February 2019 – @alvaroriosroca – In July 2019, Bolivia and Brazil will have concluded a contract to purchase natural gas for 20 years. It has been one of the most transcendental projects in the history of energy integration in all of Latin America and highly advantageous for both countries.
Brazil could begin supplanting more expensive and dirty fuel oil and other petroleum derivatives by a more economical and clean energy in thermal generation and mainly industries, thus starting a strong change in its energy matrix. Bolivia experienced a time of great bonanza of high rent income from the sales of energy, which gave much oxygen to its economy even to this day.
Until a decade ago, Bolivian natural gas was basically essential in Brazil, until the country of the samba began to import LNG and above all to increase new production offshore, mainly associated with oil in the pre-salt reserves. No doubt that the uncertainty of future supply from the drastic changes in Bolivia accelerated these decisions. We can state that gas from Bolivia is no longer essential in the Brazilian market but it does play a very important role. Let’s explain why.
Bolivia still has proven reserves and competitive production capacity to continue serving the Brazilian market but under a new modality. A kind of gas competition has been generated where imported LNG, Bolivian gas and gas produced in Brazil must compete and where the developed infrastructure from Bolivia is vital. For this it is very important that Petrobras leaves the monopoly of the industry, which in certain way still maintains and where several private companies wish to enter to compete.
Dear readers, can you imagine what would happen if gas from Bolivia did not exist or was deprived of entering Brazil? Prices would climb because the market would be deprived of a competitive source and infrastructure deployed and depreciated. For this reason, Bolivian gas is essential for Brazil. YPFB, therefore, must aim to negotiate directly with consumers and not with traders or intermediaries such as Petrobras post 2019.
Basically something similar happens in the other market that Bolivia has that is Argentina. Thanks to its economic fluctuations and high subsidies, the country of tango has been running out of reserves and out of local natural gas production, back in 2002/2003 he had to start looking for an emergency import and started with GNL (2008) and also afterwards signed a long-term contract with Bolivia (2010) that goes until 2026. Breaches from both sides of the border were raised in this contract, until reaching the present, where a renegotiation of the contract has been proposed and we will see how it ends this 2019.
The truth is that a decade ago, as in the case of Brazil, Bolivian gas was basically essential to Argentina to avoid cuts and rationing and stop importing larger volumes of much more expensive LNG and not to mention even much more expensive and polluting fuel oil and other petroleum derivatives. Remember that these imports bleed their economy and let out dollars that are the most precious thing that the country has.
With the development in the USA of shale (technique of fracking), almost two decades ago, Argentines were lucky enough to have in their basement a very neat shale called Vaca Muerta. To give you an example, if Vaca Muerta were in Canada, Australia, Norway or another stable country, the Southern Cone was flooded with very competitive natural gas and LNG export projects were being developed in Asia. Then again Vaca Muerta is in Argentina, a country where “everything happens and nothing happens at the same time”.
Companies that produce in Vaca Muerta received incentives and production of shale increased significantly and exports are being made to Chile and possibly to Brazil and Uruguay and of LNG. This resulted in a gas cut in Bolivia and the proposal of a renegotiation. Now incentives have recently been changed and nobody knows what will happen.
Summarizing, Bolivian gas, although it is no longer essential for Argentina, itself is a source of competitive energy in that market, which otherwise would be exposed to what companies that import LNG / or produce natural gas decide.
Gas-against-gas competition: imported LNG, gas from Bolivia and locally produced gas should be the new dynamic in the Southern Cone. Bolivian gas is more than important for this reason.
* Former Hydrocarbons Minister of Bolivia and Current Managing Partner of Gas Energy Latin America.