Energy crises open door for Bolivian gas

Brazil's President Cardoso has prioritised completion of 14 thermo plants by the end of 2001

By the BBC's Andrew Enever from Bolivia

Bolivia is home to South America's second biggest gas reserves, following a series of major discoveries in the past few years.

But slow development of export markets means gas companies and the country as a whole are yet to feel the benefit.

However with the two largest markets in the Americas, Brazil and the US, both suffering an energy crisis this year, Bolivia now has an opportunity to cash in on its reserves.

Bolivia began exports to Brazil in July 1999 following the completion of a transnational pipeline running between the cities of Santa Cruz and Sao Paulo.

The Brazilian government introduced a policy to increase gas consumption to 10% of the national energy matrix by 2010 through the construction of 49 thermoelectric generation plants.

Bolivian gas to the US markets

To complement this policy the State oil company Petrobras signed a twenty-year supply contract to take 30 million cubic metres per day of Bolivian gas by 2004.

But slow development of Brazilian thermo projects means only one-third of the 30 mn m³ a day capacity pipeline is being used.

Delays with the thermo projects have been caused by a number of problems related to the signing of long-term gas supply contracts.

First, hydro generated electricity, which makes up over 80% of Brazil's power supply, is sold at much lower prices than thermo power, meaning thermo plants cannot guarantee demand for their output.

Secondly, the export price of Bolivian gas has become inflated because it is linked to world oil prices.

And thirdly, Bolivian gas is sold in US dollars, with constant devaluations of the Real against the dollar turning into price increases for end users.

The Brazilian energy crisis, caused primarily by critically low hydroelectricity reservoir levels has focused attention on these problems.

Brazil's President Cardoso has responded by prioritising the completion of 14 thermo plants by the end of this year.

"The rationing situation that Brazil is facing confirms how important it is to diversify our energy matrix," he said.

"Bolivian gas is going to allow the stabilisation of the Brazilian energy crisis."

Bolivia - Brasil pipeline

Brazi's Petrobras has asked that Bolivia's State oil & gas interest YPFB reassess the current pricing arrangement with the bait that they will take an extra 10mn m³ a day if a compromise can be reached.

But these negotiations can only go so far in solving Brazil's problems, as Bolivian gas producers will not consider changing the dollar payment arrangement.

While Brazil's market still has potential to grow, stumbling blocks have led a number of producers to look towards the fast growing US gas market.

Shipping liquefied natural gas

Last week RepsolYPF, British Gas Bolivia and Exxon and BP formed a consortium, Pacific LNG, to export Bolivian gas to the US via Mexico.

Their plans involve the construction of a new pipeline running from the companies' reserves in Southern Bolivia to a gas liquefaction plant on the Chilean coast.

From there the liquefied gas will be shipped to a regasification plant in Mexico and into the Mexican and US markets.

The rationing situation that Brazil is facing confirms how important it is to diversify our energy matrix.

Brazil's President Cordoso

The total cost of the project is expected to be $5bn and, providing financing can be found and agreements can be reached between the four countries involved in the chain, the project should be up and running by 2005.

With the Brazilian market and a US LNG project capable of absorbing up to eight times current export levels over the next few years, potential to realise the value of Bolivia's gas reserves clearly exists.

But until volumes rise, and with them Government revenues, the positive effects on Bolivia's economy will not be felt.