Bolivian gas: Not essential, but still important

By Alvaro Rios Roca

Former Minister of Hydrocarbons of Bolivia and current partner at Gas Energy Latin Latin America

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 start supplanting more expensive and dirty fuel oil - and other petroleum derivatives - for a more economical and clean energy, using it for thermal generation and mainly for industry, thus starting a vigorous change in its energy matrix. Bolivia experienced a time of great bonanza of high rent income of gas sales, 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 samba country started importing LNG and increasing offshore production, mainly associated with oil in the Presal. Undoubtedly, the uncertainty about the future supply after the drastic changes in Bolivia accelerated these decisions. We can state that Bolivia's gas 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 struggle has arisen in which imported LNG, Bolivia's gas and gas produced in Brazil must compete. And for that the infrastructure developed from Bolivia is vital. For this it is very important that Petrobras is leaving the monopoly of the industry, which in some way sustains, in a market in which several private companies want to enter to compete.

Can you imagine what would happen if Bolivia's gas 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. Bolivia's gas for Brazil is for this fundamental reason. YPFB, therefore, must aim to negotiate directly with consumers and not with traders or intermediaries, as is the case of Petrobras after the end of this agreement.

Basically, something similar happens in the other market that Bolivia has, which is Argentina. Thanks to its economic swings and high subsidies, the tango country was running out of reserves and natural gas production and by 2002/2003 had to start importing emergency and started with the GNL (2008) to then sign a contract long-term with Bolivia (2010) that goes until the year 2026. The breaches from both sides of the border were raised in this contract, to the present, where a renegotiation has been raised that we will see in what ends this 2019.

The truth is that a decade ago, as in the case of Brazil, Bolivia's gas was basically essential to Argentina to avoid cuts and stop importing larger volumes of much more expensive LNG or the most expensive and contaminating fuel oil , along with other petroleum derivatives. Remember that these imports bleed your economy and let out dollars that are the most precious thing that the country has.

With the development in the USA of the shale (technique of fracking), almost two decades ago, the 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 would be flooded with very competitive natural gas and LNG export projects to Asia would be taking place. However, Vaca Muerta is in Argentina, a country where "everything happens and nothing happens at the same time".

The companies that produce in Vaca Muerta received incentives and the production of shale increased remarkably and exports are being made to Chile and possibly to Brazil and Uruguay, as well as external sales of LNG. This led to the cut of gas purchases from Bolivia and the proposal of a renegotiation. Recently incentives have been changed and nobody knows what will happen.

In summary, Bolivia's gas, although not essential for Argentina, is a source of competitive energy in that market, which would otherwise be exposed to what companies that import LNG / o produce natural gas decide.

Gas competition vs. gas: imported LNG, Bolivia's gas and locally produced gas should be the new dynamic in the Southern Cone. Bolivia's gas is more than important for this reason.