There is widespread consensus on the immense challenge posed by the global energy transition. But what makes this shift so complex? The urgency to decarbonise, in alignment with international climate goals, demands a profound transformation of the global energy system within a few short decades. This transformation requires not just the introduction of new technologies, but the replacement of existing primary energy sources.

Today, fossil fuels account for more than 80% of the world’s energy mix. To achieve sustainability objectives, we must transition to a low-carbon system—one that is not yet fully developed or scaled. Meanwhile, global population growth and rising living standards will continue to drive energy demand, with energy security emerging once again as a critical priority.

Uruguay has already made remarkable progress in decarbonising its electricity generation

Consequently, for the foreseeable future, the world will rely on a dual energy model in which traditional fossil fuels and renewable technologies complement and coexist. This is not a question of choosing between one or the other; it is a matter of ‘and’, not ‘or’.

Given these realities, analysts and energy companies alike emphasise the need for a balanced, orderly and realistic transition. Acknowledging that the shift from oil and gas will not happen overnight is crucial. In sectors such as heavy industry, aviation and maritime transport, where electrification is particularly challenging due to the need for high energy density, liquid fuels will remain indispensable. Decarbonisation in these sectors will likely come from the adoption of sustainable fuels, such as biofuels produced from bio-based feedstocks and e-fuels derived from low-carbon hydrogen.

Leading the way

Uruguay has already made remarkable progress in decarbonising its electricity generation, often referred to as the first phase of the country’s energy transition. Renewable sources—including wind, hydroelectric, biomass and solar—now account for more than 90% of electricity production, although this share varies with climatic conditions. However, electricity represents less than 20% of Uruguay’s total energy consumption. Thus, the development of a green hydrogen economy and its derivatives is a natural and necessary next step in the country’s decarbonisation efforts.

ANCAP, Uruguay’s state-owned energy company, has embraced the motto “responsible transition”. This means ensuring the continued supply of reliable, affordable and high-quality fuels to meet domestic needs while also leading Uruguay’s second phase of energy transition by developing sustainable molecules that will become critical to the global energy mix in the coming decades.

Key ANCAP projects driving the transition

Hydrocarbon exploration and production: While Uruguay’s basins remain underexplored and present high geological risk, they offer significant opportunities, highlighted by recent discoveries across the Atlantic. Major oil finds in Namibia’s Orange Basin have revealed hidden potential in Uruguay’s offshore basins, which represent Orange’s conjugate margin. These basins share strong analogies in petroleum systems and play types.

Over the past 17 years, ANCAP has actively attracted investment through bidding rounds, resulting in more than $1.4b invested in hydrocarbon exploration, primarily by IOCs. Despite this investment, Uruguay’s offshore basins remain largely underexplored, with only three exploratory wells drilled in an area larger than 120,000km². However, renewed interest in 2022 and 2023 has led to new bids for the offshore blocks.

This marks a historic moment for Uruguay, as all offshore blocks now have contracts in force for the first time. The success of these rounds is due to recent discoveries in Namibia, but also undoubtedly due to Uruguay’s strong reputation for democratic, economic and legal stability—as well as its adherence to contractual commitments.

In the coming four years, committed exploratory work will include 3D seismic acquisition and reprocessing, with a deep exploratory well to be drilled in Area OFF-6 by US explorer APA.

Green hydrogen production: In 2024, Uruguay published its Green Hydrogen Roadmap, outlining the key elements needed to support the development of green hydrogen in the country. This includes fostering innovation, regulation, investment, capacity-building, international cooperation, infrastructure and logistics. ANCAP plays a pivotal role in implementing this roadmap.

E-fuels: ALUR, ANCAP’s biofuels subsidiary, has launched a project to capture and use the biogenic CO₂ from its bioethanol plant. The project, awarded to US e-fuels company HIF Global, aims to combine this CO₂ with green hydrogen to produce 250,000t/yr of e-fuels. ALUR holds an option to acquire up to a 30% stake in the project once FID is made.

H₂U Offshore: ANCAP is preparing to launch the H₂U Offshore Round, offering offshore areas for energy companies to conduct feasibility studies and potentially develop infrastructure for producing green hydrogen and its derivatives. This round mirrors the successful structure of ANCAP’s hydrocarbon bidding rounds, ensuring transparency and a predictable schedule for participants.

Biorefinery transformation: ANCAP is also advancing plans to transform its La Teja refinery into a biorefinery. A techno-economic feasibility study is underway for the production of sustainable fuels such as hydrotreated vegetable oil and sustainable aviation fuel, targeting export markets.

This project will leverage ALUR’s expertise in feedstock contracts and supply and ANCAP’s refining and processing capabilities to produce advanced biofuels from oilseeds, tallow and used cooking oil.

Santiago Ferro is energy transition manager at ANCAP.

This article is taken from Outlook 2025, our annual publication examining the year ahead in energy. Subscribers can click here to read their free copy. The publication can also be bought from our store here.

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Author: Santiago Ferro