The small South American nation of Uruguay applies two basic—and quite differentiated—philosophies as it approaches the energy future.

First, Uruguay takes the view that development of the nation’s energy resources should be technology neutral. That is, no specific energy source is seen as being ‘better’, with energy development thus driven by local applicability, economics and market dynamics. As compared to countries where, in pursuit of the energy transition, a technology preference often comes first and development choices then flow from the (sometimes non-commercial) biases the stated preference creates.

Second, Uruguay’s various potential energy resources are considered to be additive, rather than substitutive. That is, energy policy is seen less as a way to arbitrate the ‘fight’ between alternative energy sources of different merit, and more about promoting fair competition between alternatives that are all prima facie regarded as equal. This is a quite different approach to one where the phrase ‘energy transition’ often becomes shorthand for the drive to replace one source of energy (whichever is considered the ‘bad one’) with another (whichever is considered the ‘good one’).

When many other nations are only at the start of their energy transition, Uruguay is already at work on what regulators there refer to as ‘the second energy transition’

A practical outcome of Uruguay’s approach is the degree to which it is open to foreign participation in its energy industries. Of course, most emerging countries allow foreign investment in their energy sectors, but that openness is frequently distorted when various local use and local involvement requirements are superimposed—even more if foreign investors are effectively made to subsidise local investors as the ‘price of access’. Whereas Uruguay’s regulators, informed by the abovementioned philosophies, have always had to take a more holistic, commercial view.

Thus, Uruguay has invested in thoroughly defining the whole of its energy potential, regardless of source and its perceived position in the energy transition and then matching that to a realistic assessment of strengths (‘what can we offer?’) and weaknesses (‘where is it not worth even trying to compete?’).

In parallel, Uruguay has committed itself to creating a globally competitive, albeit technology-agnostic, playing field, such that on virtually every metric—including rule of law, political stability, ease of doing business, transparency and absence of corruption, etc.—the country consistently ranks as the number one location in South America. There are moderate taxes, minimal capital controls, no onerous local participation or local use requirements and no requirement to fund the state’s participation in energy projects—a position distinct from almost every other frontier energy province.

What have been the results?

Around a decade ago, Uruguay reached a point where more than 90% of the country’s domestic electricity need was met from renewables, which has continued to this day. This did not happen because of a ‘roadmap’ mandating an increase of renewables or because of generous incentives. Rather, Uruguay’s high contribution from renewables was born of an honest assessment at the time of different energy development options matched to the nation’s needs, resources and competitive position. In this context, regulators came to the view that early development of renewables, even if more costly in the short term, made longer term sense in the specific Uruguayan context.

This in turn means that, today, when many other nations are only at the start of their energy transition, Uruguay is already at work on what regulators there refer to as ‘the second energy transition’. This is a multifaceted programme seeking to access the wider potential of all of Uruguay’s possible energy resources—conventional, emerging and new.

This means Uruguay is at the forefront of promoting environmentally friendly hydrogen—both via a process to tender offshore blocks for green hydrogen production and also preparing to offer onshore exploration licences for naturally occurring hydrogen.

At the same time, even exploitation of offshore conventional oil and gas is on Uruguay’s agenda, with oil majors having taken up every available licence in just the last two years. Partially, this reflects recent exploration successes in Namibia, the geological conjugate margin to Uruguay. But at a more fundamental level, this also reflects how the global E&P industry sees Uruguay’s present-day ‘edge’ in the broader context of transition.

Uruguay’s ability to offer exports of not just low-cost, but also low-carbon, barrels creates a competitive advantage

That is, Uruguay has fostered the ability to attract the capital needed for energy developments, on attractive terms, without the need for incentives or subsidies. At the same time, Uruguay’s regulatory regime has been set up to ensure that any conventional molecules produced will be of comparatively low carbon intensity. And in a world where the focus on carbon footprint is ever more intense—but also where the need for conventional energy sources will continue for decades to come—Uruguay’s ability to offer exports of not just low-cost, but also low-carbon, barrels creates a competitive advantage.

And, rounding it all off, a slate of new projects has recently been kickstarted, aimed at establishing Uruguay as a future producer of e-fuels (e-methanol, e-SAF, e-gasoline) and modern biofuels (SAF or HVO), for both export and local markets. This means that over the next 20 years, when other nations may be seeing only the first wave of their own energy transitions coming to fruition, Uruguay hopes it will be leading the pack on energy diversification and whatever comes next.

Two decades of well-administered policies mean Uruguay has positioned itself well, so that today it has the opportunity to deliver—in a balanced and responsible way—what both domestic and global markets may need during the energy transition. Driven by the underlying philosophies that no technology in and of itself is superior, all potential energy resources should be considered additive, and all options should be assessed based on unbiased competitiveness.

Challenger Energy Group is an Atlantic-margin focused energy company. Within its portfolio, Challenger Energy holds interests in two offshore hydrocarbon exploration blocks in Uruguay and has recently introduced Chevron as a partner in one of these blocks. The company is working closely with Uruguay’s Ministry of Industry, Energy & Mining, the Uruguayan regulatory authority, ANCAP and Chevron to unlock the potential of these blocks, an integral part of Uruguay’s balanced approach to navigating the energy transition.

Eytan Uliel is CEO of Challenger Energy Group.

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Author: Eytan Uliel