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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

BOLIVIA/UPSTREAM INVESTMENTS

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.

BOLIVIA/UPSTREAM INVESTMENT

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 Hidrocarburosbolivia.com, 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.

COLOMBIA-VENEZUELA-ECUADOR/DIPLOMATIC CRISIS

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.

BOLIVIA/ENERGY POLICY

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.

BOLIVIA-PERU-CHILE/POWER EXPORTS

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.

These briefs can be reprinted as long as the source is cited.

If you have any feedback on today’s articles, or if there are energy industry stories you think should be covered, or need research assistance, please contact etessieri@latamreport.com.

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