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Bolivia faces gas shortfall

President Evo Morales rarely makes a public speech these days without mentioning that the nationalisation of the energy industry will yield an extra $162m in taxes and royalties for the government this year alone. Just three years ago, private-sector oil companies, including Petrobras, Repsol YPF and Total, paid as little as 18% in taxes and royalties on gas production in the country. The government now receives up to 82% of proceeds, depending on the size of the fields.

What Morales discusses less often, however, is how the country's energy industry will find the investments needed to maintain gas production and lift it in coming years. At the end of last month, foreign oil companies were due to adopt the terms of the country's gas nationalisation or quit Bolivia (although there was a possibility that the deadline would be extended until the end of this month).

However, accepting the terms of the nationalisation does not mean companies will commit to new investments. Petrobras, the largest investor in the country's gas industry, has said it cannot afford to make any new investments under the new terms.

Bolivian energy industry sources say the country's natural gas production is already stretched so thin that Bolivia cannot meet its domestic and export commitments. In late September, Bolivia's Hydrocarbons Chamber, which represents the interests of private-sector producers, claimed the country was unable to meet daily gas demand and was falling as much as 3.8m cubic metres a day (cm/d) short of its contractual obligations to deliver 45.2m cm/d to consumers at home, as well as in Brazil and Argentina.

With Brazil's Petrobras buying around the full 30m cm/d allowed in its contract, the country has been forced to cut some supplies to Argentina, which has a contract for up to 7.7m cm/d, and to a gas-fired power plant on the Brazil-Bolivia border, which takes up to 2.5m cm/d. The domestic local market consumes up to 5m cm/d.

Supply cuts to northern Argentina have not resulted in a supply crisis in the rural region, which is between sugarcane harvest seasons and in a period of low electricity use. But the shortfall in supply raises the prospect that Bolivia may fail to boost output quickly enough to provide Argentina with up to 27.7m cm/d by 2010, when a new, $1.1bn pipeline linking the country's gas-rich southern Tarija province to northeastern Argentina is completed. Argentina is counting on new Bolivian gas to meet demand that is growing at 9% a year at least.

Despite the claims of the Hydrocarbons Chamber, Bolivian energy officials say the country is able to meet demand. However, they also acknowledge that investments of anywhere between $0.8bn and $1.5bn will be needed over the next three years to boost gas production sufficiently to meet Argentine and Brazilian needs. Yet while both state-owned YPFB and Argentina's state-run Enarsa have said they want to invest in new Bolivian exploration and production, neither has the funds or the expertise to do so without help from the private sector.

Petrobras, Repsol YPF, Total, BG Group and other foreign operators have said they will freeze investments at only "maintenance level" until Bolivia's government offers more attractive terms to investors. Other companies, including PdV and Gazprom, said earlier this year that they may invest in building upstream capacity, but they are yet to do so.

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