Bolivia Gas Exports Spike in 2006, But Party May Be Over

RIO DE JANEIRO Jan 05, 2007 (Dow Jones Newswires)

Bolivia's natural gas export sales rose spectacularly in 2006, but the party may soon be over.

While the thirst for gas in neighboring Brazil and Argentina continues unabated, virtually no fresh investment is being made in new production as companies lick their wounds after last year's oil and gas nationalization.

"I think the companies will be cautious -- making just enough investment to keep a foothold," said Gary Hufbauer, senior fellow at Institute for International Economics, a Washington think-tank. "One reason is the trauma (they've) already experienced."

Foreign oil companies have spent more than $3.5 billion to develop Bolivia's vast natural gas resources in recent years, but new investments ground to a halt after Bolivian President Evo Morales nationalized the oil and gas industry on May 1 last year, and hiked taxes on production to about 80% of revenues from the previous 50%.

Nevertheless, Bolivia's oil and gas exports likely reached $2.03 billion in 2006, up 57% from the previous year, and equivalent to half Bolivia's total exports, the Bolivian Chamber of Hydrocarbons, an industry group, said last week.

The rise was attributed to increased export volumes to Brazil and higher natural gas prices. Gas exports rose from 15.4 million cubic meters a day in 2003 to 31 mcm/d in 2006, the chamber said. The price of gas supplied to Brazil rose to $4.03 per million British Thermal Unit, or BTU, in October from $1.9 per million BTU in 2003, while Argentina in July agreed to a 25% hike in gas prices to $5 per million BTU.

But gas fields in Bolivia are now close to peak production levels and the country is already having trouble meeting domestic demand and fulfilling its export commitments.

In an interview with the Valor newspaper on Friday, Sergio Gabrielli, president of Brazil's government-run oil company Petroleo Brasileiro SA (PBR), said Bolivia's total production capacity today is 40 million cubic meters per day, while its export contract obligations total 37 mcm/d and domestic consumption is running at between 3 million to 4 million cm/d.

Exports to Brazil should rise to 30 mcm/d of gas under the existing contract, and Bolivia last year agreed to raise exports to Argentina to 27.7 mcm/d by 2010, from the current 5 mcm/d.

With the new Argentine contract, Bolivia "will need (to produce) more gas," Gabrielli said.

While Bolivia's government denies there are any production bottlenecks, foreign companies' spending plans were frozen in the wake of Morales' nationalization. Although many foreign companies signed new operating contracts in October, they have remained lukewarm on new commitments.

Petrobras has pumped $1.5 billion into its Bolivian operations and is the Andean nation's single largest investor. But it has already said it is revising its plans and will probably slash the several billion dollars of spending that had been planned before nationalization.

Other important investors include Spanish-Argentine energy firm Repsol-YPF (REP), which has spent $1.2 billion to date, as well as French energy firm Total SA (TOT) and BG Group Plc (BRG). All signed new contracts with the government in October, but none have since announced new investments.

BG Group Chief Executive Frank Chapman in November called the government's new terms "very tough" and said his company had "not committed ... to invest significant sums of money" in Bolivia.

Morales' unpredictable mixture of appeasement and aggression toward foreign firms heightens the companies' caution.

"After a year in office, the Morales administration has hardly been a model of consistency," said Michael Shifter, senior analyst at Inter-American Dialogue, a Washington think-tank. "Foreign investors are still not quite sure whether the confrontational or conciliatory side will prevail through the rest of Morales's term."

In the weeks before new production contracts were signed, Morales called Brazil's president Luiz Inacio Lula da Silva his "big brother" and pled for more investment by Petrobras. Yet just two days after the new contracts were signed, the Bolivian president boasted that army troops had been ready to seize oil and gas fields if the new contracts hadn't been signed.

Morales may instead rely on help from his political ally, Venezuelan President Hugo Chavez, though some warn this may prove illusory.

The leftist governments of Bolivia and Venezuela have formed a joint company to explore Bolivia's vast reserves of natural gas, with plans to invest $1 billion though so far there appears to have been little practical progress.

"It would be risky for the Morales government to rely on Venezuela for adequate investment for its natural gas sector," said Shifter, of the Inter-American Dialogue. "The Chavez government is already overextended. There is a limit to how much it can actually assist Bolivia."

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