Search

 

Cablegate: Bolivia: No Major Changes Predicted in Gas Industry

VZCZCXYZ0000
RR RUEHWEB

DE RUEHLP #0047/01 0481657
ZNR UUUUU ZZH
R 171657Z FEB 10
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 0680
INFO RHEFDIA/DIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEHAC/AMEMBASSY ASUNCION
RUEHBO/AMEMBASSY BOGOTA
RUEHBR/AMEMBASSY BRASILIA
RUEHBU/AMEMBASSY BUENOS AIRES
RUEHCV/AMEMBASSY CARACAS
RUEHLP/AMEMBASSY LA PAZ
RUEHMD/AMEMBASSY MADRID 0012
RUEHMN/AMEMBASSY MONTEVIDEO
RUEHPE/AMEMBASSY LIMA
RUEHQT/AMEMBASSY QUITO
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSG/AMEMBASSY SANTIAGO
RUEHSO/AMCONSUL SAO PAULO
RUEHUB/USINT HAVANA 0073
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS LA PAZ 000047

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET ENRG EINV PREL PGOV BL
SUBJECT: Bolivia: No major changes predicted in gas industry

REF: 09 LA PAZ 267

1. (U) Summary: Bolivia's natural gas production fell in 2009 due
to reduced regional demand, dropping from 40-42 million cubic
meters a day (Mm3/d) in 2008 to the current 33 Mm3/d. Natural gas
exports also fell as a percentage of the value of total exports,
from 45 percent in 2008 to 37 percent in 2009. Current gas
production is divided among domestic consumption (7 Mm3/d), exports
to Brazil (21 Mm3/d), and exports to Argentina (5 Mm3/d).
Brazilian demand is falling, and plans for increased exports to
Argentina remain held up because of pipeline capacity and supply
concerns. Bolivian reserves remain estimated to be the second
largest in South America, at around 1.36 trillion cubic meters (48
trillion cubic feet). End Summary.

2. (SBU) Bolivia's gas supply agreement with Brazil requires
Brazil to take 24 Mm3/d or at least pay for that amount (it may
take up to 31Mm3/d). In 2009 Brazil averaged closer to 21 Mm3/d
and will pay for the difference (creating a credit it can use in
the future). Brazil also pays extra for the liquids (petroleum)
that come with the gas, just concluding an agreement with the GOB
as to the cost -- approximately $100 million for 2007 and expected
to be $300 million for 2008-2009. Payment for 2007 has occurred,
but payment for 2008-2009 will not happen until a separate
agreement identifying the level of domestic demand is sorted out.

3. (SBU) The current contract with Brazil is valid until 2019, and
Brazilian Embassy representatives told us the contract will likely
be renewed after that date. Brazil believes Bolivian gas is
convenient and remains a relatively cheap energy option. There is
also a political component that will ensure a continued
relationship. On February 3, President Lula of Brazil caused
controversy by saying, "we will continue to buy Bolivian gas
because we need to help our poor neighbors, because this is the
role of a country the size of Brazil." Bolivian Vice-President
Garcia Linera responded by saying, "The contract requires
obligatory compliance, independent of the ruler's goodwill, which
we appreciate. The contract will be fulfilled." Still, the level
of gas Brazil buys will depend greatly on other resources,
including development of a recently-discovered Brazilian off-shore
oil field.

4. (U) During a visit to Bolivia in November 2009, Spanish Repsol
CEO Brufau committed $1.5 billion in investments over the next 5
years to increase production at the Tarija region's Margarita field
to 14 Mm3/d by 2013 (it currently produces 2 Mm3/d). As of
February 2010, however, no new investment has been made and it is
uncertain if other investors in Margarita will also increase
investments. The pace of any increased production will likely
continue to depend on how quickly the pipeline to Argentina
increases transportation capacity. The Spanish believe that only
30% of the financing for the pipeline expansion has been obtained.

5. (U) In January the Bolivian state hydrocarbons company, YPFB,
announced a five-year investment plan worth $11 billion. While
unveiling the program, President Morales said, "I dream of having
our state company become as important as Brazil's Petrobras or
Venezuela's PDVSA." French company Total also recently announced
new investment plans, beginning with exploratory drilling (in
conjunction with Tecpetrol of Argentina) at the Incahuasi field in
the Caraparicito zone of Santa Cruz. The initial investment of $70

million could expand to $500 million over five years if the
drilling is successful, potentially adding 5 Mm3/d to Bolivian
production by 2013.

6. (SBU) A contract signed by Argentina and Bolivia in 2006
committed Bolivia to steadily raise supply to Argentina, supposedly
already reaching 27 Mm3/d. Both Argentina and Bolivia recognize
that this is not possible with neither paying penalties for not
meeting the take-or-pay or deliver-or-pay clauses. The pipeline to
Argentina currently only has the capacity for 7 Mm3/d, and actual
delivery is closer to 4-5 Mm3/d. The Argentines tell us they are
willing to take more gas, but understand that expansion of the
pipeline needs to come first. Bolivia must build 20 km of pipeline
to connect the Margarita field to the main pipeline and Argentina
must build 40km on its side to make connections to the larger
pipelines there. Construction has not begun on either side,
awaiting increased certainty of supply.

7. (SBU) In general, most investors are waiting for the new
hydrocarbons law to provide more certainty for the sector. Still,
it appears the GOB is not seeking broad consultations with
investors but is getting advice from the IDB on this and other new
laws. The laws are expected to lay out new investment rules for
the sector, likely increasing the percentage of state involvement
in any new investments. The law will also likely raise taxes
and/or royalties hydrocarbons companies pay. Other than increased
production out of Margarita by Repsol, there are no other large
increases predicted for the near future. Based on likely demand,
Bolivian production is likely to stay close to 30-35 Mm3/d for the
next 4-5 years. The potential production capacity should remain at
around 40-45 Mm3/d.

8. (SBU) The Bolivian state oil company, YPFB, has approached
various donors for assistance. The World Bank, Inter-American
Development Bank (IDB), Canada, Norway, and the Netherlands have
formed a group to provide technical assistance to YPFB on
restructuring. The assistance will focus on management
restructuring and procurement and will entail the secondment of a
Dutch consultant (likely a retired Shell professional) to YPFB to
assist. This could be a good sign, signaling that YPFB recognizes
that it does not have sufficient technical capacity and is open to
assistance.

9. (SBU) The GOB has also requested international assistance on
the construction of a petrochemical facility. The Dutch are
providing technical assistance and the Brazilian company Braskem
(40% owned by Odebrecht, with PetroBras holding a significant
minority stake) is reportedly very interested in the project. If
the project were to occur, it would be a joint venture with a
Bolivian state company. The idea for this facility has been in
discussion for 10 years, however, and it would need at least 5
years to come to fruition. Upon completion, this facility could
drastically increase demand for natural gas, possible using up to
15 Mm3/d.

10. (SBU) The new Bolivian Hydrocarbons Minister, Fernando Vargas,
has served on the board of YPFB for four years and is a civil
engineer from Santa Cruz. Vargas is not believed to have broad
sectoral knowledge. He is, however, very close to Vice President

Garcia Linera, leading to speculation that the vice president will
have ultimate control over this critical sector. Vargas seems to
also have a good relationship with Villegas, the President of YPFB.

11. (SBU) Comment: Gas remains critical to Bolivia's fiscal and
economic future. Without gas revenue, Bolivia's fiscal deficit in
2008 would have exceeded 8% of GDP. With Brazilian demand now at
around 21 Mm3/d and with domestic supply unlikely to rise
dramatically, the future of the Bolivian gas market faces a
"chicken and egg" scenario - will new production from the Margarita
field start without the increased availability in the pipeline to
export it to Argentina? Many hope the new hydrocarbons law will
reduce uncertainty and spur investment in the sector (although the
law does not seem to be a high priority for the GOB), but
significant increases in Bolivian production and exports are not
likely for several years at least.
Creamer

© Scoop Media

 
 
 
World Headlines

 

UN News: Vaccine Inequity Triggers ‘Huge Disconnect’ Between Countries

Although COVID-19 cases and deaths continue to decline globally for a second consecutive week, the UN health agency chief said on Monday that “a huge disconnect” is mounting between some highly vaccinated countries, which see the pandemic as largely resolved, ... More>>

Save The Children: Almost 60 Children Killed In Gaza In The Last Week Alone

Save the Children is calling for an immediate ceasefire by all parties, as 58 children[i] in Gaza and two children in southern Israel have been killed in the last week. More than a thousand people in Gaza, including 366 children[ii], have also been injured. ... More>>


IPPPR: The Independent Panel Calls For Urgent Reform Of Pandemic Prevention And Response Systems

Expert independent panel calls for urgent reform of pandemic prevention and response systems The Independent Panel for Pandemic Preparedness and Response is today calling on the global community to end the COVID-19 pandemic and adopt a series of bold and ... More>>


Focus On: UN SDGs

ILO Voices: A Future With Hope, Free From Bonded Labour

By Padma Kumari Tamata Formerly in bonded labour, Padma Kumari Tamata is now a farmer, and grows and sells her own vegetables in the Kanchanpur district of Nepal. My name is Padma and I come from Vashi, a small hamlet in Nepal’s far-west Kanchanpur district. ... More>>

UN: Economic Recovery Under Threat Amid Surging COVID Cases And Lagging Vaccination In Poorer Countries

New York, 11 May — While the global growth outlook has improved, led by robust rebound in China and the United States, surging COVID-19 infections and inadequate vaccination progress in many countries threaten a broad-based recovery of the world ... More>>

Study: Cut Methane Emissions To Avert Global Temperature Rise

6 May 2021 Methane emissions caused by human activity can be reduced by up to 45 per cent this decade, thus helping to keep global temperature rise to 1.5 degrees Celsius in line with the Paris Agreement on climate change, according to a UN-backed ... More>>