Argentina aims to step up gas exports to Brazil, but Bolivian fees are a hurdle

Argentina is seeking to increase natural gas exports to Brazil, but a challenge will be to negotiate lower transit fees in Bolivia or find an alternative route to that neighboring country, a senior gas transport executives have said.

The exports depend on the final sales price in Brazil, Daniel Ridelener, director general of Transportadora de Gas del Norte, a gas transporter in the north of Argentina, told S&P Global Energy.

"This final price doesn't depend so much on Argentina, but on Bolivia and Brazil," he said Sept. 11 in an interview on the sidelines of the Argentina Oil & Gas Expo in Buenos Aires.

Brazil has said it wants to buy 30 million cu m/d of gas from Argentina, with most of the supplies expected to come from Vaca Muerta, the huge shale play in Patagonia that is producing 100 million cu m/d and is expected to reach 250 million cu m/d by 2030. As that is far more than the country's average demand of 140 million cu m/d, this is pushing producers to look for new markets.

There are pipelines in place to supply Brazil, Chile and Uruguay, but the biggest potential market is Brazil.

Several producers in Argentina have made spot sales to Brazil this year via Bolivia, but no long-term contracts have been signed.

While Brazil has said it wants to import 30 million cu m/d from Argentina by 2030, Ridelener is more conservative in his expectations, saying that exports to Brazil likely will reach 10 million cu m/d, perhaps 20 million cu m/d.

"If 8 million cu m/d is the starting point in exports, that would be great," he said, as that would make it a business with potential for further growth given that $1.6 billion would have to be invested in infrastructure in Argentina to make this possible. "It's a big investment."

A pricing challenge

Beyond the potential size of the market, another challenge is to reach Brazil with gas at competitive prices compared with other sources of energy.

The route that gas producers have started to use to export to Brazil has been via Bolivia, taking advantage of idle capacity on that country's cross-border pipelines. Bolivia, long the biggest supplier to Brazil, has seen its production tumble over the past decade. Bolivia's gas production tumbled to 28.6 million cu m/d in June from a record 60.8 million cu m/d in 2014, according to data from the state statistics institute INE.

The advantage of this route is that no investments need to be made to move large volumes of gas through Bolivia and across Brazil.

If the price is competitive, this route could be used to export 20 million cu m/d of gas to Brazil from Argentina, Ridelener said.

The Brazilian market is attractive for Argentinian exporters, given that industrial users there pay $15-$20/MMBtu for gas, far more than the $5-$6/MMBtu in Argentina.

Bolivia, however, is charging $1.40-$1.90/MMBtu to move the gas for 1,200 km through its territory to Brazil from Argentina, Ridelener said in a presentation at the event.

That compares with the 50 cents/MMBtu that it costs to move gas over the same distance in Argentina, he added.

"This is a conversation that we need to have," Ridelener said of the transit fee.

With Bolivia swinging to the political right in the general election this year — the runoff vote will be held Oct. 19, this could open the door to have this discussion, he added.

Alternative routes

If Bolivia doesn't drop its price, there are two alternatives, Ridelener said.

One is to go directly to Brazil via an existing pipeline from Argentina to Uruguayana in southern Brazil and then build a 550- km pipeline to Porto Alegre, where an existing pipeline can be upgraded to take the supplies to São Paulo, he said.

The other is to build a 1,000-km pipeline through Paraguay, which wants gas to feed new power generators and build fertilizer plants

"If the prices in Bolivia continue to be high, then Paraguay could be an option," Ridelener said.