Natural gas in Bolivia
Encyclopedia
Historical background
“Bolivia’s economic history reveals a pattern of a single-commodity focus”, diversification has only occasionally being the case, due to political and geographical problems. Currently, the situation is no different, and the commodity of the day is natural gas. Natural gas first became significant in Bolivia only relatively recently, after vast discoveries of fields in the late 1980s and early 1990s. At the time these new discoveries aided the country on a modest economic recovery after previous years of serious economic problems (with hyperinflation, recession, and austere stabilization), their most severe since the 1950s, later aggravated by a collapse on the world’s tin market in 1985 – being tin Bolivia’s most valuable natural commodity at the time.
Most natural gas in Bolivia is associated with oil fields. Petroleum has been known to exist in Bolivia since the colonial period, but serious exploration did not begin until the beginning of the twentieth century. It was during the 1970s that oil production really peaked, only to be followed by a decline in the next decade. That is when natural gas overshadowed petroleum to become the main hydrocarbon exported by the country up to this date.
Since the 1980s, the number of known reserves has increased substantially. It was during the 1990s that new major discoveries really increased natural gas production in Bolivia. “Major discoveries of natural gas since 1996 had boosted proven and probable gas reserves almost tenfold, to 48.7trn cu ft, by the end of 2004”
Political Context
The rise of natural gas as Bolivia’s most important export occurred at the same time another important moment of the country’s history was happening – it was also during the 1980s that civilian rule and democratic government were restored. This was a moment where many privatizations occurred, and private investment was a big part of the blossoming of the Bolivia natural gas industry. These events help us understand the current situation of natural gas in Bolivia.Background
What preceded the return to democratic government in the 1980s was a long period of instability. After the Chaco WarChaco War
The Chaco War was fought between Bolivia and Paraguay over control of the northern part of the Gran Chaco region of South America, which was incorrectly thought to be rich in oil. It is also referred to as La Guerra de la Sed in literary circles for being fought in the semi-arid Chaco...
(1932–1935), during the period of 1936 until 1952, Bolivia had ten presidents (six military). This was a period in which the power was divided between the National Revolutionary Movement (MNR) and military rule.
The most significant changes came with the elections of 1985, which brought to power president Paz Estenssoro (MNR founder), his fourth time as president since 1952. Estenssoro abandoned his left-wing allies and his own populist past and "decreed one of the most austere economic stabilization packages ever implemented in Latin America" called the New Economic Policy (Nueva Política Económica—NPE), the decree "aimed at ending Bolivia’s record-setting hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...
and dismantling many of the large and inefficient state enterprises that had been created by the revolution". These free-market liberal reform policies were also followed by his predecessors, President Jaime Paz Zamora
Jaime Paz Zamora
Jaime Paz Zamora was President of Bolivia from August 6, 1989 to August 6, 1993. He also served as Vice-President between 1982 and 1984.-Foundation of the MIR and alliance with Siles Zuazo:...
(1989–1993) and Gonzalo Sánchez de Lozada
Gonzalo Sánchez de Lozada
Gonzalo Sánchez de Lozada y Sánchez de Bustamante , familiarly known as "Goni", is a Bolivian politician, businessman, and former President of Bolivia. A lifelong member of the Movimiento Nacionalista Revolucionario , he is credited for using "shock therapy", the economic theory championed by then...
(1993–1997) which the latter liberalized the economy even further through these IMF (International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
) structural adjustment programme.
Lozada’s predecessor, the once before president Hugo Banzer Suárez (1997–2001) also continued the reforms, as well as pursued an aggressive coca-eradication and alternative-crop program that were followed by very strong protests, until Lozada’s return to power in the 2002 elections. When Lozada came back to power in 2002, the country by then was going through economic difficulties and the anti-coca campaign led to even further discontent, specially by people of indigenous descent. This led to his resignation and fled of the country in 2003, after demonstrations against his government—the strongest ones against his plans to export natural gas, which sparked the “Bolivian gas war”—that cost him lost of Congressional support.
Lozada’s vice president took over the presidency, and at this point natural gas was at the center stage of Bolivian politics, with the "Bolivian gas war" full blown. The war originated from the discontent of Bolivian people with the distribution of revenues from what they saw as the biggest source of wealth of the country. It was under Lozada’s vice president’s rule that in July 2004 a referendum was called, to calm down the violent protests and to decide the future of Bolivia’s natural gas reserves. In the referendum “more Bolivian voters answered yes than no to five convoluted questions which, taken together, empower the government to exert greater control over the export and sale of the country's vast oil and gas wealth.” But the referendum had no direct impact on the future of the energy sector.
In light of these events, new presidential elections were held in 2005. Discontent with the result of the implementation of these reforms throughout the past decades (that ultimately led to the “Bolivian gas war”) definitely contributed to the election of Evo Morales in 2005, since he defended a return to the model of strong state intervention in the economy and was an opponent of the coca-eradication program.
Nationalization
Despite past experiences with less than ultimate results with previous nationalizations of Bolivia’s tin industry in 1952 and twice of hydrocarbons industry in 1937 and 1969 Morales did maintain his campaign promises and nationalized the gas industry soon after elected, in May 2006.After signing a decree to nationalize the natural gas industry, President Evo Morales
Evo Morales
Juan Evo Morales Ayma , popularly known as Evo , is a Bolivian politician and activist, currently serving as the 80th President of Bolivia, a position that he has held since 2006. He is also the leader of both the Movement for Socialism party and the cocalero trade union...
dramatically took over and occupied installations by using military force on May 1, 2005. Even though he stated that expropriations would not occur, the short period of six months given to renegotiate contracts created great discomfort with the main foreign companies involved in the exploration of natural gas in Bolivia and their countries of origin. The state-owned Brazilian company Petrobrás
Petrobras
Petróleo Brasileiro or Petrobras is a semi-public Brazilian multinational energy corporation headquartered in Rio de Janeiro, Brazil. It is the largest company in Latin America by market capitalization and revenue, and the largest company headquartered in the Southern Hemisphere by market...
, was among the most affected, since it was one of Bolivia’s largest foreign investors and controlled 14% of the country’s natural gas reserves, which in consequence created particular big concerns in the Brazilian government.
Ultimately, negotiations took place and no further hostilities happened, resulting in agreements reached with all the companies involved. With the agreements “(…) the state raised its share of the revenues from the two giant fields from 50 percent to 82 percent, while taking only a 60 percent share at Bolivia's minor deposits.”
Last year, on December 2009, Evo Morales was re-elected for another 5 year-term, winning with 63 percent of the ballots according to unofficial counts by two polling firms - evidencing Bolivian's support for his administration. Much of his re-election having to do with natural gas. Higher prices for the natural gas and also minerals, which account for the bulk of Bolivia's exports, have helped sustain economic growth and also President Morales approval. Enjoying popularity, Morales has also tightened state control not only over the hydrocarbons sector, but also over the mining sector. He has nationalized the main phone company in Bolivia and showed intentions to also control the electrical power industry. "But many analysts believe Morales will be careful not to alienate the foreign investors he needs to increase raw materials output. [On November 2009], Bolivia received a pledge of a $1.5 billion investment from the Spanish-Argentine company Repsol for natural gas development."
Bolivia's numbers on natural gas:
Production:14.2 billion cu m (2008 est.)
country comparison to the world: 35
Consumption:
2.41 billion cu m (2008 est.)
country comparison to the world: 78
Exports:
11.79 billion cu m (2008 est.)
country comparison to the world: 17
Imports:
0 cu m (2008 est.)
country comparison to the world: 78
Companies involved in exploration
The state-owned petrol company of Bolivia is YPFB Yacimientos Petrolíferos Fiscales Bolivianos.There are many foreign companies involved with the exploration of natural gas in Bolivia, but the two most significant ones are Petrobrás from Brazil and the Spanish-Argentine company Repsol YPF. Others also involved are Total from France, British Gas and British Petroleum as well as the US Exxon Mobil Corporation.
The reserves
Bolivia's proved natural gas reserves are estimated to be 750.4 billion cu m (1 January 2009 est.), which ranks the country as 30th compared to others in the world.As far as in South America, Bolivia holds the 2nd largest proven reserves - behind only of Venezuela, which has significantly larger reserves (about 6 times larger than Bolivia's). But due to its geographic location, much closer to the most prosperous southern part of the continent, Bolivia holds an advantage compared to Venezuela, and holds itself as the more attractive option for shipment by pipeline of its natural gas, mostly to Argentina and Brazil.
Most of these reserves are located in the eastern region of the country. More specifically, they are mostly located in four out of the nine States that form Bolivia, these four States being Tarija (which has 80% of the reserves), Santa Cruz (which has 15% of the reserves) and Cochabamba and Chuquisaca (which share the other 5% of the reserves).
Pipelines
Pipelines are a key feature of the natural gas business. Without them it is possible to sell gas by liquefying it and shipping it be using tankers, but that presents itself as a more expensive alternative. Exporting natural gas through pipelines is also the reason why relations with neighboring countries is an important feature of the business. It is through pipelines that Bolivia domestically uses and exports its natural gas. The major export pipelines in Bolivia are:- Gasoducto Argentina (Yabog pipelineYabog pipelineYabog pipeline is a long natural gas pipeline, which connects Río Grande in Santa Cruz de la Sierra, Bolivia, with Campo Duran in Salta Province, Argentina. The pipeline was commissioned in 1972.-History:...
) which began operating in 1972 and - Gasoducto Bolivia-Brazil (GASBOL pipeline) which began operations much later in 1999
The development of other pipelines to export Bolivian gas to other countries in South America, such as Uruguay, have been topic of conversations, but as of today nothing significant has followed through.