Opponents Cloud Bolivia's LNG Future

Abstract: Bolivia has huge natural gas reserves. Developing them depends on a new pipeline, a deal with Chile or Peru, and agreement between government and citizen groups who are battling in the country's streets.

Analysis: Bolivia looks through a window of opportunity that is closing fast. It sits atop South America's second-largest reserves of natural gas, estimated at between 24 and 53 trillion cubic feet. Sempra Energy, nearing final approval to build a liquefied natural gas (LNG) import station on Mexico's Baja California coast, wants to negotiate a long-term supply, and other ready markets may emerge on the U.S. West Coast. But to become an LNG exporter, the land-locked country must leap a couple of formidable hurdles. First, it must make a deal with Chile or Peru to run an export pipeline to a Pacific port, build a liquefaction facility, and then finance the construction. Second, it must get the Bolivian people, many of whom are striking this week, to go along with the deal. That may be the harder of the two jobs.

The need is urgent. Bolivia has throughout its history been one of the poorest countries in South America. Today's weak global economy has hit Bolivian exports and foreign investment flows into the country. Late in 2002, surveys showed approximately 10 percent of Bolivia's population were unemployed and another 13 percent were underemployed. The other urgency comes from Sempra Energy. As soon as it gets the go-ahead from Mexico's government, it will want to lock up a long-term gas supply.

Early this week, prospects for any gas deal didn't look promising. Protesters who oppose many Bolivian government plans and policies--including natural gas exports--called strikes and set up roadblocks. The protesters--reported to be largely native Aymara Indians--blocked roads linking Bolivia's capital city, La Paz, with other towns in Bolivia and also with Chile and Peru.

The protestors have several demands--from preventing new free-trade initiatives, to stopping tax "reforms." But top among objectionable issues are the export plans for natural gas.

Big Fields
Bolivia's 24 to 53 trillion cubic feet of reserves are enough to make the country a prospective major natural gas exporter. The country has been producing natural gas since the 1960s. Current exports are primarily to Brazil (under a 20-year contract), but small volumes also flow to Argentina as well. The domestic Bolivian gas market is also small, held back by lack of distribution lines within Bolivia, which is a priority issue to export opponents. Even if domestic needs get more attention, export markets and the vital income from them will remain the key drivers for Bolivian gas.

In February 2002, Brazil and Bolivia pledged to strengthen bilateral ties in the energy field. One possibility is a $5 billion gas pipeline, known as Gafin, connecting southern Bolivia with southern Paraguay, northern Argentina, the southern Brazilian state of Santa Catarina, and Brazil's capital city, Brasilia.

Exploration in recent years has led to several large discoveries, with many over 5 Tcf. Blocks containing significant gas reserves include Block 20 (Tarija West), San Antonio and San Alberto, El Dorado, and Caipipendi. Caipipendi contains a huge field, Margarita, which holds an estimated 13 Tcf. Exploration has slowed considerably since 1999 due to lack of demand growth.

Bolivia's major gas outlet so far is Brazil where Bolivia has contracts for some 18 million cubic meters per day. Current gas discoveries in Brazil, however, may change that. Brazil this month revalued upward its gas reserves in the Santos Basin off Sao Paulo. These increased from 70 billion cubic meters to 419 billion cubic meters. This huge increase could more than double Brazil's daily output as it comes into production over the next four years. It is certain to lessen Brazil's need for Bolivian gas.

Liquefied Natural Gas (LNG) Plans
In July 2001, Bolivia's largest natural gas producing companies--Repsol-YPF, BG, and BP--formed an LNG export consortium called Pacific LNG to deliver gas to Bolivia's west coast for export. The project could involve constructing a 430-mile pipeline from Bolivia's southern Margarita field to a port, most likely Ilo in southern Peru, or alternatively to Mejillones or Cobija in northern Chile. Chile is Pacific LNG's preferred choice because its ports are closer to Bolivia's huge Margarita gas field and Chile's apparently greater political stability.

In either case, a liquefaction plant would be built at the port of choice, and the LNG would then be shipped to a regasification plant in northern Mexico, to be constructed by Sempra Energy. From there, the gas--possibly 800 million cubic feet per day--would be piped to northern Mexico (i.e., Baja California), to southern California, and to the U.S. Southwest. The entire project would cost an estimated $5 to $8 billion, and earn Bolivia as much as $1 billion per year by 2007. In December 2001, Sempra and Pacific LNG signed a memorandum of understanding on gas deliveries beginning in 2004 at the earliest and lasting for 20 years. A long-term sales agreement is in the works.

Will the Window Remain Open?
Bolivia most definitely needs the revenue from natural gas sales. Just how complex it will be to achieve that will depend on many factors. The outcome of strikes and demands taking place this week could be most important.

Protesters marched to Bolivia's capital, La Paz, last week. Press reports from there indicate they have a 70-point document addressing different issues. Bolivia's main opposition leader, Evo Morales, has threatened to launch a series of nationwide strikes on September 19th (today) if the government of President Gonzalo Sanchez de Lozada refuses to meet their demands.

Many of the protestors' issues and demands are, of course, unrelated to exporting natural gas. But there is general agreement that, economically, it is the most important issue. And as the gas-rich country's people and government stand at odds, the window of opportunity for LNG sales to Mexico and the Western U.S. stands wide open. Once Sempra Energy and Mexico get close to a deal on the regasification plant, Sempra will want to lock in a long-term LNG supply. If Bolivia can't get ready to deal with Pacific LNG by then, Sempra may have to head across the Pacific or to Alaska. The window could close fast.