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Argentina gives thumbs down to Bolivian gas puchase agreement

November 24, 2008

SAEM – Even though Argentina has sought other alternatives to Bolivian gas imports such as the floating LNG terminal in Bahía Blanca it rented recently from Excelerate Energy, the gas purchase agreement signed in October 2006 is nothing more than a faint dream.

Both countries will meet on December 11 to discuss, among other matters, a new gas agreement.

The latest example of ever-worsening energy ties between both countries was a plan by Argentina’s federal planning ministry, which decided to scrap its gas-purchase agreement with Bolivia. It will instead supply a much reduced GNA gasline from the country’s Northwest Basin, a government source confirmed to SAEM. Moreover, the route of the pipeline will no longer extend south to Santa Fe
province, but follow a northerly route extending from Salta to Formosa, Chaco, Corrientes and Misiones province.

The government source confirmed that the new GNA pipeline’s throughput capacity will fall to 10 from 27.7MMcm/d originally, and its diameter to 14 or 16 inches from 36 in. It will also operate with one compressor station as opposed with three. The original cost of the pipeline with throughput capacity of 27.7MMcm/d was estimated at $1.88 billion.

The decision, although not yet officially announced but leaked by Buenos Aires daily Clarin, did not come as a surprise to analysts owing to Bolivia’s gas output problems and the lack of upstream investments caused by the political uncertainty gripping the country. The decision to not seek supplies from Bolivia is not only a big financial blow to president Evo Morales’ government; it also damages its credibility.

An energy projection report published by the Bolivian hydrocarbons ministry sees gas supplies to Argentina falling this year to an average of 1.5 from 4.6MMcm/d in 2007. Bolivia will continue to supply Argentina via two pipelines at Pocitos and Madrejones.

Taking into account the fall in gas reserves and output in Argentina, some analysts are asking whether
the Northwest Basin will be able to supply 10MMcm/d of the new GNA pipeline. Two pipelines, the
Noradnino and GasAtacama, which supply Chile from the Northwest Basin have seen supplies plummet and are today at a near-halt.

The Argentine government and engineering company Techint announced in November 2003 plans to build the GNA gasline seen costing then $1 billion. In Argentina’s 2004-08 energy plan, the GNA was
supposed to be built by May 2006 with a throughput capacity of 20MMcm/d that could be expanded to 30MMcm/d.

(The article can be reprinted as long as permission is requested from etessieri@latamreport.com and the source is mentioned)

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