Investing In Panama: Panama Energy

Panama is important to world energy markets because the Panama Canal is a major transit center for oil shipments and a potential choke point. Panama has major petroleum free zones with large capacity to store petroleum products as well as a strategic location for small refineries to serve regional export markets. Panama is key to plans to connect the electricity and natural gas grids of North and South America.

New Opportunities

At the third trimester of 2006, the energy sector had a growth of 3.9%. The Panamanian Association of Renewable Energies reported that the following opportunities:

• 2 projects of biofuels at an estimated cost of US$50 million. The United States has recognized that Panama has a great capacity to produce fuels derived from palm oil.
• A project for eolic energy.
• 10 hydroelectric projects approximately, for a total of US$305 million.

During 2006, there were made multiple transactions in the energy sector. El Paso Corporation, which possessed along with Hydro Québec the 49% of the shares of Fortuna, sold its participation in the plant in Panama to Globeleq Ltd. In this operation there were also included plants in Central America and the Dominican Republic. Now in 2007, Globeleq has put most plants and energy assets for sale.

At the beginning of 2007 an Interconnection Contract to the Electric Transmission System was entered into by the companies AES Changuinola, S.A. and the Empresa de Transmisión Eléctrica, S.A., ETESA. The company AES Changuinola, S.A. is developing the Changuinola hydroelectric Project with an installed capacity of 222.58 MW, which enters in operation in 2010 allowing to increase in the supply of national electric generation.

ETESA began in November 2005 the construction of the 230 kV line of Bocas del Toro, for an amount of US$22 million to guarantee the development of the hydroelectric potential in the region.
Edemet-Edechi, affiliate of the Spanish Unión Fenosa, will build a hydroelectric central in the province of Chiriquí, which should be ready in 2008. Representatives of Unión Fenosa and of OHV-Cobra signed a contract for the construction of the hydroelectric central, with an investment of US$17,8 million.

The new hydroelectric will have a guaranteed electricity production in an efficient manner and with minimal impact to the environment.

With an investment of US$42 million, AES Panamá– subsidiary of the global energy company AES Corp.– ended the expansion works of the Bayano hydroelectric plant, located at some 80 kilometers from the capital city. The generation plant built in the river bed of the Bayano River, has an installed capacity of 150 megawatts, but with the expansion can now produce 260 megawatts.

The expansion project and renovation was completed in the first semester of 2004 by the consortium of Alstom Power from Sweden and the General Electric of the United States, hired by AES to develop the engineering and construction works.

In Panama, the daily demand is between 800 and 900 megawatts. The firm power of hydroelectric plants, according to the National Dispatch Center (“Centro Nacional de Despacho”), is of approximately 583 megawatts.

Panama has negligible hydrocarbon energy reserves and imports over 70% of its energy. Virtually all oil is imported, and the country neither produces nor consumes natural gas.

Electricity

Electricity generation accounts for most of Panama's domestic energy production, with hydroelectric generation alone accounting for 75% of the country's total energy production. In 1998, the state-owned electricity company, IRHE, was privatized. There are currently eight electricity generators and three distributors operating in Panama. Foreign company involvement in the Panamanian electricity sector includes U.S.-based El Paso, AES, Enron and Constellation, Canada's Hydro Quebec, and Spain's Union Fenosa. EGE Fortuna, owned by El Paso and Hydro Quebec (51%) and the Panamanian government (49%), is the country's largest generator, with 300 megawatts (MW) of hydropower. Transmission remains in the hands of the government through the publicly-owned Etesa company. Also in 1998, a regulatory body was created, Ente Regulador, to oversee the electric, telecommunications, and water sectors.

Investment projections for the next 10 years in Panama’s electric sector are estimated in US$1 billion.

The Sistema de Interconexion Electrica para America Central (SIEPAC) project calls for the construction of transmission lines connecting 35 million consumers in Panama, Costa Rica, Honduras, Nicaragua, El Salvador, and Guatemala. The project remains in the planning stages, and consultants involved in the project estimate that the line could become operational by 2003 at the earliest. SIEPAC could cost an estimated $300 million.

Panama has become increasingly concerned about its environment. With the 1998 electricity restructuring, the government also restructured its environmental regulatory framework. National Environmental Authority (ANAM) became the government agency responsible for the implementation and administration of environmental law. ANAM holds significant enforcement authority, in contrast to the regulatory body that preceded it.

Petroleum

Petroleum is one of the largest commodities (by tonnage) shipped through the Canal and accounted for 16%-17% of total canal shipments during fiscal years 1996-1998. Some coal is shipped through the canal as well, accounting for 5%-6% of total Canal traffic. Over 10 million short tons passed through the canal in fiscal year 1998 (down from over 12 million short tons in fiscal years 1996-1997), with almost 80% going from the Pacific to the Caribbean.

The Mesoamerican Energy Integration Program (“Programa de Integración Energética Mesoamericana”) (PIEM) also refers to the construction of a refinery in Panama, to develop the regional market of petroliphers, guaranteeing the supply of gasoline in the entire region. Mexico will issue a long term purchase-sale contract, which contemplates 230,000 barrels daily of heavy crude, for the consortium that builds the refinery. This plan also includes the construction of a gas pipeline, a thermo electric plant, as well as a gas plant. The total investment to develop these projects is between the US$7,000 and 9,000 million.

Likewise, Occidental Petroleum (OXY) has been exploring the construction of a large refinery and in May 2007 signed an agreement with Qatar and the Republic of Panama for further studies for this project.

Gas for cars

The company Combustibles Ecológicos de Panamá S.A is one of the companies that commercializes liquified petroleum gas (LPG), as of September 2006, under the commercial trademark of Autogas.

LPG is an alternative fuel that is already used in Italy, India, Turkey, Poland, Holland, United States, Thailand, Peru and Spain, among other countries.

Biodiesel

Texas BioDiesel Corporation, dedicated to the production of biodiesel with the most modern technology, announced its incursion in Panama with the hopes of installing a refinery in Puerto Armuelles. The plant, valued at US$40 million, will have the capacity to process 100 million gallons of biodiesel annually.

The first phase of the plan that Texas BioDiesel plans to finance the Cooperative Company Producer of Palm Oil (“Cooperativa Empresa Productora de Palma de Aceite”) of Chiriqui, the largest in the region with 68 partners and 400 employees, one oil extraction plant for US$3.5 million.

There are numerous available lands for palm oil plantations in Panama allowing for other biodiesel projects.

Ethanol

Panama and Brazil agreed to jointly develop projects for the production of ethanol and other alternative fuels, which may be exported from this country to the United States. The ethanol works as an additive in gasoline, foreseen to reach 10% per gallon, which would not make necessary any type of technical modification in the vehicles that circulate in the country.

Panama will promote the "transformation" of its sugar industry towards the production of ethanol and will also push for the procurement of biodiesel from palm oil.

Among other agreements are projects to accelerate the coordination in order for Brazil to establish here a center for product distribution. There exists an important base because in the Colon Free Zone (Caribbean) and in the Panamanian ports there is already a great volume of redistribution of Brazilian products, especially of heavy machinery.

Energy Overview

Oil production (2001E): 1,000 bpd
Oil consumption (2001E): 58,000 bpd
Net oil imports (2001E): 57,000 bpd
Crude refining capacity (1/1/02): 60,000 bpd
Coal consumption (2000E): 70,000 short tons (all imported)
Electric generation capacity (2000): 1.35 mm kW (45 % hydroelectric)
Electricity generation (2000E): 4.9 bn kWh
Electricity consumption (2000E): 4.7 bn kWh

Environmental Overview

Total energy consumption (2000E): 0.16 quadrillion Btu* (<0.1 % of world total energy consumption)
Energy-related carbon emissions (2000E): 2.36 mm tons of carbon (<0.1 % of world total carbon emissions)
Per capita energy consumption (2000E): 54.4 mm Btu (vs. US value of 351.0 mm Btu)
Per capita carbon emissions (2000E): 0.8 tons of carbon (vs. US value of 5.6 tons of carbon)
Energy intensity (2000E): 16,602 Btu/$ 1995 (vs. US value of 10,918 Btu/$ 1995)**
Carbon intensity (2000E): 0.25 tons of carbon/thousand $ 1995 (vs. US value of 0.17 tons/thousand $ 1995)**
Sectoral share of energy consumption (1998E): Industrial (16.2 %), transportation (46.5 %), residential (36.3 %), commercial (1.0 %)
Sectoral share of carbon emissions (1998E): Industrial (24.7 %), transportation (41.0 %), residential (32.2 %), commercial (2.1 %)
Fuel share of energy consumption (2000E): Oil (75 %), hydro (23 %), coal (1.0 %), natural gas (0.0 %)
Fuel share of carbon emissions (2000E): Oil (98.5 %), coal (1.5 %), natural gas (0.0 %)
Number of people per motor vehicle (1998): 9.8 (vs. US value of 1.3)
Status in climate change negotiations: Non-Annex I country under the United Nations Framework Convention on Climate Change (ratified on May 23rd, 1995). Ratified the Kyoto Protocol on March 5th, 1999.
Major environmental issues: Water pollution from agricultural runoff threatens fishery resources; deforestation of tropical rain forest; land degradation.
Major international environmental agreements: Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Marine Dumping, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands, Whaling.

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(*The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar and wind electric power. Sectoral shares of energy consumption and carbon emissions are based on IEA data.)