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Bolivia’s dramatic move to nationalise its natural gas industry is the latest effort by countries such as Venezuela and Russia to reassert control over their energy resources.
But despite the fiery rhetoric of Bolivia’s leftist president, Evo Morales, there are reasons to believe the result will be less onerous for oil companies than might be expected.
Oil companies said that Bolivia’s decree to take control of the gas fields was extremely broad and their decision whether to remain in the country would depend on how it is interpreted. Companies have been given 180 days to renegotiate contracts with the Bolivian government and many analysts expect the two sides will have to reach an accommodation.
The decision to impose tough new contracts on international oil companies closely mimics actions taken by Venezuela, the fifth-largest oil exporter, earlier this year. The populist government of Hugo Chávez gambled that international oil companies needed its oil too much to walk away.
By and large, it was right. Virtually all the major oil companies reluctantly signed up to the new contracts. But in Bolivia’s case, its confrontation with international oil companies may prove less successful.
Venezuela’s huge oil reserves are too attractive for oil companies to pass up and international companies have invested tens of billions of dollars developing them. Bolivia’s case is very different.
The country is rich in natural gas – it has South America’s second-largest gas reserves. But it has a small domestic market for the fuel and needs foreign partners to provide markets for that gas.
Wheras oil can be shipped into a global, fungible market, commercialising gas is far more complex. Pipelines must carry it to neighbouring countries or expensive liquefaction plants built to ship it overseas. Even then, companies often depend on the marketing might of international oil companies to sell their LNG.
Foreign companies have also invested far less in Bolivia, around $3.5bn in total, making it easier for them to walk away from the country if the terms become too unattractive.
Repsol YPF of Spain, which has the greatest exposure to Bolivian gas, on Tuesday accused Mr Morales of reneging on a promise to consult with foreign oil groups before the announcement of the nationalisation decree.
Antonio Brufau, chairman of Repsol, said: “We were told there would be time for negotiations, but obviously this was not the case.” In a radio interview in Argentina he said the new decree “sidestepped all industrial logic that ought to govern the relations between governments and companies”.
The Spanish company has already been hit by Venezuela’s actions and there are growing concerns that Argentina’s leftist president, Nestor Kirchner, could try to nationalise their operations in that country.
Because Brazil is a major destination for Bolivian gas, the country is also expected to work out a deal with Petrobras, the Brazilian state oil company.
“Bolivia needs to sell the gas and Brasil needs it for its growing consumption,” said Lucrecia Tam, Latin America energy analyst at Deutsche Bank in New York. “Petrobras is the most qualified candidate with a captive Brazilian market and a pipeline connecting the two countries.”
But some companies are likely to leave, analysts said. “Bolivia has already a bad reputation among oil companies and some of them are now going to leave the country,” said Anouk Honoré, natural gas analyst at the Oxford Institute for Energy Studies. “I see BG and BP walking out, and Total is 50 per cent chance they leave.”
BG and BP said that they were still studying the new Bolivian decree and trying to determine the impact on its operations. Bolivian assets represent less than 3 per cent of BG’s proved reserves and about 2 per cent of the company’s total production.
BP has a small interest in Bolivia, with production of 15,000 barrels of oil equivalent a day out of a total global output of 4m b/d.
Additional reporting by Leslie Crawford in Madrid