The FDI angle:

• Uruguay believes the country holds meaningful oil and gas resources. 
• For the first time, all 120 sq km of Uruguay’s offshore acreage will undergo exploratory work.
• “In less than 18 months [Uruguay] went from being unheard of [in this industry] to being 100% licensed by some of the biggest [energy] companies in the world,” says Eytan Uliel, CEO of Challenger Energy.
• Why it matters? Recent oil and gas discoveries have been a game-changer in countries like Guyana and Namibia. If confirmed, Uruguay's oil and gas prospect can provide the South American economy with a new engine of investment, growth and development. 

Uruguay has firmly cemented itself as a leader in clean energy. The country of 3.4 million people wedged between Brazil, Argentina and the South Atlantic Ocean has an electricity grid that is 95% powered by low-carbon sources. Around 45% of the grid comes from hydropower, 30% wind power, 20% biomass and up to 2% solar. Having all but accomplished the energy transition most other nations are striving for, the government is now pursuing its so-called ‘second energy transition’ of electric mobility and green hydrogen production. 

Yet Uruguay’s most recent energy development to ignite investor interest is in oil and gas. 

The country’s exploration activities date back to the 1970s, but no hydrocarbons have been found to date. A development more than 7000 kilometres away has sparked hopes this may change. TotalEnergies and Shell’s 2022 discovery of 11 billion barrels’ worth of oil off the coast of Namibia was a “plot twist” for Uruguay, says Santiago Ferro, energy transition manager at state-owned energy company Ancap. Millions of years ago the two countries were connected, and their basins have similar geological characteristics which increases the likelihood of deposits in the Latin American country. Ancap believes the probability that areas off its coast contain oil or gas has now doubled to 5–25%. 

The Namibia discoveries led to a “stampede” among energy firms looking at Uruguay with fresh eyes as it “massively de-risked” the country’s exploration profile, says Eytan Uliel, CEO of Challenger Energy. The Isle of Man-headquartered group holds exploration permits for two Uruguayan blocks, with the remaining permits in the 2022/23 licensing round being awarded to America’s Apache, Argentina’s YPF and the UK’s Shell. The latter two have returned to the country after relinquishing blocks in years past. 

For the first time, all 120 sq km of Uruguay’s offshore acreage will undergo exploratory work. “In less than 18 months [Uruguay] went from being unheard of [in this industry] to being 100% licensed by some of the biggest [energy] companies in the world,” says Mr Uliel. 

Other energy majors that had left Uruguay may return via farm-ins, argues Mr Ferro, and Challenger is already in talks to bring in other firms. The permit-holders’ starting minimum work commitment is collectively $200m, but over the next few years Mr Uliel expects “a truckload of money being spent on 3D seismic acquisition, technical work, and ultimately on drilling of new wells”.

Ancap’s ‘back-of-the-envelope’ estimate is that Uruguay has five billion barrels’ worth of oil and gas, a figure not verified by third parties. That is less than regional heavyweights Brazil and Guyana, which have 12.7 billion and 11 billion barrels of proven reserves, respectively. But Uruguay’s advantage, Mr Ferro says, is that its “above-ground risks are really low”. It has among Latin America’s highest gross domestic product per capita and is known for its stability in a region marked by political upheaval and economic problems. 

Mr Uliel attests to its reputation for good governance and efficiency. “I've done this stuff in Australia, England, all over Asia and various parts of South America. Hand on heart, the Uruguayan [government] have been the best people ever to deal with,” he says.

He is not the only one benefitting from this. fDi Markets data shows that the number of foreign direct investment projects approached record highs in 2022 and 2023.  

Discover more frontier FDI countries: 

• Record FDI helps Iraq’s resurgence
• Dominican Republic goes beyond tourism
• Fear and loathing in Ras Vegas
• Guyana’s struggle to manage its oil and gas FDI bonanza
• Albania hopes tourist interest will attract investment

Green goals

On the face of it, Uruguay’s bet on hydrocarbons belies its commitment to decarbonisation. But in addition to replacing the 50,000 barrels of oil per day it currently imports, the government views an offshore hydrocarbons industry as a way to advance its green hydrogen ambitions. 

Today, Uruguay’s green hydrogen activity is dominated by a government-funded pilot project to convert trucks to run on clean fuels, the $650m Tambor Green Hydrogen Hub backed by Germany’s Enertrag and a $4bn e-fuels project developed by Chile’s HIF. But work is also underway to allow Ancap to licence offshore acreage to develop wind farms for the sole purpose of creating green hydrogen. The programme is called H2 Uruguay and Ancap expects the necessary government decrees to be finalised and the first tenders to occur by mid-2024. “We are putting our knowledge from [exploration and production] bidding rounds and data generated from oil exploration towards the green hydrogen project. We see huge potential there,” says Mr Ferro. 

Ancap is looking to leverage other synergies between the two offshore industries such as logistics, partitioning offshore blocks, and, perhaps most importantly, the companies expected to bid. “Almost every oil and gas company worldwide is looking to do renewables,” observes Sebastián Risso, executive director of investment promotion agency Uruguay XXI. The government hopes that its oil and gas industry gives energy groups a foothold in the country, which then expands into clean energy projects. 

“They’ve taken a very forward-thinking view on the stuff,” says Mr Uliel. While Challenger Energy is not currently pursuing green hydrogen, he says it is “absolutely” interested in H2 Uruguay, noting that the commercial model is the same as oil and gas, the group is a pre-approved bidder and it can bring in partners to help with technical capacity. “That’s a 10-year view on life, but it’s definitely of interest.” 

Using an offshore energy source to create green hydrogen is more costly than onshore alternatives. But minister of industry, energy and mining Elisa Facio points to the more than 250 gigawatts (GW) of wind energy potential offshore compared to 30GW onshore. “Although it is more expensive than doing it on land, these are long-term projects under consideration,” she says. With both investors and the government taking the long view on Uruguay's nascent hydrocarbon industry, its offshore hydrogen dream may become reality. 

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This article first appeared in the December 2023/January 2024 print edition of fDi Intelligence