Bolivia to squeeze natural gas supply for Brazil

Bolivia to squeeze natural gas supply for Brazil

By Jonathan Wheatley in São Paulo, Andrés Schipani,in La Paz and Jude Webber in Buenos Aires

Published: February 15 2008 02:00 | Last updated: February 15 2008 02:00

Bolivia may place a cap on its natural gas exports to Brazil during the coming southern winter, freeing up production for Argentine consumers facing a renewed energy crunch.

YPFB, Bolivia's state-owned oil and gas group, is expected to increase supplies to Enarsa, its Argentine counterpart, which pays $7 (€4.8, £3.6) per British thermal unit (BTU), the standard measure of thermal value.

Supplies to Petrobras, the Brazilian government-controlled oil group which pays $5.6 per BTU, are likely to be capped.

Luiz Inácio Lula da Silva, Brazil's president, held talks with Álvaro García Linera, Bolivia's vice-president, on Wednesday. Yesterday Mr Garcia Linera also visited Petrobras.

Mr Lula da Silva is expected to meet presidents Evo Morales of Bolivia and Cristina Fernández of Argentina in Buenos Aires at the end of next week to discuss the issue.

"It is probable that there will be an increase in demand in Brazil and Argentina during the winter months," Mr García Linera told reporters. "These new volumes will be discussed by the three presidents. They will reach an agreement to the satisfaction of everybody."

Both Brasília and Buenos Aires import Bolivian natural gas, which is increasingly in demand for Brazilian industry and to make up for shortfalls in Argentine domestic production.

Argentina is already facing severe energy shortages. In Brazil, where most electricity is generated by hydro-electric plants, low rainfall has increased reliance on fossil fuels.

As the southern hemisphere winter approaches, demand from both customers will surge and exceed YPFB's production capacity.

YPFB has contracts to supply up to 30m cubic metres of gas per day to Petrobras and 7.7m to Enarsa. It must also supply about 6m cubic metres per day to meet domestic demand.

But YPFB is only supplying about 27m cubic metres per day to Petrobras and about 3m to Enarsa.

"Bolivia has very limited capacity," said Carlos Alberto Lopez, a former Bolivian hydrocarbons vice-minister. He predicted the talks would go Bolivia's way.

"They won't step on each other's toes," he said. "Brazil wants to win back some of the influence it had over Bolivia, which it has lost to Venezuela."

Petrobras has been unwilling to invest in Bolivia since its assets were seized by Bolivian troops in 2006, when the country's oil and gas industry was nationalised. But a person familiar with the situation said Mr Lula da Silva would overrule Petrobras's objections in favour of Brazil's foreign policy interests, and most likely relieve YPFB of any fines payable for supply shortfalls under its contract.

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Argentina energy find may relieve crunch

By Jude Webber in Buenos Aires

Published: January 29 2008 18:53 | Last updated: January 29 2008 18:53

Pan American Energy, the second largest oil and gas producer in Argentina, has announced the country’s biggest hydrocarbons discovery in recent years and a $1bn investment programme – music to the ears of a government grappling with serious energy and power shortages.

The company, which is 60 per cent owned by Britain’s BP and 40 per cent by Argentina’s private Bridas Corp, said in a statement the discovery near its existing Cerro Dragón field in the southern province of Chubut, contains 100m barrels of oil equivalent.

It also said it was drilling a second well in the northern province of Salta, ”which, if successful, would confirm the existence of a very large gas deposit”, and was looking closely at gas prospects in Tierra del Fuego and offshore.

But it still takes years to bring new discoveries into production. The energy model championed by President Cristina Fernández and her husband, former President Néstor Kirchner - keeping domestic energy prices and utilities tariffs artificially low to boost an economy recovering from a debt and devaluation crisis in 2001-2002 - looks increasingly unsustainable.

The policy has succeeded in delivering growth rates of more than 8 per cent, but it has been a serious disincentive to investment in new reserves and has led to declining production.

In the power sector, that has translated into insufficient extra capacity to keep up with runaway demand fuelled by electricity rates that are about a quarter of international levels. Industrial clients have come under pressure to use less energy in order to avoid politically damaging power cuts for residents when temperatures peak.

In the fuel sector, it has meant shortages, despite refineries working at capacity, higher export tariffs designed to guarantee domestic supplies, and even a temporary ban on fuel exports.

Analysts say some $3bn-$3.5bn a year investment in oil, gas and electricity is needed to keep the economy growing at 5 to 6 per cent. But national oil production hit its lowest level in 2005 since 1998, and gas production, which has been rising steadily, sloped off in 2005 compared with 2004, according to the latest official data.

Ms Fernández’s first month and a half in office has been marred by the spectre of regular power cuts or rationing that a timid energy saving plan she announced last month has failed to banish.

And there is no indication yet when tariff rises expected to start this month will actually materialise, especially against a backdrop of mounting inflation.

This week the La Nación newspaper quoted data from Cammesa, the electricity wholesale market regulator, showing Argentina spent $4bn in the last four years subsidising electricity tariffs, buying fuel oil and diesel, and importing electricity from Uruguay and Brazil – enough to have built six 800MW power stations and to have had a net energy surplus this year. Cammesa had no comment on the figures.

Argentina is moving ahead on plans to build a pipeline costing $1.9bn to import 27.7m cubic metres of gas a day from Bolivia by 2010, but Bolivia needs more investment yet in its own energy sector to meet the ambitious goal.