LatAm 2004 oil & gas wrap
Years of underinvestment in Argentina's hydrocarbons sector resulting from a tariff freeze finally hit home in 2004. The government allowed exports only once domestic demand was satisfied, meaning that exports to Chile fell to about 50% of normal levels. Recognizing how unsustainable the situation was, President Néstor Kirchner announced a US$3.8bn bailout for the energy sector, including new investment plans, the creation of state energy company Enarsa, and, importantly, gradual tariff hikes that would at the same time slow rocketing demand growth and provide sector companies with more realistic returns on their investments. With many companies taking Argentina's government to court over its heavy-handed intervention, public-private relations are in a deep trough. But some level of cooperation is needed and, albeit under considerable pressure, companies have been coming forward with new investments. Repsol YPF committed to put US$100mn into a US$169mn project to expand the TGN pipeline, Petrobras will secure financing from Brazilian bank BNDES to expand the TGS pipeline, and Techint will put up US$750mn for the Gasoducto Noreste Argentino, a new 1,500km pipeline from Bolivia into northeastern Argentina. But Argentina can't turn the situation round by itself, and Kirchner signed agreements with Bolivia to import 20mcm/d of gas, with Venezuela to swap grain and beef for liquid fuels under the terms of a broader energy cooperation accord, and with China, which, eager to satisfy its raw materials appetite, is lining up a series of heavyweight and as yet undefined investments in sectors including energy. BOLIVIA Bolivia's wealth through natural gas reserves remains potential rather than actual. Refusal to accept Chile as the host of a liquefaction plant to export Bolivian gas as LNG led to months of lost time and an eventual agreement to use a Peruvian plant, but since Presidents Carlos Mesa and Alejandro Toledo signed a letter of intent in August, there have been no reported developments regarding exports via Peru either. Spurred by the results of a July referendum, Mesa has moved ahead with a number of other plans to monetize gas reserves. An agreement was signed with Uruguay to supply an initial 150,000cm/d and a possible 4mcm/d from 2006, exports to Argentina could climb to 30mcm/d, sales to Brazil reached some 22mcm/d and the two countries discussed how to increase volumes - and possibly reduce prices - of further exports. Initial agreements on a US$1.3bn petrochemical complex on the Brazilian border are imminent, and deals were reached for a power plant at Corumbá in Brazil. Bolivia's controversial hydrocarbons bill was still before congress at year-end. It proposes state ownership of hydrocarbons at the wellhead, a measure that would apply retrospectively to existing contracts as well as new ones; renationalizing producers Andina and Chaco, as well as transport company Transredes; and, between royalties and taxes, the state taking 50% of the total value of hydrocarbons produced. The private sector expressed its dismay at the proposals, but China's Shengli was not deterred, and announced plans to invest at least US$1.5bn in plans including power generation, petrochemical production, refining and the conversion of vehicles to use natural gas. CHILE Faced with Argentine gas restrictions and the improbability of receiving Bolivian gas any time soon, Chile turned to LNG as the answer to its supply woes. For refinery expansions, state oil company Enap needs 1.5mcm/d from 2007 and is leading a project in which it would partner the private sector in an offtaker pool. The project is preliminary, the doubts many and the regulations non-existent, but it is a question of when rather than if LNG will enter Chile's energy matrix. With no upstream activity of note, Chile's oil & gas news is principally in midstream and refining. Enap continued its program of refinery expansions, distributor Copec opened a new lubricants plant, which like Enap's refineries will produce for export as well as for the domestic market, and Enap bought Shell Peru, which it merged with local partner Romero Trading to create a company that has over 20% of the retail fuels market. PERU Two decades after 13tcf gas was found in block 88, the Camisea natural gas project started operations in August 2004. The project shifts an initial 285mcf/d of gas and 50,000b/d of natural gas liquids to Lima, brings gas to the power generation and industrial sectors, starts off a slowly developing residential market in the capital and opens the doors to an LNG export project. The Hunt Oil-led export partners are confident of signing an LNG sales contract with a North American offtaker in 1Q05, and Camisea partners have now turned their upstream attention to the 3tcf of block 56, known as Pagoreni. Camisea far overshadowed all Peru's other hydrocarbons developments this year, although of note were plans by Occidental to invest US$100mn in blocks 103 and 64, by Petrobras Energía to invest a similar amount in block X, and by US company BPZ Energy to invest US$250mn-300mn in supplying some 200mcf/d from the estimated 2tcf in block Z-1 to power generators in Peru and Ecuador. ECUADOR In Ecuador, the government denied a US$75mn tax refund to Occidental and later claimed the US company violated its block 15 E&P contract by transferring a 40% stake to EnCana without first obtaining permission. ChevronTexaco stands accused of environmental damage by a former subsidiary and faces a multibillion-dollar lawsuit being heard in Ecuador. Canada's EnCana, which is seeking a US$150mn tax refund, calls its Ecuadorian experience a "roller-coaster." It is reportedly selling its Ecuadorian assets - the 40% in block 15, 100% of the Tarapoa block, plus 36% of the OCP heavy crude pipeline - for US$1.5bn. Petroecuador declared force majeure on oil exports after the Sote pipeline was damaged in a March landslide; bidding round 9 drew only one offer, and by year-end the mines and energy ministry had qualified 12 bidders for services contracts on four Amazon fields, as well as 15 for a contract to modernize the Esmeraldas and Shushufindi refineries, and was preparing a bidding process for four marginal fields. COLOMBIA Ecopetrol is considering the purchase of some 350mb of proven Ecuadorian reserves from 2005 through 2010 as part of plans to delay the end of Colombia's self-sufficiency. Ecopetrol approved a record US$120mn exploration budget in 2004, and in its first year of operations, hydrocarbons regulator ANH approved 25 new E&P contracts and 12 technical evaluation contracts. The largest of the contracts was for Ecopetrol, Petrobras and ExxonMobil to explore the 4.4 million hectare Tayrona offshore block. The government started but did not finish the privatization of natural gas transporter Ecogas, and although a number of agreements were signed for the construction of a 180km, 150-200mcf/d pipeline to Venezuela, no definite decision has yet been made. VENEZUELA The tender of Gulf of Venezuela blocks attracted high levels of interest at the pre-qualification stage. Gas production started at the onshore Yucal Placer block, Repsol-YPF discovered gas at Barrancas, and ChevronTexaco discovered gas in exploration wells that tested at 32mcf/d and 55mcf/d in the offshore Deltana platform's block 2. The Deltana platform contains an estimated 38tcf of gas reserves that would be exported as LNG to the US from 2009, and is expected to bring a total US$4bn in foreign investment to Venezuela over six years. Venezuela is lining up as an LNG exporter of note, and apart from Deltana gas and LNG possibilities from the Gulf bidding round, has the Mariscal Sucre and Gulf of Paria projects. Gas from Deltana, Mariscal Sucre and the Gulf of Paria could all be liquefied at the US$2.7bn, 1bcf/d Gran Mariscal de Ayacucho industrial complex (Cigma) in the east of the country. Political risk in Venezuela's hydrocarbons sector is considerably higher than in most other countries in the region. In August, President Hugo Chávez survived a recall referendum, and maintained his ability to surprise, shown in an October decision to raise royalties on the Orinoco belt heavy crude upgrade projects to 16.7% from 1%. State oil giant PDVSA plans US$26bn investment in oil and gas E&P as part of its 2004-2009 business plan, and at the end of the year the country's production was between 3.1mb/d (according to the government) and 2.6mb/d (according to the opposition). BRAZIL With production nearing 2mb/d, the country edges closer to self-sufficiency - a goal it now thinks is attainable in 2005. This year the P-43 platform finally started operations, sister platform P-48 is expected to follow suit early in 2005, and before 2005 is out P-47, P-50 and the P-34 FPSO are also expected to start up. In contracts to refit the P-34, as well build the P-51 and P-54 and the PRA-1 pumping station, federal energy company Petrobras announced 6.3bn reais (US$2.39bn) in investment. In its Campos basin transport and treatment master plan (PDET), Petrobras detailed a further 4.65bn reais spending in bringing oil to shore, and although it had planned to send the oil on to São Paulo state, in the face of political opposition from Rio de Janeiro opted instead to send the oil through existing pipelines only, to Rio and São Paulo. Rio saw the original plans as detrimental to its chances of hosting a new refinery planned by Petrobras, and by year-end had reportedly won the race for the US$3bn refinery and petrochemical investment. Transport unit Transpetro launched a US$1bn tender to renew 22 of its vessels, with the renewal of a further 31 scheduled for 2005. In the refining sector, Petrobras started operations at new units of its Replan and Repar refineries, signed further contracts in the ongoing US$1.2bn modernization plan at Reduc, said it would start an US$800mn modernization program of Revap next year, announced US$437mn spending at Regap, said it would conclude the US$800mn capacity expansion at Refap in mid 2005, and continued studies with Venezuela's PDVSA for a refinery joint venture in Brazil's northeast in which investment could reach US$2.5bn. In moves to provide more energy to the northeast, the Chinese and Brazilian governments signed an MOU for the construction of the US$1.3bn, 1,175km Gasene pipeline that would deliver 20mcm/d gas from Brazil's southeast. Construction could start January, when work on a 420km gasline from the Coari fields in the Amazon to power plants in Manaus is also expected to start. Petrobras started construction of the 448km Malhas Sudeste gasline in the southeast, and is considering the 615km TSB pipeline in Rio Grande do Sul and the 5,100km Gasun project, which would take Bolivian gas to Brazil's center-west. With gas consumption at some 39mcm/d and expected to rise to 110mcm/d by 2010, Petrobras hiked to US$4bn from US$3.2bn its pipeline spending plans through 2010. MEXICO Federal oil company Pemex needs to invest some US$130bn in 2004-2012 to meet domestic oil and gas demand and reduce dependence on fuel imports, divided between exploration and production (US$117bn), refining (US$10.1bn), gas and basic petrochemicals (US$1.6bn), petrochemicals (US$1.4bn) and corporate (US$600mn). With the Pidiregas financing scheme already full to bursting, bank debt having the side effect of increasing Mexico's public debt, and congress having rejected a proposal that would have reduced taxation on new exploration projects, reform in one form or another will be necessary for that investment to be possible. In 2004, Pemex placed a US$1.75bn perpetual bond on foreign markets, and started a series of short-term domestic bond issues of some US44mn each. Since Pemex introduced the multiple service contracts (MSCs) through which it involved the private sector in large-scale upstream natural gas production in the Burgos basin in April, the country has saved an estimated US$110mn in gas imports. A local consortium won the bidding for the Pandura-Anáhuac block, the first of four to be offered in the second MSC round. This year Pemex awarded the last block in the first round, to Lewis Energy for the Olmos block. In oil, Pemex identified 7 deepwater blocks in the Gulf of Mexico that could hold some 54bn barrels of oil, more than doubling reserves to 102bn barrels. Pemex has neither the technology nor the finances to develop this resource itself, and is working on a new contract structure with which it could partner international majors.