Southern Cone has natgas surplus of over 36 MMMCD

By Álvaro Ríos Roca

Former Bolivian Minister of Hydrocarbons and current managing partner of Gas Energy Latin America

In my August 2017 column, I explained that it was very possible that the Southern Cone could see a large surplus in the supply of natural gas, due to the strong investments that were seen in new natural gas production in Brazil, Argentina and Bolivia and of course the arrival of very abundant and flexible LNG from various parts of the planet, mainly from the US.

Brazil had to resort to importing gas from Bolivia and also LNG for power generation. Argentina, due to failed exploratory policies, had no option but to import gas from Bolivia and also LNG. In the same way, Chile turned to LNG by being deprived of exports from Argentina. Uruguay opted for wind power and petroleum products, unable to conclude an LNG regasification terminal.

But all this has already changed radically. Brazil is beginning to produce offshore natural gas and discover the immense pre-salt (2005), where Petrobras and several private actors bet and continue betting huge economic resources and technology mainly to produce oil, which comes with a lot of associated natural gas.

Oil and natural gas production has been rising remarkably year after year and a large amount of pre-salt gas already enters the market and another portion (approximately 50%) must be reinjected because of reservoir conditions, but also for not having access to more markets due to lack of infrastructure. The restructuring of the natural gas sector towards a competitive market, which would lower prices in Brazil, is underway. It includes the end of the monopoly of Petrobras, privatizations and other measures that will bring even more gas from the pre-salt and also from LNG to the market.

Vaca Muerta, in Argentina, has gigantic technically recoverable natural gas resources. A series of incentives, agreements with unions and better prices for gas at the wellhead have resulted in investments in pilot wells and some mass development projects (factory drilling) to produce oil and natural gas. Vaca Muerta has gained competitiveness and efficiency and significantly reduced production costs. Argentina has resumed exports to Chile and Uruguay and is looking to take gas to Brazil and export LNG. It has also significantly decreased imports from Bolivia and LNG.

Bolivia, which had its exploratory cycle stopped, has reacted with a law of economic incentives and some regulatory decrees to attract new exploration, mainly from the private sector. Several exploratory prospects (9) are being and will be drilled between 2019 and 2021 to try to find new reserves and have new production. If the geology is favorable, Bolivia may have even more exportable surpluses and very competitive gas with infrastructure to reach Brazil and Argentina.

A very quick balance of natural gas for the second half (August to December) of 2019 of the Southern Cone countries could be summarized as follows:

-Argentina with production capacity of 135 to 140 million cubic meters per day (MMMCD), exports in the order of 10 MMMCD and surplus gas of approximately 10 MMMCD.

-Brazil with an offer to the market of about 60 MMMCD and surpluses of about 8 MMMCD this 2019. Demand for Bolivia's gas has been reduced to an average of 13 MMMCD for several months.

-Bolivia has production capacity in 2019 close to 56 MMMCD and needs approximately 15 MMMCD for its domestic market. If Argentina demands 10 MMMCD (contracted) and Brazil continues to demand 13 MMMCD as it has been doing this year, Bolivia will have surpluses of 18 MMMCD.

An estimated total surplus of natural gas for the Southern Cone of around 36 MMMCD. Unthinkable only 5 years ago.

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