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Don’t believe what you hear from Paraguay

June 19, 2007

Paraguay and the government were for a while very upbeat about finding prodigious gas reserves in the far-flung and sparsely populated west of the country. Such hopes were kept alive by a consortium comprising of Primo Cano Martínez and the UK’s CDS Oil & Gas. Even Paraguay Public Works Minister José Alderete joined in with the hype.

The hype reached such proportions that government officials actually believed that reserves at Parque Cué, located a stone’s throw form the Bolivian border, housed so much gas that Paraguay could become a future gas exporter. Then, in 2006, the expectation bubble burst. No one talks anymore about finding gas never mind oil in Paraguay’s Chaco region.

Why did exploration stop at Parque Cué? Primo Cano Martínez said last year that it was too expensive to explore and drill. Even if big quantities of gas were found, who would make the hefty gas infrastructure investments? Which industry and sectors would consume the gas, considering their’s little industry to start with? A large part of energy consumed in Paraguay is firewood and charcoal. The government plans to reduce such consumption to 25% by 2014.

Another factor that government officials oversaw is that Paraguay generates more power than it can consume and which its antiquated and deficient infrastructure can transport.

But Paraguay’s 50% ownership of the Yacyretá and Itaipú hydropower plants with Argentina and Brazil, respectively, is only theoretical. Even if the country receives royalties from both hydropower installations, it’s Argentina and Brazil that call the policy shots.

The next time you hear about fantastical gas and oil finds in Paraguay be aware. Paraguay will probably be the last country in South America that will discover and exploit hydrocarbons. There are two reasons for this: there’s probably little hydrocarbons and Paraguay’s foreign investment laws leave a lot to be desired.

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