The countries of Latin America and the Caribbean have abundant and varied energy resources, including oil (13% of world reserves), natural gas (5.4%), coal (1.6%), biomass and other renewable resources, as well as great hydropower potential (22%). This apparent abundance of reserves in the region can be misleading, however, because they are highly concentrated in a few countries and there are other factors that limit the extent to which they can be developed at competitive prices.
Venezuela and Mexico have the largest oil (88%) and gas (77%) reserves in the region. The economically feasible hydropower potential is more evenly distributed, but relative costs and/or local environmental problems mean that hydropower generation will only play a significant role in a handful of countries over the next few years. Other countries have considerable potential for unconventional renewable energy sources (solar, wind-powered and geothermal energy), but their development is limited for geographical reasons and the high cost of technologies involved.
Despite the limitations, there is an enormous potential for trade in energy in the region. Currently, intraregional trade is dominated by exports of crude oil and its by-products, but there are promising, albeit still incipient, prospects for integrated energy markets using integrated grid, for natural gas and electricity, for instance. For the time being, the integration of gas and electricity markets has made the most progress in South America, where major international gas pipelines and electricity interconnecting grids already exist or are being built. However, eventually the SIEPAC power interconnection project and a possible gas pipeline from Mexico and/or Colombia will make it possible to integrate the electricity and natural gas markets of Central America with those countries.
Spurred by economic development and the population growth, the demand for energy in the region has been increasing at rates substantially above those in OECD countries. Nevertheless, per capita energy consumption in the region, and electricity consumption in particular, will continue to be far below that of developed countries (2,300 kilowatt-hours in LAC compared with 12,000 kilowatt-hours in the United States and 6,000 kilowatt-hours in Europe). Within the region, markets are far from homogeneous. Four countries, Mexico, Venezuela, Brazil and Argentina, consume 73% of energy and 79% of electricity.