The energy transition opportunities and challenges for Latin America

Published: 06/04/2024

By - Rogerio Jelmayer

Latin America has emerged as one of the regions with the greatest potential to benefit from the energy transition.

The abundance of many minerals used in projects associated with the transition places the region in a privileged position, but there are several challenges to be able to take full advantage of this potential.

The opportunities and challenges are being discussed this week by international experts from Willis Towers Watson (WTW), a global consulting and brokerage solutions firm, at its Natural Resources Conference.

Eduardo Takahashi, the firm’s head of Brazilian operations, speaks with BNamericas about the key takeaways from the conference discussions.

BNamericas: During the WTW event, what opportunities for the region in relation to the energy transition are you discussing?

Takahashi: The event we’re doing this week takes place every two years, in Latin America, where we bring our colleagues from all over the world to discuss the region.

This event comes from our natural resources division, which in practice is based on three pillars, mining, electrical energy, and oil and gas.

In these segments, the region has comparative advantages over other regions in the world, due to the abundance of mineral resources, metals, the energy matrix with a lot of renewable energy, making our dependence on fossil fuels much lower than any other region in the world. 

The importance of Latin America to the world is vital in the sense that we have solutions ready for the energy transition process that both the global corporate sector and the government sector are seeking.

BNamericas: What are the region’s challenges in developing this potential?

Takahashi: I would mention some challenges.

One of the main challenges is the regulatory issue. In general, the regulatory environment in Latin America is not yet mature, we have to accelerate this regulation. For example, a necessary regulation would be one that brings clarity about the benefits that a company could have if it adopted a clear energy transition journey.

Other points to be improved in the region are legal certainty and long-term planning.

There are countries where there are more advanced plans, such as Brazil, which has an energy plan for 2050, but we need to make progress in general throughout the region.

Furthermore, infrastructure is still an area where we have difficulties. We have, for example, difficulty in distributing natural gas and storing gas due to a lack of adequate infrastructure.

BNamericas: Where are the opportunities?

Takahashi: I would start by highlighting our enormous potential in lithium, which is the basis for the production of batteries, as well as our abundance in the region in terms of the production of copper, niobium, among other important materials for the energy transition.

In the mining sector, we cannot forget about the characteristics of Brazilian iron ore. Brazil has iron ore with high iron content and currently international investors are looking for raw materials that require less energy to be transformed into steel.

At the same time, this creates a challenge for the entire region, which is to add value to the abundance of raw materials that we have. Brazil today produces 20% of the world's iron ore, but globally only produces 2% of the final product of this material.

In the oil sector, we export oil, but at the same time we must import oil derivatives, as we’re unable to add value to the chain.

We also have the challenge of innovation. The region has a proliferation of good ideas. We have plans related to the development of green hydrogen, but we need to invest in research and development to fully advance with this potential.

BNamericas: How do you balance the growing calls for clean energy with the great oil exploration potential that countries like Brazil still have?

Takahashi: When we look at Brazil's energy matrix, we have between 40% and 45% dependence on oil, while the global average is between 55% and 60%. So, we can say that we’re at a level of advancement.

I see this transition journey moving forward, with many solutions taking shape in Brazil through the development of low-emission fuels.

BNamericas: Where do investors most interested in assets and projects linked with the energy transition in Latin America mainly come from?

Takahashi: We see interest mainly from European investors, such as the French, Germans and the English. There’s also interest from investors in Asia, from countries like Japan and China, but still few initiatives from investors in the US.

BNamericas: Speaking of the US, what are the potential effects of November’s presidential election for Latin America?

Takahashi: I would say that the main effect from the outcome of the US election, in the event of candidate Donald Trump's victory, will be more nationalistic measures, more focused on protectionist practices, which would mean closing the borders of that country. This would be a noticeable short-term effect.

BNamericas: How do extreme weather events like we have seen in Rio Grande do Sul state impact the insurance sector in Brazil?

Takahashi: This changes the population's perception a lot, it accelerates the process of knowledge regarding risk and insurance.

For decades, Brazil was considered a country without the occurrence of natural catastrophes like other countries in the region, where there are earthquakes. 

Now the scenario has changed, the country does have catastrophic events, and this will change the perception in terms of the search for risk protection by governments and companies.

It's not yet possible to measure all the financial impacts of what happened in Rio Grande do Sul, but insurance companies are on the move in the search for more appropriate protection models.