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08/06/2005 | Bolivia Left Out in Cold as Peru-Brazil-Chile-Argentina Pipeline Loop Mooted

WMRC Staff

Brazil, Chile, Argentina and Uruguay are to sign an agreement to look into the possible construction of a US$2.5-billion regional gas loop, as Bolivia's political crisis deepens after President Mesa's offers to resign.

 

Global Insight Perspective

Significance

As the future of Bolivia's energy sector looks increasingly uncertain, Peru's outlook brightens.

Implications

A new hydrocarbons law promulgated in Bolivia in May 2005 threatens to reduce the cash flow of oil and gas companies and to result in the freezing of new investments in the gas sector. 

Outlook

Repsol-YPF's interest in a Peruvian LNG export project shows that Peru is the main beneficiary of the failure of successive Bolivian governments to win national support for a gas export project to the US. However, a project to build a gas loop linking five South American countries is unlikely to pose a serious challenge to the continuation of Bolivian gas exports. 

Brazil, Chile, Argentina and Uruguay are to sign an agreement to look into the possible construction of a US$2.5-billion regional gas loop discussed by Brazil's Mines and Energy Minister Dilma Rousseff and Argentina's Planning Minister Julio de Vido last week, reports Dow Jones. The loop would allow gas from Peru's Camisea field to supply Chile via a new pipeline proposed between the two countries. Gas could then be sent through existing pipeline infrastructure to Argentina, Uruguay and Brazil. 

An international pipeline project that would have connected Peru's Camisea gas field with the Brazilian market via Bolivia had previously been suggested. However, this was abandoned due to lower-than-anticipated growth in demand for gas from the Brazilian market. Meanwhile, Bolivia's head start in the Brazilian market forced Peru to look for other export markets further afield, and discussions with Mexico over the supply of gas from a proposed LNG project are advancing. In the meantime, a domestic gas supply crunch in Argentina in 2004 has forced Chile to look for alternative gas supplies through a planned LNG import project and possibly a gas pipeline with Peru. The approval of a controversial hydrocarbons law in Bolivia and continuing political uncertainty in that country have also raised concerns in Argentina and Brazil about the commercial viability of new gas export projects, even though Bolivia's reliability as a gas supplier (unlike Argentina) has never been in doubt during the periodic bouts of protest and instability that have hit the country since 2001. The enactment of the new law in Bolivia in May 2005 failed to build a national consensus on the best use of the country's most important natural resource. Instead, the debate exacerbated regional tensions and polarised the country, with the gas-rich regions of Santa Cruz and Tarija calling for greater autonomy from the central government in the face of a law that threatens to result in a freeze in new private sector investment in the energy sector, and indigenous protestors from the highlands pressing for more radical reform. 

Cases can be made for the construction of a Peru-Chile gas pipeline and the development of an integrated gas plan for the southern cone that would allow gas and/or power supplies to be diverted from one country to another to cover temporary domestic shortfall as occurred last year during Argentina's gas 'crisis'. However, the costs of transporting gas from Peru to Brazil via a not very direct route on a regular basis would be high and the Brazilian energy minister's support for the project may be an attempt to put political pressure on Bolivia to provide a more stable legal framework for energy investors in that country. 

Outlook and Implications

The collapse of the Pacific LNG-export project proposed in Bolivia, following the 2003 'Gas War' that toppled the government of former president Gonzalo Sánchez de Lozada, means that Peru looks set to become the first country in the region to export LNG from the Pacific coast. The death of the Bolivian project to export gas to North America was reaffirmed last week after one of its main stakeholders, Repsol-YPF, announced its decision to participate in Peru's LNG export project instead. Although Peru has offered to process Bolivian gas as well in the future, the reluctance of private companies to invest in a more expensive pipeline via Peru instead of Chile means that the revival of a project to export gas to North America appears more distant than ever.

Discussions about the pipeline loop following on so closely from Repsol-YPF's announcement will therefore be seen by some as another sign that Bolivia is being left out in the cold in the process of deepening regional energy integration, despite having the second-largest natural gas reserves in South America, after Venezuela. The prospect of higher taxes for gas producers under a new hydrocarbons law has led to foreign oil and gas companies putting new investments on hold. This is raising doubts that projects that would have augmented gas exports from the country, such as a cross-border petrochemical project with Brazil or a new pipeline to Argentina, will come to fruition. At the same time, there has been speculation that events in Bolivia will encourage its main gas export markets, Brazil and Argentina, to step up their efforts to develop their domestic gas reserves, and the possibility of Camisea gas being sent to Brazil will be seen as another attempt to find an alternative to increasing Bolivian gas imports.

Although Bolivia's neighbours are obviously concerned about the direction of energy policy in that country and its implications for the development of the gas sector, Peru is unlikely to supplant Bolivia in the Southern Cone gas market as well as in North America. Practical issues such as Bolivia's geographical location and the gas infrastructure already in place, as well as the country's abundant gas reserves, suggest that Bolivia will continue to play a central role in the energy integration of the region, even as the prospects for increases in the volume of exports to neighbouring countries diminish.

WMRC (Reino Unido)

 


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