Time is running out for Bolivia
From: National Gas Daily (march 26th, 2012) – Anatoly Kurmarev reports.
BOLIVIA’S government continues to prioritise pipeline exports at the expense of its internal gas market, which continues to stagnate. The downstream sector remains undeveloped, despite plans to connect the country’s huge reserves with its people and industry.
None of the envisioned projects, which were first floated in 2006, have materialised. Bolivia consumed only 7.7 million cubic metres per day (MMcm/d) in 2011, just 18% of its total gas production. The country’s total average daily gas demand has grown by only 1 MMcm/d since 2009, according to figures from HidrocarburosBolivia.com.
Bringing the benefits of Bolivia’s gas to the country’s industry was one of the four pillars of President Evo Morales’ National Development Plan, rolled out when he came to power in 2006. The government earmarked a dozen downstream gas projects worth $4.5 billion, ranging from gas-to-liquids plants to fertiliser and plastics industries. The discovery of giant o$shore and shale resources in Brazil and Argentina, Bolivia’s only two gas customers, underlined the importance of domestic market development.
Residential demand in the country accounts for only 3% of the market. Most boroughs in the capital, La Paz, have no gas connections. Around 75% of Santiago, the capital of neighbouring Chile, is served by a gas connection.
“Our domestic market could absorb much more gas, but there’s no infrastructure to transport gas to the cities,” said Francesco Zaratti, a professor at Bolivia’s Universidad Mayor de San Andrés and an independent energy analyst.
Community-led opposition to infrastructure projects in Bolivia also causes delays. “!e government has long been a promoter of environmental activism and this is now back-“ring,” Emma Campos-Redman, a consultant at London-based Control Risks said in an interview last week. “Almost any project today will cause some sort of protest.”
Bolivia’s highly subsidised gas prices are another major obstacle. Industrial consumers pay $2 per million Btu, and residential distributors pay below $1/MMBtu, according to Zaratti. “No private firm will invest with such prices,”
the analyst told Interfax on 19 March. Foreign investment in Bolivia has increased in the past two years a%er a slump caused by Morales’ nationalisation of the gas sector in 2006.
However, this investment is confined to existing upstream projects with firm export sales contracts. This leaves the state bearing the brunt of downstream investments. The government created Empresa Boliviana de Industrialización de Hidrocarburos (EBIH), a new state company charged with establishing gas-fuelled heavy industry, in 2010. The company was given a $300 million budget and a portfolio of 12 petrochemical and gas-toliquids projects.”The project documents are now gathering dust in La Paz,” said Saul Escalera, a former head of industry at state-controlled oil company YPFB and one of EBIH’s founders.
Escalera told Interfax last week that EBIH had managed to sign memoranda of understanding for several projects, including one with Argentina’s Pan American Energy. However, none of the projects was approved by YPFB’s president Carlos Villegas.
The country’s four energy ministers between 2008 and 2010 added to the political confusion, and lacking adequate staff or funding, EBIH was gradually forgotten. “EBIH is quite a sad story. I’ve recently been to their office; there are still 12 employees left who don’t really know what they are doing,” said Escalera. Bolivia’s vice-minister of hydrocarbon industrialisation, Álvaro Arnés, had not responded to calls seeking comment at the time of publication.
“Villegas has always been opposed to industrialisation. Gas exports provide a lot of revenue for Bolivia and he thinks it’s a better use of resources than domestic development,”said Escalera, who was ousted from YPFB within a month of Villegas’ presidency.
Villegas’ strategy is likely to be based on the oil-indexed prices paid for Bolivia’s gas by Brazil and Argentina. Brazil paid $8.8/MMBtu for Bolivian gas in the first quarter of 2012, according to HidrocarburosBolivia.com, more than four times what YPFB obtained from domestic industrial buyers. Gas exports are the single largest part of Bolivia’s economy, and are crucial to Morales’ social spending programmes.
“The government is only interested in maximising the fiscal take from existing exports projects,” said Zaratti. “the industrial and petrochemical development has been left to one side because it’s too complex.”
Bolivia’s neighbours, however, are busy developing other gas supply options and will one day stop paying premium prices for YPFB’s gas, Zaratti added. “We need new markets. And right now the government is very nervous because it appears a bit late.”