Global Insight Perspective | |
Significance | Petrobras's decision reflects the status quo, but will send a clear signal to the government that future investments will depend on the government's willingness to take on board investors' concerns during the renegotiation of contracts. |
Implications | Although Bolivia has said that gas nationalisation will not affect supplies to neighbouring countries, any impact on future investments could prevent new export projects from going ahead. |
Outlook | Greater political and regulatory stability for investors in Bolivia is crucial not just for stimulating greater investment in that country's gas sector, but also for the future energy security of the Mercosur region. |
Petrobras Suspends Investments in Bolivia
Brazilian state oil company Petrobras has announced that it has suspended all new investments in Bolivia as a result of the decree to nationalise the hydrocarbons sector. Investments affected include those connected to a project to expand the transportation capacity of the Bolivia-Brazil gas pipeline and a project to build a bi-national petrochemical complex that has been on hold since the approval of the controversial 2005 hydrocarbons law. The company also warned that it would take necessary measures to protect its interests, including legal action, and said that it would immediately start studies into diversifying its supplies, including the possible construction of an LNG plant. Petrobras also indicated that it would oppose any attempt to increase gas prices under its existing contract.
Brazilian President Luiz Inácio Lula da Silva is due to meet later today with the presidents of Bolivia, Argentina and Venezuela to discuss Bolivia's gas nationalisation. Meanwhile, there were reports that Spain was sending a delegation to Bolivia to discuss the changes. As foreign companies and governments continue to issue statements expressing concern about the Bolivian gas decree, the Bolivian press reported that Venezuelan state oil company YPFB is planning to invest in a project to build a natural gas separation plant.
Outlook and Implications
Brazil remains heavily dependent on Bolivian gas and is set to be the most affected country by Bolivia's decision to nationalise its hydrocarbons sector. Bolivia exports around 26 MMcmd of gas to Brazil, equivalent to around 50% of Brazilian gas consumption. Although Petrobras hopes that the development of gas reserves in the Santos Basin in Brazil will raise domestic production, rising domestic demand means that the share of gas consumption met by imports is only expected to be reduced to 30% from the current 50% by 2010. Concerns in Argentina and Brazil about the reliability of Bolivia as the principal supplier of gas in the Southern Cone have already led to discussions about alternative projects to import gas from Peru or Venezuela. However, with Peru focusing its efforts on tapping the North American gas market and the Venezuelan pipeline project being exorbitantly expensive, Bolivian gas remains the natural option for gas imports to both the Brazilian and Argentine markets. Even if Brazil were to find another way of reducing its dependence on Bolivian gas, such as through an LNG import project, developing such a project and raising domestic production will take a number of years. In the meantime, its energy security remains tied to developments in Bolivia.
At the same time, the Bolivian gas sector is very dependent on Brazil. The collapse of the Pacific LNG export project proposed in Bolivia following the 2003 'Gas War' that toppled the government of former president Gonzalo Sánchez de Lozada means that Bolivia has become more reliant on neighbouring countries to provide a market for its gas exports. Gas exports to Brazil and Argentina have increased in recent years, and there is the prospect of further increases if projects to build a new gas pipeline with Argentina and to expand the capacity of the Gasbol pipeline proceed. However, new export projects will require additional investment in production, which reformed Bolivian state oil company YPFB will not be in a position to provide on its own without the assistance of foreign companies. Petrobras has been a key investor in the gas sector, having invested around US$1.5 billion to date.
The announcement that it plans to suspend investments will be seen as the 'strong reaction' threatened by the company in retaliation to a decree that it regards as 'unfriendly' and 'unilateral'. However, to a certain extent, the announcement reflects the status quo, since foreign companies, including Petrobras, had already put new investments on hold following the approval of the hydrocarbon law and election of Evo Morales last year. Nevertheless, the announcement will send a message to the government in Bolivia that Petrobras is also prepared to act tough.