Gas-To-Energy: Structuring Downstream Projects

Natural gas is challenging oil, both as a global commodity and as the primary business of major energy companies. This trend is particularly true in South America, where the gas markets are small in terms of total volumes handled but have shown strong growth with active upstream and downstream development. While consumption rates for South America are one-twentieth of those in the United States, Venezuela and Argentina have ranked second and fourth in terms of natural gas as a percentage of total primary energy consumption.1 And while estimated reserves in the region account for less than 5% of global gas reserves, South America's gas use is estimated to grow at an annual rate of 7.5% in the next twenty years.2 To meet this demand, many natural gas projects are being conceived and developed in South America — particularly in the downstream sector in the areas of field development, power generation, and transmission and distribution. In earlier decades, funding for these projects was likely to come from lending agencies, but thanks to trade liberalization, the opening of markets to competition, and the encouragement of foreign investment, private capital is now the dominant investing force.

This paper is intended to be an introduction to gas-to-energy projects in South America. The first section will provide a backdrop for the rising importance of gas-to-energy projects