Grand plans crumble
South America's plans for a regional gas pipeline network are being quietly dropped in favour of LNG, writes Robert Cauclanis
NOT LONG ago, South America's big consumers thought they would soon be able to rely on the continent's large natural gas producers for supplies – delivered through a newly built regional pipeline network. They were mistaken: overland energy integration is failing and consumers are turning to liquefied natural gas (LNG) imports from overseas.
Over the last five years, many other trans-national gas pipelines have been proposed with the aim of inter-linking the region's energy markets, but none has succeeded – bar a $467m, 225 km line from northeastern Colombia to northwestern Venezuela. Gas flows through the 4.3m cubic metres a day (cm/d) line, operated by Ecopetrol and Chevron, began last year. In 2012, when Venezuela plans to become a gas exporter, the flow of the pipeline is supposed to reverse.
Failed proposals included a trunk-line from Venezuela to Brazil, Argentina and Chile; a line from Peru to supply countries to the south; and significant expansions of Bolivia's capacity to Brazil and Argentina, and new lines to Paraguay, Uruguay, Chile or southern Peru.
However, with gas demand in the biggest consuming countries rising by 10% or more a year, consumers cannot afford to wait and see whether the international network will be built. Only a few projects are under discussion and it seems highly uncertain those discussions will come to anything. And a sudden increase in LNG imports would probably kill off efforts to establish regionally integrated gas markets.
At the turn of the decade, no South American country was considering importing gas from other regions. Today, at least six LNG receiving terminals are either being built or are in the planning stage – two in Brazil, two in Chile, and one each in Uruguay and Argentina (see Map 1). If all the facilities are built, South America could be importing nearly 60m cm/d of LNG by the end of the decade, with some supplies coming from as far afield as Nigeria or Qatar, especially if local exporters, such as Venezuela and Trinidad and Tobago, fail to increase gas production at a sufficient rate.
The only country in the region to be making progress with an LNG export project, Peru, is not planning to supply other countries in the region. The Peru LNG project, led by the US' Hunt Oil, will supply up to 16.5m cm/d of gas from the Camisea field in the Peruvian Amazon to Mexico and possibly the US. Shipments are due to start in 2010.
Venezuela has long wished to build its own LNG terminal, but progress has, for years, been virtually non-existent. The country has large gas reserves – some 4 trillion cm, mostly associated – but development for LNG is a long way off. State-owned PdV says it is still planning to build two LNG trains, but it is yet to undertake the relevant upstream development work. In addition, without the capital and expertise of experienced foreign investors, it is likely to struggle. It recently abandoned ventures with Shell and Petrobras.
In 2003, Shell, alongside Mitsubishi and PdV, agreed to develop the Mariscal Sucre area. The proposed $2.7bn venture would have included Venezuela's first LNG export train, but the partners failed to reach an agreement on how the project should proceed and Shell and Mitsubishi pulled out. Between 2005 and 2007, Petrobras considered developing Mariscal Sucre with PdV, but by late 2007 the Brazilians had dropped the plans, frustrated in part by PdV's unwillingness to guarantee that a large portion of the gas would be exported as LNG
PdV says it wants to ship up to 35.5m cm/d of LNG from Mariscal Sucre, offshore eastern Venezuela, by 2013 and up to 19m cm/d from its Plataforma Deltana fields, also off the eastern coast, by 2014. But President Hugo Chávez says the country will not commence exports until the heavily subsidised local market is fully supplied, which is likely to discourage profit-minded developers. Foreign participants would want to receive international LNG reference prices for produced gas, but the government might require them instead to sell piped gas to a local market where fuels are deeply discounted
Some pipeline proposals, such as the $25bn project to bring Venezuelan gas to the Southern Cone countries, have failed because of daunting financing requirements. Changing forecasts for regulatory frameworks that tend to discourage private-sector investment in infrastructure have been further barriers to development. Existing regional pipelines, such as the seven lines built to deliver Argentine gas to Chile, are in disuse, because Argentina is holding back nearly all of the gas it once exported to Chile (up to 21m cm/d in mid-2004), for domestic use.
With the largest gas demand in the region, around 130m cm/d, Argentina no longer has gas to spare. Government price caps on gas and an economy that has been growing at 8% a year have led to a surge in gas demand. That has left Chilean gas consumers undersupplied, including the big copper mining companies that dominate the economy.
Bolivia: production shortfall
Bolivia's hydrocarbons minister, Carlos Villegas, said last month that the Andean country, which holds the region's second-largest gas reserves after Venezuela, would be unable to meet gas demand from Brazil and Argentina this year, because of lower-than-expected domestic production. Bolivia says it will ensure its domestic market is fully supplied before increasing exports.
But the country's production capacity of 41m cm/d is not enough to meet present demand for Bolivian gas (31m cm/d from Brazil, 4.7m cm/d from Argentina and up to 6m cm/d at home). Consequently, plans for new Bolivian pipelines – one proposal, made last year, was for a line from Bolivia to Paraguay and Uruguay – are exceedingly unlikely to make progress.
Bolivia's production shortfall is especially bad news for Argentina, which had been counting on deliveries of up to 16m cm/d by 2009 and 27.7m cm/d from 2010 onwards. And now, even the meagre 4.7m cm/d Bolivia has been shipping to Argentina is no longer guaranteed.
At a cost of $0.8bn, Argentina has been planning to build a 20m cm/d, 1,470 km pipeline to link Bolivia's southern gasfields to Argentina's northern territories. However, although it is desperate for more gas, the country is reluctant to invest such a large sum in a pipeline that may lie dormant – if Bolivia fails to increase production soon. But upstream success in Bolivia seems far from assured: investment in gasfields has virtually ceased since President Evo Morales nationalised the country's energy sector in 2006.
Complicating matters, powerful opposition parties in the gas-rich Bolivian provinces of southeastern Tarija and Santa Cruz have threatened to declare regional autonomy, increasing uncertainty for gas developers and possibly degenerating into civil war.
The Bolivia-Argentina pipeline tender process, begun last June, has stopped. Bolivia has said it lacks the funds or a builder to construct even a 20 km stretch on its side of the border. Instead, Argentina and Uruguay have been examining the options for importing LNG. Uruguay's state-owned oil company, Ancap, has been in talks since mid-2007 with Petrobras to build a 5.9m cm/d regasification facility in Punta del Tigre, across the Rio de la Plata from the Argentine capital, Buenos Aires, at a cost of around $400m. Uruguay's LNG facility would supply Uruguay and various Argentine cities, including Buenos Aires, without requiring a lengthy new pipeline network. No start-up date has yet been set.
Meanwhile, Argentina's state-owned Enarsa and PdV last year began studies for a joint 10m cm/d regasification facility near Buenos Aires, at the refinery town of Bahía Blanca. Proposals are for the facility to be up and running by 2010. Another option for Argentina would be to reverse the flow of the existing pipelines to Chile and rely on future, Chilean LNG receiving terminals to supply imports.
Self-help for Brazil
Brazil, whose government estimates gas demand will rise to 121m cm/d by 2011, from less than 50m cm/d, has no plans to import more gas from Bolivia by expanding an existing, 30m cm/d pipeline to São Paulo. In addition, Petrobras last year decided not to take part in a Venezuelan plan for a trans-Amazon gas pipeline or to help PdV develop gas reserves at its offshore Mariscal Sucre fields. Petrobras now says that the additional 72m cm/d of gas Brazil needs to meet projected domestic demand in 2011 will be supplied as LNG (up to 27m cm/d) and increased domestic production (around 45m cm/d).
In view of its aim of increasing gas use domestically, Brazil is likely to see the most domestic pipeline growth in the region. Petrobras plans to invest R$3.7bn ($2bn) in local pipelines in 2008, adding 1,000 km of new lines and expanding the country's total capacity by 17%, to 70m cm/d. This will result in Brazil's southeastern gas-distribution network (the site of most of its gas production) being linked to consumers in northeast Brazil, through Gasene, a 20m cm/d trunk-line.
Petrobras is also starting construction this year of a 40m cm/d, 182 km line known as Gasduc III, which will carry new sources of domestic production from the offshore Espírito Santo and Campos basins throughout the southeast of the country. Start-up is scheduled for mid-2009. By December, Petrobras also plans to complete a 661 km, 5.5m cm/d pipeline to transport gas produced in Urucu, in the Amazon region, to Manaus, the northern Brazilian capital of Amazonas State. At present, Urucu's gas is re-injected.
Petrobras also plans to spend another R$0.5bn this year to install LNG receiving terminals in Rio de Janeiro and Ceara States. Brazil's first LNG-receiving tanker, the 7m cm/d Golar Spirit, is due to arrive in May and Petrobras said it plans to install two further LNG receiving terminals before the end of the year: a terminal in Rio de Janeiro state will eventually process 20m cm/d; another, in Ceara State, will process 7m cm/d.
Chile out in the cold
Chile is, arguably, in the worst predicament of all. The export-driven economy is in the midst of a commodities boom and has experienced rapidly rising power demand, but has failed to secure more gas from Bolivia, Argentina or Peru. Enap, Endesa, Metrogas and BG are building a 9.3m cm/d LNG regasification facility in Quintero, 180 km north of Santiago. The plant is due to become operational in late 2009. In addition, in northern Chile, power utilities and their mining clients, including Codelco and BHP, and Phelps Dodge, are considering building a 4.6m cm/d regasification plant, which would also enter service in 2009.