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Bolivia will agree to sell Argentina natural gas worth more than $16bn over the next 20 years on Thursday, despite worries that the unstable political climate in Bolivia will hinder big investments necessary to extract and transport the gas.

Argentina’s president, Néstor Kirchner, will sign a deal with his Bolivian counterpart, Evo Morales, to increase gas imports fourfold in a drive to ease increasingly serious energy shortages at home. Argentina currently imports a maximum of 7.7m cubic metres a day, which will be increased to 27.7m cubic metres per day by 2010.

Although Bolivia has the second largest reserves of natural gas in South America, a lack of infrastructure means $2-3bn needs to be invested in exploration and development. A further $1.2bn is needed to transport the gas, as existing pipelines are running at full capacity.

Argentina’s state energy company Enarsa will participate in the exploration and development of Bolivia’s reserves, with an investment announcement expected on Thursday.

Nevertheless, according to Esteban Greco, an energy analyst in Buenos Aires, given Enarsa’s very limited investments in Argentina itself, “It would be very hard to imagine Enarsa covering the investments needed, although it’s possible that Venezuela’s PDVSA could participate too.”

Analysts worry that until Bolivia’s volatile political climate – aggravated by the sudden nationalisation of oil and gas resources in May – is stabilised, foreign companies will be reluctant to invest.

The atmosphere became more complicated earlier this week when Alvaro Garcia Linaro, Bolivia’s vice-president, reaffirmed the government’s commitment to fully nationalise petroleum reserves by October 28. Talks with foreign energy companies have yet to lead to any contracts being signed. Companies operating in Bolivia – including Brazil’s state-run Petrobras, Spanish-Argentine Repsol YPF, France’s Total SA and British Gas – that do not reach agreement with the government will be obliged to leave Bolivia by the end of this month, according to Mr Garcia.

Doubts also exist in Argentina over the price of imported gas, which earlier in the year was increased from $3.5 to $5 per million British Thermal Units (BTUs). That agreement expires at the end of this year, and Bolivia is likely to push for price increases.

Brazil is Bolivia’s largest gas customer, importing 26m cubic meters of gas per day at just over $4 per million BTUs. Argentina’s acquiescence in price increases puts added pressure on Brazil to agree to increase the price it pays for Bolivian gas.

The agreement between Argentina and Bolivia will also have implications for Chile, more than a third of whose energy generation is supplied by gas, all imported from Argentina.

Argentina is committed to export about 15m cubic metres of gas a day to Chile.

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