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Brazil-Bolivia gas talks suspended

Pipeline contract deadline looms as Brazil increasingly turns to LNG

Political disarray in Bolivia, resulting in the exile of President Evo Morales, has delayed renewal negotiations on a Bolivia-to-Brazil gas import contract set to expire at the end of December.

Brazil’s state-owned Petrobras and its Bolivian counterpart YPFB signed a deal in 1996 to supply Brazil with 30mn m³/d via the TBG pipeline. Contract negotiations had been planned after Bolivia’s October national elections to allow other Brazilian companies to tender for potential spare capacity in TBG.

“Brazil has informed Bolivia that it will be taking half the volumes agreed for in the past,” says Enrique Barrios, partner at Bolivian law firm Guevara & Gutierrez. “The remaining 50pc is up-for-grabs.” But Brazil’s national agency for petroleum, natural gas and biofuels (ANP) now says that, until fresh Bolivian elections are conducted, discussions will remain suspended. To further complicate things, Petrobras still has considerable unsupplied gas credits under the expiring contract which could last an additional two to four years.

30mn m3/d – contracted Bolivian gas supply

Since the disputed election result, Bolivia’s hydrocarbon sector has been beset by problems. In mid-November, the Carrasco-Cochabamba pipeline was closed after an attack destroyed 200m of the pipeline between Villa Tunari and Cristal Mayu. Former senator and new minister of hydrocarbons Victor Hugo Zamora described the explosion as a “terrorist attack” against interim President Jeanine Anez. Similarly, attempts were made to blow up a LPG and natural gas plant in Senkata, close to La Paz.

After Morales fled into Mexican exile, the interim government quickly shuffled the top brass at YPFB, promoting Jose Luis Rivero Sandoval to president. “Days after his appointment, the new administration of YPFB exposed reports claiming that the natural gas reserves of Bolivia are only 7.1tn ft³, contrary to the 10tn ft³ the Morales government had declared,” says Barrios.

Source: ANP and Brazil's ministry for mining and energy

LNG priority

Bolivian gas imports to Brazil have already steadily been decreasing. “LNG prices are getting more competitive in comparison to Bolivian gas,” says Fernanda Delgado, research coordinator at Brazilian thinktank FGV Energia. “Petrobras bought LNG from the US for $4/mn Btu, which is very cheap. Another factor is the [flexibility] potential of buying on the spot market.”

In the current global low-price environment, LNG is a cheaper alternative to Bolivian gas, especially given Brazil’s extensive coastline and relatively sparse pipeline network. The country currently has three LNG terminals but plans to ramp up capacity. A report from Brazilian government agency the energy research office (EPE), released in August, highlighted around 20 competing regasification terminal projects currently planned across the country. The projects break down geographically into seven in the south, seven in the southeast, two in the north and two in the northeast. 

“LNG prices are getting more competitive in comparison to Bolivian gas” Delgado, FGV Energia

Utilising LNG as a electricity generation feedstock is also growing. Three power plants are currently under construction at Porto de Sergipe and Porto de Acu, with another recently contracted in October. A joint venture of Qatar Petroleum and ExxonMobil will supply Porto de Sergipe with just under 5mn m³/d of gas, while phase 1 and phase 2 at Porto de Acu combined will require 12.6mn m³/d. According to a report from Fitch Solutions, which provides credit and macro intelligence solutions, a Brazil’s power sector is now the country’s second largest gas consumption sector, responsible for on average c.38pc of total demand over the last four years.

“These types of project are strategic given the power source mix in Brazil,” says Daniel Szyfman, partner at Brazilian law firm Machado Meyer. “Thermal power plants are required to give security to the system given the increase in intermittent renewables sources, and LNG is the obvious long-term supply choice.”

Domestic deficiencies

Brazil could aim to source a larger portion of its gas supply needs domestically from pre-salt oil and associated gas fields, but this is not without complications. Lack of infrastructure and preference for rapidly increasing oil production via gas re-injection is hampering progress. “Given the limited infrastructure existent to evacuate associated gas to the coast and the high costs to develop new evacuation pipelines, it is expected that there will be further increases in re-injection,” says Felipe Boechem, head of oil and gas at Brazilian law firm Lefosse Advogados.

“Currently, approximately 45mn m³/d [of natural gas] is reinjected in Brazil, out of a total production of 124mn m3/d,” says Boechem. “Newly producing fields like Carcara, in its first phase, are planned to reinject all of its gas production.” Gas flaring offshore had been falling but, this year, has increased to around 4.2pc of production, driven largely by the start-up of production from five new platforms since October 2018.

Brazil is in the process of radically overhauling its domestic gas sector. A landmark settlement deal between Brazilian anti-trust regulator Cade and Petrobras has paved the way for the company to offload its residual stake in three major gas pipelines by 2021—which should open the market to greater competition and new third-party entrants.

Source: ANP and Brazil's ministry for mining and energy
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