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SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (August 24-31): Bolivian government plans to draft the country’s third hydrocarbons law since 1998

August 24, 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 24, 2009

BOLIVIA/NEW HYDROCARBONS LAW

The executive branch of government is aiming to change the role of YPFB and the energy companies operating in Bolivia with the help of a new hydrocarbons law, reports La Paz daily La Razon. The new hydrocarbons law, which would be the third after passage of new legislation in 1998 and 2005, aims to strengthen YPFB’s role as the sole operator in the upstream-downstream chain as well as the nationalization of the sector in 2006, according to vice minister of industrialization, marketing, transport and storage, William Donaire. He said that the new hydrocarbons law will put an end to “a number of contradictions” with the new constitution approved in a national referendum in January. Donaire said that presently private companies are allowed to take part in upstream projects but the new constitution only permits YPFB to do this in association with these majors.

COMMENT: One of the biggest flaws of the last two hydrocarbons and nationalization law is that the government thinks that everything can be resolved with the passage of a new law. As we have seen, the latest hydrocarbons law (law 3,058) created a lot of confusion and has discouraged vital investment in upstream projects. Another factor that recent legislation has brought to light in Bolivia is YPFB’s inefficiency and incapacity to take the role of sole operator of the hydrocarbons sector. What will the new hydrocarbons law resolve? Nothing. Before it becomes law, it will only fuel greater regulatory uncertainty that will impact negatively long-overdue investments in the country.

BOLIVIA-ARGENTINA/GAS SUPPLIES

In order to have a growing role in Argentina, some analysts and former hydrocarbons sector officials recommend that YPFB should sign agreements directly with private companies since they consider Argentine state-owned energy company Enarsa unreliable, energy analyst Alvaro Rios, was quoted as saying in La Paz daily El Diario. Rios, who was shortly hydrocarbons minister of Bolivia in 2004,  said that Enarsa “appears like a company that cannot sign serious agreements to import bigger volumes of Bolivian gas.”

COMMENT: Criticism of Enarsa, which was created in 2004, is nothing new. Earlier this year, Daniel Montamat, former Argentine energy secretary (1990-00) and YPF president (1987-89), told SAEM that Enarsa operates at a loss every month and was only kept afloat in 2008 with $110-$135 million from the state treasury. “It is very difficult to figure out how much money the company makes [or loses] in the international agreements is has signed since such information in not public,” said Montamat. “For example, it purchases gas from Bolivia [at market prices] but sells it at a lower [subsidized] price to the domestic market.”

PERU-BOLIVIA-CHILE/MARITIME DISPUTE

Peruvian President Alan Garcia accuses Chile and Bolivia of agreeing behind his country’s back of reaching an agreement to end a long-standing border dispute that dates back to a nineteenth-century war, writes Bolivian state-owned news agency ABI. “To be frank I do not understand it,” said the Peruvian head of state.  “I said [to Bolivian President Evo Morales], listen, this is a bilateral issue which Chile and you have and another [there is another] bilateral issue with Peru…”

COMMENT: The unresolved geopolitical dispute between Peru, Bolivia and Chile continues to entangle relations and any possibilities that the former two countries will export power and gas to the mining-rich region of northern Chile. The situation appears faraway from a solution since Peru and Bolivia are seeking separate concessions from Chile: Peru through international arbitration at The Hague, and Bolivia with the help of direct talks with Santiago. If I were Chile, the best strategy would be to divide and conquer my neighbors. In 1978, Bolivia broke diplomatic relations with Chile after an agreement to grant the landlocked country a maritime corridor to the Pacific Ocean fell through after Peru rejected the agreement because it was its former territory lost in the War of the Pacific (1879-84).

BOLIVIA-BRAZIL/GAS-PURCHASE ACCORD

Owing to the slowing of the Brazilian economy and higher domestic gas output, YPFB President Carlos Villegas said that export volumes to Latin America’s largest economy would be lower this year, writes state-owned news agency ABI. “We believe that [this year] gas exports will reach a maximum of 24 million cu m/day [as stipulated in the take-or-pay agreement],” said Villegas. “Brazil is asking to purchase from October less gas. As a result [export revenues] decreased by $450 million.”

COMMENT:  If one has followed news over gas supplies from Bolivia to Brazil during the past two years, it is clear that Brazil has tightened the screws on Bolivia by making it ever-dependent on it. This leverage on the country is being done at the expense of Venezuela and to a lesser extent Argentina, which used to be a fierce rival of Brazil in exerting geopolitical influence in buffer states such as Bolivia, Paraguay and Uruguay. Even though Brazil is becoming less dependent on Bolivian gas, one of the aims of greater Brazilian gas self-sufficiency is gaining greater regional geopolitical clout. Bolivia also has a lot of natural sources that could compliment Brazil’s economic growth.

BRAZIL/DEFENSE OF ENERGY RESERVES

Brazil’s defense minister, Nelson Jobim, was quoted as saying in an exclusive interview with DEF TV, which was published in Infobae.com, that the government will seek to coordinate the armed forces to defend the country’s subsea hydrocarbons reserves as well as the Amazon Jungle. The new defense policy has been approved by President Luiz Inacio Lula da Silva. The new measure establishes a framework to coordinate the three branches of the army in order to protect the country’s gas and oil reserves as well as the Amazon Jungle.

Meanwhile, state-owned energy company Petrobras announced another huge discovery in the Campos Basin, reports Rio de Janeiro daily O Globo. The new discovery at the Aruana field, located 120km offshore the state of Rio de Janeiro, is estimated to house 280 million barrels of oil. Analysts rightly see the latest discovery as another sign that new offshore discoveries will be announced in the future by Petrobras.

COMMENT: Brazil’s new defense strategy takes into account adverse scenarios such as attacks on the country’s energy sector as well as the embattled Amazon Jungle. Jobim’s statement shows that there is concern in the government about defending the country’s enormous offshore oil and gas reserves like those in the Campos and Santos Basins. It also shows a new departure and Brazil’s coming of age as a global energy powerhouse.

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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