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SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (August 24-31): Bolivian government plans to draft the country’s third hydrocarbons law since 1998

August 24, 2009

South American Energy Markets (SAEM) now publishes a weekly roundup of the top-five stories including analysis affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Weekly Roundup appears on Mondays and is published by noon London time.

Monday, August 24, 2009


The executive branch of government is aiming to change the role of YPFB and the energy companies operating in Bolivia with the help of a new hydrocarbons law, reports La Paz daily La Razon. The new hydrocarbons law, which would be the third after passage of new legislation in 1998 and 2005, aims to strengthen YPFB’s role as the sole operator in the upstream-downstream chain as well as the nationalization of the sector in 2006, according to vice minister of industrialization, marketing, transport and storage, William Donaire. He said that the new hydrocarbons law will put an end to “a number of contradictions” with the new constitution approved in a national referendum in January. Donaire said that presently private companies are allowed to take part in upstream projects but the new constitution only permits YPFB to do this in association with these majors.

COMMENT: One of the biggest flaws of the last two hydrocarbons and nationalization law is that the government thinks that everything can be resolved with the passage of a new law. As we have seen, the latest hydrocarbons law (law 3,058) created a lot of confusion and has discouraged vital investment in upstream projects. Another factor that recent legislation has brought to light in Bolivia is YPFB’s inefficiency and incapacity to take the role of sole operator of the hydrocarbons sector. What will the new hydrocarbons law resolve? Nothing. Before it becomes law, it will only fuel greater regulatory uncertainty that will impact negatively long-overdue investments in the country.


In order to have a growing role in Argentina, some analysts and former hydrocarbons sector officials recommend that YPFB should sign agreements directly with private companies since they consider Argentine state-owned energy company Enarsa unreliable, energy analyst Alvaro Rios, was quoted as saying in La Paz daily El Diario. Rios, who was shortly hydrocarbons minister of Bolivia in 2004,  said that Enarsa “appears like a company that cannot sign serious agreements to import bigger volumes of Bolivian gas.”

COMMENT: Criticism of Enarsa, which was created in 2004, is nothing new. Earlier this year, Daniel Montamat, former Argentine energy secretary (1990-00) and YPF president (1987-89), told SAEM that Enarsa operates at a loss every month and was only kept afloat in 2008 with $110-$135 million from the state treasury. “It is very difficult to figure out how much money the company makes [or loses] in the international agreements is has signed since such information in not public,” said Montamat. “For example, it purchases gas from Bolivia [at market prices] but sells it at a lower [subsidized] price to the domestic market.”


Peruvian President Alan Garcia accuses Chile and Bolivia of agreeing behind his country’s back of reaching an agreement to end a long-standing border dispute that dates back to a nineteenth-century war, writes Bolivian state-owned news agency ABI. “To be frank I do not understand it,” said the Peruvian head of state.  “I said [to Bolivian President Evo Morales], listen, this is a bilateral issue which Chile and you have and another [there is another] bilateral issue with Peru…”

COMMENT: The unresolved geopolitical dispute between Peru, Bolivia and Chile continues to entangle relations and any possibilities that the former two countries will export power and gas to the mining-rich region of northern Chile. The situation appears faraway from a solution since Peru and Bolivia are seeking separate concessions from Chile: Peru through international arbitration at The Hague, and Bolivia with the help of direct talks with Santiago. If I were Chile, the best strategy would be to divide and conquer my neighbors. In 1978, Bolivia broke diplomatic relations with Chile after an agreement to grant the landlocked country a maritime corridor to the Pacific Ocean fell through after Peru rejected the agreement because it was its former territory lost in the War of the Pacific (1879-84).


Owing to the slowing of the Brazilian economy and higher domestic gas output, YPFB President Carlos Villegas said that export volumes to Latin America’s largest economy would be lower this year, writes state-owned news agency ABI. “We believe that [this year] gas exports will reach a maximum of 24 million cu m/day [as stipulated in the take-or-pay agreement],” said Villegas. “Brazil is asking to purchase from October less gas. As a result [export revenues] decreased by $450 million.”

COMMENT:  If one has followed news over gas supplies from Bolivia to Brazil during the past two years, it is clear that Brazil has tightened the screws on Bolivia by making it ever-dependent on it. This leverage on the country is being done at the expense of Venezuela and to a lesser extent Argentina, which used to be a fierce rival of Brazil in exerting geopolitical influence in buffer states such as Bolivia, Paraguay and Uruguay. Even though Brazil is becoming less dependent on Bolivian gas, one of the aims of greater Brazilian gas self-sufficiency is gaining greater regional geopolitical clout. Bolivia also has a lot of natural sources that could compliment Brazil’s economic growth.


Brazil’s defense minister, Nelson Jobim, was quoted as saying in an exclusive interview with DEF TV, which was published in, that the government will seek to coordinate the armed forces to defend the country’s subsea hydrocarbons reserves as well as the Amazon Jungle. The new defense policy has been approved by President Luiz Inacio Lula da Silva. The new measure establishes a framework to coordinate the three branches of the army in order to protect the country’s gas and oil reserves as well as the Amazon Jungle.

Meanwhile, state-owned energy company Petrobras announced another huge discovery in the Campos Basin, reports Rio de Janeiro daily O Globo. The new discovery at the Aruana field, located 120km offshore the state of Rio de Janeiro, is estimated to house 280 million barrels of oil. Analysts rightly see the latest discovery as another sign that new offshore discoveries will be announced in the future by Petrobras.

COMMENT: Brazil’s new defense strategy takes into account adverse scenarios such as attacks on the country’s energy sector as well as the embattled Amazon Jungle. Jobim’s statement shows that there is concern in the government about defending the country’s enormous offshore oil and gas reserves like those in the Campos and Santos Basins. It also shows a new departure and Brazil’s coming of age as a global energy powerhouse.

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SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (August 17-24): Are winds of war amassing between Colombia and Venezuela?

August 17, 2009

South American Energy Markets (SAEM) now publishes a weekly roundup of the top-five stories including analysis affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Weekly Roundup appears on Mondays and is published by noon London time.

Monday, August 17, 2009


Despite all the saber-rattling by Venezuelan President Hugo Chavez, Colombia said that it would like to increase military cooperation with the United States in that country’s fight against guerrilla groups such as the FARC and the illicit drug trade, reports Bogota-daily El Espectador. The announcement was made after President Alvaro Uribe met with Barak Obama in Washington. “I would like this agreement with the United States to project itself to the rest of the continent,” said Uribe. “We would want to have [a similar agreement] with Brazil and the rest of the American continent.”  Uribe told his neighbors Venezuela and Ecuador, which have been against Colombia’s plans to increase military cooperation with the United States, that he wants to reestablish good relations with his country’s neighbors. “The first message [goes] to Ecuador and Venezuela that they are our brothers,” he said. “We are fighting a war against terrorism.”

COMMENT: Will Chavez and Ecuadorean President Rafael Correa sit at a same table with Uribe after the announcement? Probably not because Venezuela and Ecuador will try to get the most political mileage from the situation in their home countries. It is pretty incredulous that Chavez in his weekly television address, Alo presidente, said that the matter could lead to a war in South America. While it is highly doubtful that both countries will go to war, it is still a possibility. Taking into account the half-a-century civil war in Colombia, a war with Venezuela would be ruinous for both countries. The last time there was a major arm conflict in Latin America was in 1982 over the Falkland (Malvinas) Islands between Argentina and Great Britain.


After giving the green light to gas and power tariff hikes, the Argentine government through gas regulator Enargas and the Energy Secretariat suspended such rises after strong protests from various consumer groups, reports Buenos Aires business daily Ambito Financiero. The measure to suspend the hikes has creates a lot of confusion among consumers as well as distribution companies that sent the new bills.

COMMENT: Amid the confusion and protests that the measure to raise tariffs by 300%-400% caused, the government decided to subsidize the rise with 493 million pesos ($130 million). Originally, the money from the hikes was supposed to be earmarked for paying for gas imports from Bolivia and LNG. The government will try again to raise gas and power tariffs in October.


In a statement to the National Securities Commission (CNV), Metrogas, Argentina’s largest gas distributor serving Buenos Aires, blamed directly the government for losses of 39.6 million pesos ($10.5 million) incurred during the first six months of the year, writes Buenos Aires daily La Nacion. Citing the freeze on tariffs by the government and indirectly referring to the intervention of the energy markets since January 2002, the distributor said that the present situation is causing the company’s financial situation to “deteriorate day to day.”

COMMENT: The statement by Metrogas is significant because it is the first-ever that openly criticizes directly the government’s tariff policy. It is also a sign that at least publicly large companies such as Metrogas are becoming increasingly frustrated with President Cristina Fernandez de Kirchner’s energy policy. In an unprecedented move in July 2007, the government intervened Metrogas and forced its head, Robert Brandt, to resign. The government justified the move because it said Metrogas was not supplying industrial customers and in breach of its obligations.


State-owned energy company YPFB invested during the first half of the year a mere $1.9 million of the $107.9 million it had budgeted for the period under review, writes La Paz daily La Razon. Citing a source that spoke under condition of anonymity, the money budgeted was supposed to be earmarked for expansion of the gas-distribution network. A YPFB source, however, denied that so little was being spent by the energy company. Hydrocarbons minister, Oscar Coca, said that YPFB would spend “30%-40%” of its budget in August.

COMMENT: It is odd that YPFB, which has in some cases even threatened companies to invest in upstream projects in the country, could set such a poor example. Even President Evo Morales has joined the chorus and openly criticized YPFB president, Carlos Villegas, for the low investments. However, this may mean that Villegas’ days at the state-owned energy company may be numbered. It also shows that tremendous logistic and inefficiency problems that continue to plague YPFB.


Lima-based La Republica, which is openly against exporting gas from Camisea (see South American Energy Markets Weekly July 24-31), wrote in a story that nationalization of Peru’s largest gasfields would be mistake. The nationalization proposal was made by Cusco regional president, Hugo Gonzales. Even though such a proposal appears far-fetched at this moment, it reveals how nationalist sentiment is growing in Peru. The nationalization of Camisea, which is located in Cusco department,  is not a good idea, according to Jorge Manco Zaconetti of the UNMSM university.  “Nationalization in order to supply southern [Peruvian] markets is senseless,” said Manco Zaconetti. “We should explore and prove up reserves and one must take into consideration that Peru is receiving royalties of almost 50% from Blocks 88 [Camisea] and 56 [Pagoreni]…”

COMMENT: It would take a pretty blind person to not understand that apart from poor energy planning, nationalism has been raising its head in Peru for quite a while. There are many examples of this in Peru’s history. One can go back to the last-1960s to the mid-1970s, when left-of-center General Juan Velasco Alvarado nationalized a number of industries after overthrowing an elected civilian government. His nationalization experiment ended in ruin. President Alan Garcia’s first term (1985-90) was probably one of the worst periods ever in Peru. His economic policies forced hyperinflation to rocket to 36,000%, while Maoist Shining Path guerrillas threw the country deeper into turmoil. One analyst, who spoke to SAEM, gave a candid view of the future: “If economic growth stagger it could fuel populism,” said a Scotiabank analyst. “Poverty is always a good breeding ground for populism.”

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SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (August 10-17):Total plans to begin commercial production of the Itau gasfield in Bolivia by mid-2010

August 9, 2009

South American Energy Markets (SAEM) now publishes a weekly roundup of the top-five stories including analysis affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Weekly Roundup appears on Mondays and is published by noon London time.

Monday, August 10, 2009


Total announced in a statement that it has informed the Bolivian authorities that the Itau gasfield (Block XX) in Tarija department, which is controlled 75% by the French major, is expected to start production in mid-2010 with an expected output of 50 million cu m ft/day (1.4 million cu m/day).  Total entered Bolivia in 1996 and also has a 15% interest in the San Alberto, the country’s biggest gasfield with 7.193Tcf proved reserves in 2005, and San Antonio, which mainly supply the gas market in Brazil.

COMMENT: Any announcement of increased gas output is good news for the Bolivian authorities, which have seen their export market in Brazil shrink due to slower economic growth. In a 2005 report by YPFB, Total’s biggest proved gas reserves were located at Itau with 3.274Tcf but had fallen in 2006 to 1.56Tcf, according to YPFB.  Of all the majors operating in Bolivia, Total appeared to be the most reticent against investing in upstream projects. Even though former hydrocarbons minister, Carlos Villegas, stated in 2006 that the French company was planning to invest “$1.29 billion in gasfields like Incahuasi and $592 million in Itau,” Total never confirmed such investment sums to SAEM. There was speculation in the end of 2007 that Petrobras was interested in buying Total’s assets in the landlocked country.


Development of the Repsol-operated Caipipendi block in Margarita gasfield, which had a total 5.861Tcf of proved reserves in 2005, is going according to plan and will begin to produce 8 million cu m/day by 2011 and 14 million cu m/day by 2014, according to, quoting Cochabamba daily Correo del Sur. Caipipendi will play an important role in supplying the Argentine market in the future. At this moment, it produces 1.9 million cu m/day.

COMMENT:  It appears sensible for energy companies in Bolivia to invest in upstream projects since gas-strapped Argentina offers a growing market.  One of the big question marks, however, one should be asking is which energy company is presently investing aggressively in Bolivia’s upstream sector. We have heard multi-hundred-million-dollar sums announced by the government but they never are made or are postponed. Upstream investments reached in 1998 $604.8 million but fell to $149.5 million in 2007 and are expected to be between $250 and $300 million in 2008, according to analyst Carlos Alberto Lopez. Bolivia’s upstream sector needs in the next five years $7-$8 billion in upstream projects. Uncertainty still persists.


A new diplomatic row has erupted between Colombia and its neighbors Venezuela and Ecuador with President Hugo Chavez threatening to halt gas imports from Colombia. Even though it is unlikely that the United States will build a military base in Colombia as President Alvaro Uribe has suggested, the real culprit continues to be Venezuela’s and Ecuador’s alleged relations with the Revolutionary Armed Forces of Colombia (FARC). The most recent row erupted after Uribe demanded an explanation from Venezuela on why FARC rebels were armed with Swedish-made antitank rocket launchers obtained by that country many years ago. Ecuadorean President Rafael Correa, who has not forgotten the Colombian army incursion in March that caused the death of FARC leader Raul Reyes, warned that Colombia would be the first to suffer if it launched preemptive strikes in the region. “With this policy of preemptive strikes I could bomb wherever these [guerrilla] bands may be in Colombian territory…” said Correa in Quito daily El Comercio.

COMMENT: Rocky relations between Colombia and Venezuela are nothing new and date back to 1922 over a maritime border dispute in the Gulf of Venezuela. Since Chavez came to power, suspicions about the Venezuelan president’s relation with the FARC have caused a lot of strife between both countries. A recent row that appeared and blew over between both countries took place in 2005, when the Colombian foreign ministry formally apologized to Venezuela for kidnapping a FARC leader in Venezuelan territory. A clear sign that the recent row will subside came after Chavez said on Saturday that he would be interested in finding a diplomatic solution with Colombia, reports Venezuelan state-owned news agency ABN.


President Evo Morales admitted that the aims of his government’s energy policy have not been met due to the need for a lot of capital and time, reports La Paz daily La Razon. “The opposition worries me now because they are saying that there is not a real nationalization [process going on],” he said. “What is really lacking now is in development [of the energy sector] because it requires a lot of money, planning and it is a difficult task.”

COMMENT: Whenever President Morales makes such an affirmation during a crucial election year, one must dig deeper behind his words. Is he stating that matters are in such a wretched situation at state-owned energy company YPFB that there are more unpleasant surprises awaiting? The biggest blow has not been the corruption scandal that has hit YPFB after its former head, Santos Ramirez, was forced to resign in the end of January (see South American Energy Markets Weekly July 17-24), but the inefficiency of the company to resolve LPG, gasoline and diesel shortages at the pumps. The plunge in gas prices and exports to Brazil will also bite into this year’s national budget.


In the face of ever-worsening gas and power shortages (see South American Energy Markets Weekly July 17-24), Bolivia is ready to export electricity to Peru and Chile from 2015, according to deputy minister for electricity, Miguel Yague, reports state-owned daily El Peruano. The electricity will be supplied by the future Miguillas hydropower project, located west of La Paz. “The output would be to export [power] to Peru,” said Yague. “Probably the domestic market would need 50MW [from the future hydropower plant].”

COMMENT: In the 1990s Bolivia was seen as a power and gas hub that would sell energy to its neighbors. Such plans, however, have failed due mainly to regional regulatory uncertainty. Even though Bolivia fought and lost with Peru a nineteenth-century war against Chile, relations between both countries have been marred by mutual distrust. In the late-1970s, Bolivia and Chile reached an agreement over a maritime corridor which was formerly Peruvian territory. Objections by Lima forced the deal the fall through. A power supply agreement between both countries may, therefore, be easier said than done as is the case with Chile.

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SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (July 31-August 7): Repsol YPF sees Brazil as a good market for expansion

July 31, 2009

South American Energy Markets (SAEM) now publishes a weekly roundup of the top-five stories including analysis affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Weekly Roundup appears on Mondays and is published by noon London time.

Friday, July 31, 2009


Repsol YPF sees Brazil as a good country to grow in the future, Miguel Martinez, Repsol YPF general director, was quoted as saying in Buenos Aires business daily Cronista Comercial. “If you corner me with the question, I would say that Brazil is where the future of the company lies,” said Martinez, adding that the Spanish major is seeking to reduce its ownership in Gas Natural and its Argentine subsidiary, YPF. The Repsol YPF director blamed lower oil, gas and refining margins for the group’s 58% fall in the first half of the year in net income (€889 million) from a year ago.

COMMENT: After expanding with gusto in Latin America in the 1990s, Repsol YPF has been quietly exiting in recent years markets such as Argentina and Bolivia due to increased government intervention in energy markets. Even though Repsol YPF has played down its long-term plan to reduce risk in some Latin American countries, it has expanded into other markets such as the Middle East and Northern Africa. Brazil also appears to be the new hope of the company taking into account the huge oil and gas potential of the Santos Basin.


In the face of massive layoffs in the energy industry and sagging output and reserves, the government of President Cristina Fernandez de Kirchner has agreed with the oil and gas producing provinces to raise long-overdue wellhead prices, which have been frozen for the past eight years, reports Buenos Aires daily Clarin. Under the new agreement, the wellhead price of gas will rise to $1.90 compared with $1.60/MMBtu and in 12 months to $2.60/MMBtu charged to gas generation plants. “It is no longer the case that gas [wellhead] prices are frozen as they were for eight year,” said Jorge Sapag, governor of gas-rich Neuquen. “Gas is an expensive commodity.”

COMMENT: Despite the hike in wellhead prices, they are still well below those charged by countries such as what Bolivia charges Argentina. On July 20, the price of gas quoted by Henry Hub was $3.41/MMBtu. One of the big unanswered questions is if new wellhead prices will pave the way for upstream investments. If the 1990s are anything to go by, when Argentina had clear investment rules and companies were eager to enter the country, energy companies were not too enthused about upstream investments to prove up reserves. If in good times there was little investment, what has changed? Very little, unfortunately.


Low temperatures forced power usage on July 23 to rise by 387MW to a record 19.566GW from 19.179GW a day earlier, according to Argentine spot power market operator Cammesa. High consumption had to be covered by imports from Brazil (622MW) and Paraguay (84MW). Taking into account that Argentina’s industrial output contracted by 10.7% in the first half of the year versus a year ago, according to independent think tank FIEL, the lack of power and gas is an exceptionally worrying sign that shows that Argentina’s energy situation has got far worse.

COMMENT: It is pretty incredible that it was the economic recession and lower industrial production that made it possible for Argentina to plug the power-gas shortfall on both days. Before 2003-04, when Argentina’s started to scale back exports to countries such as Chile and Brazil, the country used to supply its thermal plants with diesel/heavy fuel oil during the winter months so that households could heat their homes with gas. Today, however,  it has to supply its thermal plants with liquid fuels during the whole year. A CAMMESA official told SAEM that Argentina has a constant deficit of 4 million cu m/day and during consumption peaks in winter, it may be as high as 12 million cu m/day


Venezuela and Spain have signed six agreements that will strengthen energy cooperation between the state-owned PdVSA and Repsol YPF, according to state-owned news agency ABN. Some of the most important agreements signed by both countries was to carry out prospection at Junin 7 Block in the promising Orinico Oil Belt as well as the creation of a joint venture, Petroquirequire. Another part of the agreements involve that sale for $100 million of Repsol YPF’s exploration assets of Barrancas Block to PdVSA.

COMMENT: The agreement between both countries is only an attempt by Spain to make better an already bad situation. Despite the politics and President Hugo Chavez’ ramblings, Venezuela’s prodigious oil and gas wealth are a big lure for energy companies such as Repsol YPF. There is an old saying in Latin America that there is “no evil that can last a hundred years.”  It means that since most human cannot live a century,  the pain they inflict cannot last that long either.


The new Itaipu agreement will oblige Brazil to pay Paraguay $360 million/year versus $120 million previously for power it purchases from the 1.4GW hydropower plant (see South American Energy Markets Weekly Roundup, July 24-31), reports Rio de Janeiro daily O Globo.  Paraguay dailies such as ABC Color report that one of the pitfalls of the 1973 treaty was Brazil’s exclusive right to acquire the excess power that its neighbor did not use. “…today, 36 years after the signing the agreement, Paraguay consumes about 8% of the installed capacity of the plant [1,243MW on March 3 at 7.16PM],” ABC Color writes. This clause does not also permit Paraguay to sell power from the hydropower plant, which supplies about 20% of Brazil’s power consumption needs, to countries such as Argentina.

COMMENT: Paraguayan President Fernando Lugo, who had promised on the campaign trail that he would demand that Brazil accept a new power purchase agreement concerning Itaipu, has won an important concession from its neighbor. Taking into account that Paraguay is one of the most corrupt countries in the world, according to Transparency International, one wonders in which pockets the extra$240 million will end up in. Despite the new treaty, Brazil will continue to dictate terms at Itaipu.

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SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (July 24-31): Paraguay and Brazil may be close to a new Itaipu power purchase agreement

July 24, 2009

South American Energy Markets (SAEM) now publishes a weekly roundup of the top-five stories including analysis affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Weekly Roundup appears on Mondays and is published by noon London time.

Friday, June 17, 2009


Paraguay and Brazil are reported to be close to reaching an agreement over a new power-purchase agreement for the 14GW (20 X 700MW) binational Itaipu hydropower plant, writes Sao Paulo daily Estadao. The new agreement requires the approval of the presidents of both countries, Luiz Inacio Lula da Silva and Fernando Lugo. One of the most contentious points of the new agreement is allowing Paraguay to sell power to other operators rather than Eletrobras.  Another important point lobbied by the Paraguayans is raising the cost of the power sold to its giant eastern neighbor. This may cost Brazilian consumers about $1.1 billion (2.1 billion reales).

COMMENT:  Even though Paraguay owns in theory 50% of Itaipu and Yacyreta, another large-scale hydropower project being built with Argentina, it is the country’s big neighbors that call the shots. One of the most incredible aspects of the Itaipu power-purchase agreement is that it requires state-owned power group ANDE to sell power only to Eletrobras. Another incredulous fact about these large hydropower projects is that Paraguay still needs more 500kV lines to plug shortages in summer in the capital Asuncion.


Brazil has abruptly lowered gas imports from Bolivia from July 14 to 21.05 million cu m/day from a July 1 high of 31.06 million cu m/day, writes GasBrasil quoting Sao Paulo daily Folha. The reason for the fall in gas imports has been attributable to a 135,000 cm shipment of LNG to the Pecem regasification terminal in northeast Brazil.

COMMENT: Bolivia can only blame itself for Brazil seeking to diversify its gas imports by building two regasification terminals at Pecem (7 million cu m/day) and Bahia de Guanabara (14 million cu m/day) that were inaugurated in 2008 and 2009, respectively.  The regulatory uncertainty caused by Bolivia’s nationalization scheme has also forced Argentina to ditch construction of the GNA gasline and build regasificaiton capacity. Taking into account that about 50% of Bolivia’s export revenues derive from gas, Brazil can now easily pressure its western neighbor politically. The days when Bolivia was seen in the late-1990s and early 2000s as an important gas-energy hub are long gone.


If YPFB-Transportadora (formerly Transredes) head, Cyro Camacho’s, said that an agreement has been reached with Argentine gas regulator Enargas to supply 20.3 million cu m/day, according to La Paz daily La Razon. “We have made progress [in the negotiations] on a government level…” said Camacho. ” I understand that such an agreement has been reached with Argentina’s Enargas [to supply] 20.3 million cu m/day.” The YPFB-Transportadora head said that 20km of the GNA line, which will supply Argentina with more gas, will be built by the transporter from the San Alberto gasfield to the Argentine border.

COMMENT: There are many energy sagas and soap operas that maintain our interest. The GNA line is one of these. It was first introduced by Techint and the Argentine government in 2004 and was supposed to be operational by 2006. Enarsa, which is spearheading the construction of the pipeline on the Argentine side, has postponed for a twelfth time a tender to build the line. The only thing that the present state of the GNA gasline offers us are a lot of question marks: What is the actual route of the pipeline? Will it be supplied by Argentina’s Northwest Basin? Does the Argentine government have enough money to build it?


The cost of building the 670km Coari-Manual pipeline by Petrobras has not only been delayed by red tape but its price has risen to R$4.58 billion ($2.4 billion) from an original estimate of R$2.4 billion, when construction of the pipeline began in 2006. Petrobras has blamed the higher price tag on contractors. The majority of the gas from the pipeline will be used by state-owned power company Eletronorte’s 550MW plant that is seen consuming 5.5 million cu m/day.

COMMENT: Originally, the Urucu-Coari-Manaus pipeline was supposed to be operational from March 2008.  Another challenge of the project has been to convince environmentalists that the project it environmentally sound. While some believe that transporting gas to a thermal plant in Manaus makes sense, its critics have spoken out at soaring cost of the project.  Petrobras plans to supply gas to Manaus distributor Cigas within 90 days.


Concerned about the real state of proved reserves at Camisea (eee South American Energy Markets Weekly July 17-24), the Peruvian government in talks with Argentine operator Pluspetrol aims to assure that supplies from Peru’s biggest gasfield would be used exclusively by the domestic market, writes, quoting  Americaeonomica. Ministry of Energy and Minies Pedro Sanchez said that Peru will use a clause in the agreement with Pluspetrol that ensures that there will be enough gas to plug soaring domestic demand.  Pluspetrol states that proved gas reserves at Camisea and Pagoreni amount to 14.1Tcf while Gaffney, Cline & Associates see it at 8.7Tcf.

COMMENT: Those who remember when Shell and Mobile pulled the plug on the Camisea project in 1998 over differences with the government on whether gas could be exported, there is an eerie sense of deja vu. Taking into account how gas supplies have turned into a hypersensitive issue for the government, President Alan Garcia’s has vowed do everything possible to ensure Peruvian voters that there will be enough gas in the future to fuel growth. This is why the government gives great priority for the construction of new pipeline to southern Peru, a bastion of anti-government support and the home of the populist Ollanta Humala, who lost in 2006 in a close presidential race against Garcia.

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SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (July 17-24): Gaffney, Cline & Associates see Peru’s gas reserves lower than official estimates

July 17, 2009

South American Energy Markets (SAEM) now publishes a weekly roundup of the top-five stories including analysis affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Weekly Roundup appears on Mondays and is published by noon London time.

Friday, June 17, 2009


The latest assessment by Gaffney, Cline & Associates (GCA) shows that Peru’s proved gas reserves at Camisea (Block 88) and Pagoreni (Block 56) stand at 8.79Tcf, lower than the 11.79Tcf published in December by Pluspetrol, the Argentine operator of both blocks. Pluspetrol, however, refutes these findings claiming that new drilling projects underway will prove up reserves by 5.3Tcf to 14.1Tcf.  Total investments to Camisea and Pagoreni amount to $30.16 billion during 2001-12, the company said.

COMMENT: The latest revelation on Peru’s gas reserves by GCA came as a rude shock to the government of President Alan Garcia, which has been trying unsuccessfully to quiet critics that the country has enough reserves to supply the domestic market for decades. The government has, as a result, kicked off talks with Pluspetrol over rescinding a contract approved by Alejandro Toledo’s administration (2001-06) that gas from Camisea can be used by Peru LNG. Moreover, the present royalty scheme for Camisea and Pagoreni makes it cheaper to purchase gas from Camisea than from Pagoreni, reports Lima-based daily La Republica. The government is anxious to supply piped gas to southern Peru, a hotspot of  opposition to the government in Lima. The problem in Peru lies in cheap ($1-$2/MMBTU) wellhead prices, which in turn fuels rocketing consumption. Raising wellhead prices would, however, be a hard blow to the government’s already low popularity.

Below is a clip in Spanish interviewing former energy regulator Osinergmin head Manuel Dammert, who warned five months ago about Peru’s too liberal energy policy towards foreign majors.


Morgan Stanley Commodities (MSC) has beaten Repsol YPF in a tender to supply the last three LNG shipments to the regasification terminal at Bahia Blanca, writes Buenos Aires daily Clarin. The LNG terminal, which is leased from Excelerate Energy during the winter months, had received a bid of $6.6/MMBtu from MSC versus $7.9/MMBtu. The regas terminal got its first shipment (135,000cm) of LNG last week. The government is studying a proposal by MSC to pay the LNG with commodities such as soya.

COMMENT:  Even though it makes sense to buy a commodity at competitive prices, the surprise entry of MSC shows the ever-weakening role of Repsol and YPF in Argentina. Some analysts claim that the government of President Cristina Fernandez de Kirchner are not too happy with their banker-businessman friend Enrique Eskenazi, which they helped to purchase 14.9% of YPF last year. The latest example that Repsol is ready to relinquish YPF is news that CNOOC and CNPC of China are interested in acquiring Repsol’s Argentine subsidiary (see SAEM July 15, 2009). What do these Chinese companies see that Repsol doesn’t in Argentina?


Gas supplies to some 140 companies were halted due to colder-than-average weather, writes Buenos Aires daily La Nacion. The halt in gas supplies were confirmed by distribution companies Metrogas, Gas Natural BAN and Camuzzi. Companies with interruptible and uninterruptible gas supply contracts were equally affected. The situation shows that Argentina’s gas-supply woes have got worse this winter since industrial production fell by 11% last month, according to industrial association UIA.

COMMENT: During the winter months, the government gives priority to gas consumption by households.  Households consumed in July last year 148.845 million cu m (45.3% of all consumption), down 8.81% compared with 163.230 million cu m (45.3%) from a year ago, according to gas regulator Enargas. The fall in gas reserves and supplies is another example of a failed short-term energy policies of governments. Argentina’s gas supply situation has been, as a result, left to chance and weather factors.


LNG consumption in South America will grow this year by 173.3% to 41 million cu m/day from 15 million cu m/day from 2008, reports PetroleoGas, citing a study by Latin American Energy Organization (CEPAL) economist, Mauricio Medinaceli Monrroy. South America’s total sendout regasification capacity will peak during 2012-18 to about 82 million cu m/day. Medinaceli Monrroy believes that while countries such as Chile, Brazil and Argentina will have more regas capacity, the gas markets in Colombia and Uruguay are too small to justify such a project.

COMMENT: The rise in importance of regasification terminals in countries such as Chile, Argentina and Brazil, are an example of the failed energy policies of the 1990s, which paved the way for energy integration among countries such as Argentina, Chile, Bolivia, Brazil and Uruguay.  What are the lessons to be learned from the previous decade? Diversifying energy supplies is the only way to ensure energy independence.


YPFB president Carlos Villegas fired back at former president of Transredes, Guildo Angulo (see SAEM Weekly Roundup July 10-17), by claiming that President Evo Morales was kept informed on the nationalization of the transporter, reports “We are going to explain that the nationalization of the hydrocarbons sector has been carried out in total transparency and we have always placed before the interests of the country first,” said Villegas. “There was a team that made decisions and that rules out the possibility that decisions were made unilaterally.”

COMMENT: It is precisely these types of comments that put in the question the transparency under which Transredes was nationalized. How can Villegas speak of transparency if one cannot even find any statement in YPFB’s official website never mind that of the hydrocarbons ministry about the nationalization? Taking into account the multi-hundred-million-dollar sums that YPFB handles and the cost of nationalizing four energy companies (Transredes, Andina, Chaco and CLHB), it should not come to any surprise that in a country such as Bolivia such a situation would attract conflicts of interest, intrigue and undercurrents. Rest assured, this will not be the last we will hear about the YPFB nationalization saga of Transredes.

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ANALYSIS: Why is there keen interest in acquiring YPF?

July 15, 2009

Two Chinese energy companies, CNOOC and CNPC, are reported to be interested in acquiring Spanish major Repsol’s Argentine subsidiary, YPF. CNOOC is reportedly seeking 25% and CNPC 75% ownership of YPF for ab about $14.5 billion.

A few facts:

1) It has been known for about 2 years that these Chinese companies have been intersted in acquiring YPF;

2) Taking into account strong state intervention in Argentina’s energy markets after the economic emergency law of January 2002, why would any sane company want to invest in the country today?

3) Any company that acquires YPF will be obliged to invest billions of dollars in long-term upstream projects to halt the fall in oil and gas reserves.

The unfortunate truth about Argentina is that most companies that established themselves in the country in the 1990s would leave if they could. Repsol is one of these but it has not found a suitor for YPF that it willing to pay an adequate price for the subsidiary.

Repsol President Antonio Brufau announced in 2006 that the company is ready to relinquish under 50% ownership of YPF. In February 2008, it sold 14.9% of its Argentine subsidiary to banker-businessman Enrique Eskenazi for $2.235 billion.