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

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-BRAZIL/ITAIPU AGREEMENT

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.

BOLIVIA-BRAZIL/GAS SUPPLIES

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.

BOLIVIA-ARGENTINA/GNA GASLINE

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?

BRAZIL/COARI-MANAUS PIPELINE

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.

PERU/CAMISEA GAS SUPPLY WOES

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 HidrocarburosBolivia.com, 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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