Weighing Bolivia's gas export options
Legal disputes and competition from Chile complicate efforts to become a regional energy hub
Bolivian president Evo Morales is in a race against time to achieve his cherished goal of exporting pipeline natural gas to Peru before he seeks a mandate from voters next year for an unprecedented fourth term.
But the odds aren't in his favour. Chile continues to block Bolivia's ambitions to run a pipeline through its territory, with the dispute remaining mired in the World Court.
The polls are turning against the president, who has virtually gambled the country's economic future on transforming land-locked Bolivia into a regional hydrocarbon hub. Morales has instead turned to an alternative strategy. Bolivia and Peru have floated the concept of a transcontinental rail link that would connect the Atlantic and Pacific coasts of central South America. More importantly, this would mean Bolivian gas could be exported through Peru.
In early 2018, studies began on the feasibility of connecting the port of Ilo in Peru, from where Morales hopes to export Bolivian liquefied natural gas, with the port of Santos in Brazil. The idea is that seaborne exports would supplement the gas that Bolivia pipes into Brazil and Argentina.
Morales, who has largely based his presidency on oil and gas-driven prosperity for Bolivians, has made little progress on the gas corridor. Last year, the IMF expressed serious reservations about the grand plan to turn the country into an energy hub for South America.
Proven gas reserves are estimated at around 10 trillion cubic feet, which would keep the nation's downstream industries in business for a maximum of 10 years at current volumes. YPFB is investing around $4.3bn in gas separation and petrochemical plants. The IMF said the gas available in Bolivia wasn't sufficient to create an energy hub and it criticised the Morales government for failing to encourage more exploration.
Bolivia has been trying to make up for lost time. Shell is drilling in Huacareta in Tarija province in the south east, where state-owned YPFB estimated in May that the Jaguar X6 well contains reserves of 1.8 trillion cf of natural gas lying at 4,430 metres (14,500 feet).
In April, YPFB and Petrobras estimated gas production at 28m cubic feet a day from the Sabalo 6 well in the Gran Chaco region of Tarija.
Also in April, Morales signed a law approving exploration in San Telmo Norte and Astillero, both in Tarija, at a total investment of $700m.
The pressure is mounting on Bolivia to find new markets. It's far from certain that Brazil, for instance, will continue to need the hoped-for quantities of Bolivian gas as it rapidly diversifies its sources. As the Oxford Institute of Energy Studies (OIES) pointed out in a 2017 paper, Petrobras has been supplying extra volumes of gas for Brazil's domestic market through two offshore pipelines; and a third is expected to begin operating in 2018.
Also, Petrobras isn't the most reliable of customers. In early 2017, the state-owned giant abruptly announced it was halving its offtake from Bolivia on the grounds of lower demand and, ominously, higher domestic gas production. As OIES points out: "This prompted Bolivia's YPFB to accelerate the search for alternative markets in Brazil and Argentina."
Bolivia's contracts with Brazil run out in 2019-20. "The reduction in Brazil's imports," the OIES report said, "may have unintended consequences for Bolivia's economy, which is heavily dependent on natural gas exports to Brazil and Argentina." The Oxford think tank points out that in 2016 natural gas accounted for nearly 30% of Bolivia's total exports.
Bolivia hasn't always been the most reliable of suppliers, either. During 2017, YPFB was unable to pump the contracted volumes to Argentina because of a series of production delivery problems. OIES points out that Bolivia's gas exports to Argentina have consistently fallen short.
On the bright side for Morales, in the run-up to next year's elections, a favourable decision by the World Court over the gas corridor would probably boost the president's re-election chances. A date for a decision is expected to be announced in a few months.
However, as a competitor in the gas markets of the region, Chile won't make it easy.