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

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

PERU/GAS RESERVES

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.

ARGENTINA/LNG SUPPLIES

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?

ARGENTINA/GAS SHORTAGES

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.

REGIONAL/LNG

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.

BOLIVIA/TRANSREDES NATIONALIZATION

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 Hydrocarburosbolivia.com. “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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