, Venezuela had those two key factors. Number one, they had the reserves. We knew where the vessels oral was. He was on the Orinoco, we knew that it was heavy, we were developing the technology, we have the technology, and then we have the management. You know, at the end of the day, you can have all the oil you want. You can have all the technology that you want. But you cannot apply that technology effectively, to monetize your resource is worthless. Today, the largest holder of oil reserves in the world, and he’s producing less than 700,000 barrels a day.
Robert Bryce 30:59
Is that is that the latest number I hadn’t checked, the
Jorge Piñon 31:02
last number that I saw from OPEC was about 700,000 barrels a day. And Robert was interesting about this, I would have never thought who’s the largest producer of oil today in Latin America, at 3 million barrels a day is Brazil. So here you have been a vessel was at 3 million barrels a day when when Chavez took over. Now it’s at 700. Mexico was also about in 2004, Mexico was about 3 million barrels a day. And here they are at less than 2000 barrels a day. And Brazil, of all places is at 3 million barrels a day, even when Lula even with Lula as president, who was a socialist president, but Lula was smart. Lula said, You know what? I’m a socialist. I’m going to have my social policies. But I recognize that Petrobras is my golden goose egg or whatever you call it, I’m going to leave it alone. And he left it alone. And that’s why let me
Robert Bryce 31:59
go. So I’m just gonna go back to Pemex. So you said in tooth out in the early 2000s, Mexico was producing about 3 million, you said 2000. But it’s it’s been 3 million to 2 million today. I don’t I don’t know the numbers, which no, production day
Jorge Piñon 32:11
is producing less than 2 million barrels. Okay. I forgot. But back in 2004, they were producing 3 million barrels a day, which is the same figure more or less that Venezuela had, right those two countries have dropped, again, because of management, not necessarily because of oil reserves because of management, not necessarily because of technology, but because of management. And then you have Brazil, who had the offshore reserves, but they knew how to manage the development of those resources. And here they are today at 3 million barrels a day the largest producer in the region.
Robert Bryce 32:46
And arguably Petrobras is among the most sophisticated offshore companies in the world. I mean, the bar none right? I mean, their ability to develop a very deep offshore resources. Well, I mean, I know there are other companies that are doing it, but Petrobras has been one of the pioneers haven’t the
Jorge Piñon 33:02
petro bonds, and shell both shell and Petrobras as far as I’m concerned? They’re the top deepwater operators in the world, no question about it.
Robert Bryce 33:13
And what depths are they operating? I don’t know those numbers. I know, I’ve seen them before. But about what are the depths on the ground here? The challenge
Jorge Piñon 33:20
with Brazil, of course, is that there is sub salt. So in other words, there feel have to face the sub salt layer to go through. But it’s deep. It’s very, very deep.
Robert Bryce 33:32
Yeah. But deep water and deep under the surface of their under the under the ocean floor as well. Right. So all right, high temperature, high pressure, those are all part of the things that they have to overcome. Let me talk a little bit more about Mexico because there’s a new book out by an American guy named Peter Zion, who’s a geopolitical geopolitical strategist, his new book is called the end of the world is just the beginning. And I’ve heard him on several podcasts talking about Mexico. He says Mexico now given what’s happening in the world with kind of what he’s calling is the decline of what had been the existing world order since World War Two that for the US, Mexico is our most important foreign country that that relationship with Mexico now has become much more important, and that will be more important in the years ahead. How do you see it because Mexico, I mean, the country seems to be making progress there. The mosquitoes are very productive. They’re, you know, we have close trade ties. long border here in Mexico with me in Texas with Mexico. How do you is Zion right, that the that this Mexico relationship is the key one for the US in the years to come?
Jorge Piñon 34:39
It is. But our challenge is that today with Andres Manuel Lopez Obrador, you have a precedent in New Mexico that wants to return certainly in the energy field, back to 1933. Which is when Pemex was it. PEMEX was the only refiner Pemex had 100% of the production, even CFE, which is the Electric Power Company is now going back to a monopolistic type of model. So you have a president who is extremely nationalistic, who is, is pushing back all of the reforms brought in by Enrique Pena Nieto, during his 2013 2014, when he put forward the energy reform, allowing international companies to call to come and drill and for international oil companies to come on open service stations, I don’t know when is the last time that you were in Mexico City. But you drive Mexico City and you you see shell and Mobil and Chevron, you see all of those brands all over the place. Lopez Obrador is even now going after the retail gasoline facilities. So the answer to your question is, yes, I agree. Mexico is an important partner of the US. Remember, we are the largest supplier of natural gas, they are our largest customer as far as natural gas imports or exports are concerned. So in energy and in business, they’re important to Texas, by the way, not only to the whole US. But our challenge is the current administration. In Mexico City, we’re still has another two years to go. Remember, in Mexico, the presidential term is six years, right? So where’s Lopez Obrador going to end with his nationalistic policy in the next two years, and then what’s going to come after him, right, as his party, Morena, are going to be able to still keep control of Congress, and most of the state legislatures, which, by the way, is what’s required to make constitutional changes in Mexico? So, yes, it’s important, but we have a challenge of where the next two four years are going to go.
Robert Bryce 36:55
So it’s a political risk issue, right, that you have the one of with this changeover every six years that there’s no consistency in terms of longer term policy, and particularly for if you’re drilling for oil and gas, you if you need the rule of law, and you need a clear, governmental, I’m not gonna say mandate, but a clear government policy that you can count on for not five or six years, but for 20 years, or 10 or 20 years. Right. I mean, this is one of the key problems and that kind of big foreign investment that the energy companies need, that foreign energy companies need to move into Mexico. Is that Is that fair?
Jorge Piñon 37:29
That was that was the question when I was on Amoco. Those are the questions that we had for Argentina. That was the question that we had in Bolivia. That was the question that we had in Egypt, the agreements in place to monetize those resources, where acceptable, acceptable rate of return and so on, but the question is, like you said, political continuity, when you need 2025 years in order to monetize all of that investment? Remember our industries and upfront industry you come in, you invest hundreds, if not billions of dollars, and then you need 2025 years to recover that. So what guarantee do we have the question at the board? And the executive committee was always what guarantee do we have, that this government or future governments are going to continue to play by the same rules, right? And nobody was able to enter ever to give them an answer. But if the risk was good enough, ie Argentina, Bolivia, Egypt, we decided to move forward. But yeah, that is the risk continuity of the rules of the game. Are they’re there. So we can again, monetize those reserves and monetize that investment.
Robert Bryce 38:40
So what about Argentina? Now, another country that has had political upheaval continues to have some, but seems somewhat more stable. The Petro nice does seem to be on the decline a little bit, but you also have the return of a more socialist president or president rather in Chile. What about Argentina, there was a lot of talk about vaca mort de and potential for shale in Argentina. Where is that these days?
Jorge Piñon 39:05
You know, for the last 1015 years. In fact, I’ll even go back to when I was in school, Argentina was of those countries that when you look at all the checkmarks of what would make Argentina a great country, they had it land, agricultural, energy, I mean,
Robert Bryce 39:23
Jorge Piñon 39:25
army, they tick every single box, but they never grew up. The problem with Argentina is they never grew up. And again, there was no continuity every four or five years. They change whether it was a change rates, which was monetary policy, taxes, you name it. I mean, there was there has not been continuity in Argentina for the last 50 years. And then they’ve been able to survive. So again, right now for example, with Mike I’m worried that the biggest potential in Argentina is no Arroyo, the biggest potential in Argentina is natural gas and natural gas out of their shale formations. But in order to do that, they need to export the gas gas not only for domestic consumption, but they need to be able to export that as LNG. Well, that’s where they’re tied up right now. But the government needs to support the ability for producers in Argentina to export natural gas by facilitating the liquefaction facilities. But again, they’re tied up. Remember that remember that in Latin America, 90% 90% of the oil companies and the oil that in America belong to the state. refining capacity 90 90% of refining capacity in the Latin America belongs to the state EMP development of those resources, they belong to the state, Argentina is the only one that has more of an international at least in refining role by international companies. But when you have the state, as the owner of the resource, and they have the pressure, social pressure, there’s socialist country, that are populous, and they promised their people everything. They don’t have the money to spend in monetizing and developing their energy sectors. How many countries in Latin America have changed government just because of an increase in electricity prices, or much less the increase in bus fares. I have seen governments in Latin America, in Peru and Ecuador, in Bolivia, in the Andean region, that have been overthrown, because they increased bus trip bus fares, and people were not in the street. And that’s it. So that’s the only challenge with the region. You know, today, I don’t know if you’re aware, but today, at I’m sorry, 55% of Latin America’s refined product X inputs come from the US come from Gulf Coast path three, the US today has become the de facto refinery for Latin America. One of the reasons that we Pathri are running our refineries at 90 91% of capacity is because we export a lot of that fuel to Latin America,
Robert Bryce 42:09
I didn’t realize that I didn’t realize it was that high 55% of the diesel and the gasoline and fuel oil and
Jorge Piñon 42:16
diesel, diesel and LPG. The problem with Latin America is they only their refinery capacity is only operating at 53%. Again, because of maintenance and the government is not spending money. The other the other one is conversion. Oil in Latin America is getting heavier. So the more the heavier the oil, you need more conversion capacity at the refinery, in order to get more like products. Sulfur, you need Heavy Diesel hydrocracking or hydro trading facility in order to produce clean diesel. So what they’re doing is they’re exporting their oil, they export their oil, Colombia, Argentina, Ecuador export their oil to the US. And we export clean products, mainly diesel to those countries
Robert Bryce 43:07
more than more than you said diesel now a couple times more than gasoline, they don’t get some
Jorge Piñon 43:11
very little gasoline, they usually it can take care of gasoline themselves. I see the case of Brazil, of course, as you know, we export diesel to Brazil. But the advantage that Brazil has is that they produce quite a bit ethanol, which goes into their gasoline pool. But in countries like Ecuador, Argentina, Colombia and Brazil, we mostly need to export diesel again, low sulfur diesel right to those countries.
Robert Bryce 43:42
And that’s because the will the US refiners on the on the Gulf Coast would have this the Nelson complexity index, right that we have the these refineries that are able to do produce the hydrogen to do the hydrotreating to pull out the sulfur but also the catalytic conversion to be able to convert more of the barrel into the products you want. Right? It says
Jorge Piñon 44:01
yeah, and Robert, we love heavy oil. In fact, that’s why we are export the oil that we are exporting today. Out of the Permian is light oil, rain like heavy oil. And that’s what Latin America is producing. We don’t like like sweet, we used to import a lot of light, sweet oil from West Africa, no longer the Canadian crude that’s coming down to Keystone. All of that is heavy oil. We like heavy oil. Why? Because the we have the conversion capacity in the Gulf Coast to process it and to squeeze every single gallon out of high value product out of that oil, which is of course cheaper than light oil for the use in Nigeria or Angola or Algeria for that matter. Right. Yeah, that’s
Robert Bryce 44:45
that was one of the key points. I was going to add that that ability to to crack that heavy crude. The refiners can buy it at a lower price relative to the posted price where they sell it. They buy that at a discounted West Texas Intermediate or branch or the post To prices, and then they make their profit in that crack spread, right the conversion of the crude into the refined products. So handicapped in Latin America, Jorge, you’ve been and by the way, my guest is Jorge pinion he is a senior research fellow at the University of Texas at the Energy Institute there you can find more about him and the Energy Institute at energy dot you texas.edu. So handicap Latin America, you’ve talked about Brazil, we’ve talked about several other countries, which country and I know Panama has had some some serious problems recently as well in terms of electricity production, which countries in Latin America are doing the best in what you’re doing the worst. We’ve talked about Cuba already, but he kept it for me.
Jorge Piñon 45:39
We we haven’t talked about the new poster child in the region, which is Guyana. I got young as you know, Exxon made major discoveries of as much as 10 billion barrels of offshore oil. And Guyana today, is already at almost 200,000 barrels a day. Guyana is the country to watch, because it’s only 700,000 people. So one of the questions that we have is what’s going to happen in Guyana, with this monumental game that the country is now facing of all of these revenues that are going to come in is this really going to help the people of Guyana, but Guyana today is becoming for Exxon and Hess. Which, by the way are the partners in most of these production. The discovery is huge is still one of the largest frontier discoveries that we have had, certainly in the region for the last 1520 years. So to me, the country to follow up today is Diana, not only because of his production, but because of the impact that it could have in the political and social stability of that small, small country. Next one to watch, of course, is Brazil, I think Brazil is still the engine in the region. By the way, one of the major problems that we have in tuck, Robert, is that about 65% of the electricity in Latin America is hydro. Okay, that is a huge risk, especially because of climate change and of drought. both Brazil and Venezuela has been in, in tough situations, because of their hydro production has gone down quite a bit, again, because of drought. Guess what’s their fuel in order to cover that deficit? Is natural gas. Where’s the natural gas coming is LNG from the US? Right? But no longer today? Because our gas today or LNG is going through Europe
Robert Bryce 47:51
or to Asia, right? Or the so Latin America is being priced out of the market by wealthier customers from somewhere else? And is that is that fair? You got it.
Jorge Piñon 48:00
So the next thing that we’re keeping an eye on at the Institute, is what’s going to happen with hydro production of electricity in the region II as a result of climate change. And where is that gap? Always How is that deficit and electricity going to be covered, which should be with combined cycle natural gas plants, and the only way they’re going to feel because remember, very little Latin American countries have natural gas, or large production of natural gas, that’s going to be LNG that at least 2090 and 2020. And 2000 And 21st 21 came from the US. That’s no longer the case. Well, so he’s going to Europe.
Robert Bryce 48:44
So will they be burning more, because this is what we’re already seeing in Europe and other places around the world. That oil on a per million Btus basis is actually under undercutting the price in some places have natural gas and even coal. So will we see then more necessarily more countries in Latin America burning oil for power? Gen.
Jorge Piñon 49:02
Oil, I also call it in the case of Chile, Chile was seeing Jena was one of the few countries in the region that had a number of coal plants. I think they already shut down or the previous government had shut down two or three of those plants. Now there’s discussion of whether they will have to bring back those two or three coal plants. This small Dominican Republic, or a small coal plant, they had to bring it back on stream, again, because of the lack of LNG and natural gas. So yes, oil and natural gas is going to be the options, again to cover the deficit in hydro. If we have such a situation of drought, Central America, you’re talking about Panama is geothermal. The future of Central America should be geothermal. They have the potential. And we at the Energy Institute and a UT we have a couple of projects as far as geothermal technology, and we think that that’s, that’s the future of Central America, by the way, geothermal, electric power generation,
Robert Bryce 50:08
and not wind and solar.
Jorge Piñon 50:11
Well, again, listen, every matrix, you have to spread all of your eggs in one basket. For example, Chile talk about solar and Chile, as far as their production of green hydrogen. So, yes, solar and wind are certainly key components of every country’s matrix. All that I’m saying is that in Latin America, I’m sorry, in Central America, geothermal does play a very important role along with Yes, when and solar
Robert Bryce 50:43
will. So let’s talk about that. Because that’s, that’s something I’m not very familiar with the geothermal in Central America, I’ve seen it myself in been in plants in Iceland, and I know, in Africa in Djibouti, they have quite, you know, significant in Kenya, some other places, they have significant geothermal potential. But isn’t one of the handicaps or one of the points about geothermal is that there are very large upfront capital risk, right that you have to drill it, you have to prove it. And then, you know, after that the costs are relatively low, because your fuel costs are zero. But still, it’s requires a lot of sophistication and a ton of capital upfront, is that going to be available and who’s going to what companies are going to be the ones that will pioneer that in Latin America or in Central America rather,
Jorge Piñon 51:26
that is not the current obstacle, the current obstacle is that you have what six countries in Latin America, and you have a lack of interconnectivity. So
Robert Bryce 51:35
ancient in Central America, so Costa, Nicaragua, El Salvador, Panama,
Jorge Piñon 51:40
Honduras, Costa Rica, Panama, all the lease. So in order to really monetize geothermal production of the whole region, not just one of one country, because they do face the challenges that you just mentioned. But if you put the whole region together, and you interconnect the whole region, and you act as one unit, then the return is there. So what are the challenges? So so there’s the potential so geothermal has the potential, the problem is that you have six little countries among themselves, who are not together and what the strategy ought to be, and what the model ought to be, and interconnectivity. So you can count in the whole region as your customer, and that then allows you to monetize the potential of geothermal.
Robert Bryce 52:25
So you need high voltage transmission.
Jorge Piñon 52:28
All of that. But again, you need political interconnectivity, you have to be sure that as there is Salvador and Honduras, don’t go back to a soccer war that they had back in, forgot when it was that the two countries went up, went to war, because of a soccer match.
Robert Bryce 52:44
So who is this? No, I’m not familiar with how long
Jorge Piñon 52:47
you go back. And that’s another story. But
Robert Bryce 52:50
it was back to Honduras and El Salvador, Honduras, El
Jorge Piñon 52:53
Salvador went to war, I forgot what it was because of a soccer match. So though, that’s the instability of these countries, regrettably, when the Spaniards left everybody, Debbie up, and you know, Central America today as a region, if they can get their act together, as far as interconnectivity, and rules and tariffs and things that are equal across the board, then we can certainly monetize a lot of the geothermal potential that the region has.
Robert Bryce 53:29
So Jorge, as you’re saying that what I’m hearing is that the political stability, the political viability has to precede any of the energy viability and stability.
Jorge Piñon 53:41
Everything in my business goes to stewardship, everything in my business goes to management. It’s not an issue of resources, how you manage the resource, body grow. And and again, Robert, I learned that because I happen to work for three major oil companies in which you have project management, you have roles, you have all you know, things to follow, you have a strategy, you have a business plan, these countries don’t have any of that. That is the problem. The problem is not the resource of the country. These countries have resources. The problem is how do you manage those resources? So they can, you know, produce good for the social life and economic value of the country. We have never learned that we haven’t learned that in the last 100 years. I don’t know if we’re going to learn it tomorrow.
Robert Bryce 54:28
But we can hope we can hope well, just last couple of questions and we since we’ve covered a lot of countries in a short time and I like to keep the podcasts at an hour or less. So Jorge What what are you reading I always ask my guests what you know what what books there are on the top of their lists or at the top of their table nightstand? What are you reading these days?
Jorge Piñon 54:50
I’m reading two books on on Cuba’s sugar industry. I am I’m sorry, I’m still I still believe that what’s going to get Cuba out of trouble is going to be the recapitalization of the sugar industry. Because I look at it. You know, sugar cane is no longer sugar. Sugar cane is fueled ethanol. Sugarcane is power, biomass. And yes, sugar cane is, is sugar. When he said like today, I think it’s 20 cents a pound. But when you have a system like Brazil, that the sugar industry can switch from ethanol to sugar production, depending on where it’s the best netback. And when they constantly are burning by gas in their power plants, that is the most efficient, by the way, he’s 10 times more efficient than corn. As far as the production of ethanol, right? So I’m reading a couple of books.
Robert Bryce 55:52
And what’s the title? What’s the title of the sugar book on keepers,
Jorge Piñon 55:56
I’ll have to bear with me Alvarez, who is a professor at the University of Florida, in fact, what I’ll do, I’ll send you the link to those two or three books that I’m reading. The other thing is, of course, that the top university along with LSU, as far as 30, Cultural sugar is Florida. So we do have a lot of friends over there. And what we’re trying to do is put together a roadmap for Cuba, of how to follow or how to grow the sugar industry in the future,
Robert Bryce 56:27
to be to follow the path that was really pioneered by the Brazilians, then is that right now, so what gives you hope that Jorge, you’ve, you know, you’re Kumano, you’re an American, you you’ve had a lot of experiences. And we’ve talked about some things that, frankly, are, you know, little exasperating, I won’t say desperately, you know, that won’t take depressing, but that, you know, we have to hope for a better better government and better management. After all, your experience in Latin America and looking at the energy world, what gives you hope.
Jorge Piñon 57:01
In Latin America, my hope is limited to the governments that are people elect, in the next five or 10 years. Regrettably, they’re the Koreas they are the new lost their people that are populace that promised the world to their people, wishes not achievable. And regrettably, our countries lack the maturity and the education and the experience that those governments and those folks are never going to be able to deliver. But as long as the governments in Latin American continue to elect populist leaders, like Andhra Andres Manuel Lopez Obrador, I think our future is very dim. And that’s the same for for for Cuba, by the way. So I will, then I’m sorry, I’m not high in Latin America.
Robert Bryce 58:01
I know. That’s fine. We’ll sue them more broadly than will tell me what gives you hope. I mean, let’s let’s sit with our focus of the moment. More broadly, if you don’t mind, Jorge, tell me what what makes you
Jorge Piñon 58:11
what gives me hope is us the US, even with all the political problems that we’re facing, in the energy front, runner, renewables are moving forward, conventional sort of fossil fuels are still around, I think that a lot of people thought that that oil was going to be dead. It isn’t. Like Mark Twain said, you know, reports of my death are a bit exaggerated. I think oil is going to be around people in the US failed to realize that about what 20 22% of oil goes into the petrochemical industry is not only transportation, it failed to realize that in the US, less than 2% of oil fields are electric power system. But I still think that the US is moving forward. We are the top technological country in the world. Technology moves moving forward in solar, you know, utility scale solar batteries, which are really the next step that we have to take a look at. So hydrogen, work that we’re doing in hydrogen, in this country, and in some countries in Latin America. So I have a lot of hope, in the technology and the know how that the US has in the energy sector, maybe because I worked with the University of Texas, which is the number one university as far as energy is concerned in the world. And I see what’s going on, and I see what’s moving forward. And that I’m very hopeful about all of that. So I’m hopefully and positive and optimistic as far as where this country is going, certainly on the technological side of energy development.
Robert Bryce 59:50
Well, that’s a good place to stop. So that’s where we’ll stop then. Jorge, my guest has been Jorge pinion he’s a senior research fellow at the Center. GE Institute at the University of Texas at Austin you can find more about him and his colleagues at energy dot u Texas dot EDD edu. Jorge, it’s been a pleasure to talk to you. We haven’t been acquainted until now and it was a great conversation. I appreciate your time.
Jorge Piñon 1:00:13
Thank you, Robert. Thanks for having me.
Robert Bryce 1:00:16
And all of you in podcast land. Thanks for tuning into this episode of the power hungry podcast. Tune in for the next one. See you