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Latin America: Falling Brazilian gas demand hits Bolivia

THE GLOBAL economic slowdown and Brazil's growing domestic gas production have reduced demand for Bolivian imports. This has forced the impoverished Andean nation to consider exports to other markets. The need for markets is so great that the government has even considered exporting gas to Chile, despite a long-standing dispute with its neighbour over territory seized in a 19th century war that left the Andean nation landlocked.

Bolivian gas production has held steady at around 40m cubic metres a day (cm/d) in recent years (see Figure 1). The government would like to increase output, but slack demand from its main customer, Brazil, and Argentina's failure to expand pipeline capacity to bring in more imports have complicated plans. However, signs of improved long-term demand from other countries in the region and the possibility that Argentina will finally begin work on planned pipeline expansions have boosted optimism in the Bolivian gas sector.

For now, lower exports to Brazil have led to temporary surplus in production of as much as 7m cm/d, according to state-owned YPFB. Brazil's import contract, a 20-year deal signed in 1999, calls for maximum deliveries of 31m cm/d, but purchases have been running below this level since fourth-quarter 2008 because of lower Brazilian power demand. Heavy rains have filled up Brazilian hydro-electric reservoirs, reducing the country's need for gas imports.

Bolivian officials do not expect exports to rise above the 24m cm/d Brazil must pay for under the contract's take-or-pay clause and say they could renegotiate the deal to reduce the export ceiling. The reduction in export volumes has cost Bolivia nearly $450m in revenue so far this year, says YPFB.

Despite its surplus production, Bolivia is working to increase upstream investment as it targets other markets. Spain's Repsol said in September it would invest $1.6bn over the next five years to boost its production in the country and the central bank has loaned YPFB $1bn to help the company increase its own capital investments.

But YPFB's shortage of skilled personnel is hampering its plan to invest $7.5bn to expand gas processing capacity, add production and increase the reach of domestic gas distribution networks up to 2015. President Evo Morales complained in September that the company had spent only a fraction of the $0.6bn it had budgeted for this year.

Helping to fuel the optimism, Argentina said in September it would begin construction on a long-delayed expansion of pipeline capacity from Bolivia in the third quarter of 2010. The $245m GNEA gas pipeline is expected to be largely funded by private-sector companies operating in Argentina, although state-owned Enarsa will operate the 37 km pipeline.

The pipeline expansion will lift Argentina's import capacity to more than 24m cm/d when completed and comes as the domestic gas industry struggles to meet local demand, forcing the country to import costly liquefied natural gas during peak-demand periods. Uruguay has also expressed interest in starting gas imports from Bolivia and is expected to join neighbouring Paraguay in a feasibility study for a $3bn pipeline link between the countries.


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