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    Bolivia At A Crossroads [NGW Magazine]

Summary

Losing export markets for natural gas, the South American country is looking to boost sales of gas derivatives instead.

[NGW Magazine Volume 4, Issue 5]

by: Pietro Pitts

Posted in:

NGW News Alert, Featured Articles, Americas, Premium, NGW Magazine Articles, Volume 4, Issue 5, Import/Export, Market News, Liquified Natural Gas (LNG), Bolivia

Bolivia At A Crossroads [NGW Magazine]

Land-locked Bolivia, rich in gas and long a supplier of the resource to neighbouring Argentina and Brazil, is having to rethink its goals as rising gas production in its two export markets and the arrival of LNG from the US rob it of market share. 

If successful, the change will see the South American country reinvent itself as an exporter of value-added gas derivatives.

Bolivia, denied access to the sea by the 1884 Pacific War, exports gas to the Southern Cone and it hopes to become more resilient as it loses gas market share.

Bolivia’s gross domestic product, which rose by an estimated 4.5% in 2018 from 4.2% in 2017, is now forecast to rise 4.3% in 2019, 3.8% in 2020, and then 3.4% in 2021, according to the World Bank. This is for a number of causes both inside and outside its borders. 

Bolivia has not invested enough to shore up reserves and production, which continue to fall to the point where it might not be able to fulfill current and new gas supply contracts. These issues and the presidential elections this year, are uncertainties for investors.

Exports too are hit by rising production in Argentina and Brazil. Argentina is also suffering economically. And in Chile, Bolivia has to compete for market share with US LNG. 

President Evo Morales however is industrialising the country with at last one eye on 2025, when the country celebrates 200 years of independence. He has hit upon petrochemical and liquids production as the solution.

The plan calls for boosting production of gas, LPG, ammonia, urea and other value-added manufacturing. 

Gas exploration

Despite Bolivia’s so-called May Day nationalisation on May 1, 2006, the country continues to offer investors legal and fiscal security, high prospectivity and attractive markets for its products, but that is according to Bolivia’s state oil company Yacimientos Petrolíferos Fiscales Bolivianos or YPFB.

Bolivia holds the fifth largest gas reserves in Latin America and the Caribbean (LAC) region, with 300bn m3 in 2017, according to the BP Statistical Review of World Energy. However, these reserves are down 57.1% off a peak of 700bn m3 in 2007, and it is the sixth largest producer, with 17.1bn m3 of gas in 2017 compared with 17.6bn m3 in 2016.

The most recent figure is down 15.8% off a peak of 20.3bn m3 in 2014. The last time production was this low was in 2012. Bolivia has sufficient resources to last it another 15.8 years. 

More exploration is the life-line. Work slated solely for 2018-2019 by local and foreign producers such as Anglo-Dutch Shell – which acquired acreage when it bought BG – Spanish Repsol, French Total, Brazilian state Petrobras and Russian Gazprom –  focus on 11 exploration projects with estimated gas potential of 12.16 trillion ft3.

The projects are part of a broader 35-project exploration portfolio in the departments of Tarija, Chuquisaca, Santa Cruz, Cochabamba, Beni and La Paz which hold estimated potential of 35.1 trillion ft³

YPFB outlined plans in January for investments of $1.45bn which will include 18 exploration wells, of which nine are near completion, five are still drilling and four are undergoing civil-related work activities. 

Argentina and Brazil

Brazil and Argentina continue to represent Bolivia’s bread-and-butter in terms of export markets and revenue potential from foreign sources, even though both have more than Bolivia does. Gas sales and purchase agreements with the countries officially terminate in 2019 and 2026, respectively. 

Bolivia has potential in terms of reserves and exploration, Gas Energy Latin America director Alvaro Rios told NGW: “Bolivian gas may not be indispensable, but it is introduces competition into both markets. So, it is quite important.”

Bolivia’s contract with Brazil ends in July but it can be extended another year if parties agree. At the moment, delivery or pay is for 31mn m3/day while the take-or-pay is for 24mn m3/day, according to Rios.

An addendum to the original sales agreement revised in February between Bolivia and Argentina was extended for two years, according to Bolivia’s hydrocarbon ministry. Revisions establish a price of $7.18/mn Btu, 15.1% higher than the previous price of $6.24/mn Btu, for exports to Argentina that reach or exceed 10mn m3/day during summer. 

Another revision indexes certain export volumes to LNG prices. Assuming an LNG price of $9.50/mn Btu, and factoring in a regasifaction fee, Bolivia is likely to receive a price near $10.30/mn Btu for gas exports that exceed 10mn m3/day in winter. The revised addendum also stipulates minimum summer volumes of 11mn m3/day and maximum winter volumes between 16mn m3/day and 18mn m3/day.

Higher revenues will also help producers in the country, said petroleum minister Luis Alberto Sanchez in an interview February 15. “The addendum is a strong incentive for companies and YPFB to make investments in Bolivia because we will have better prices,” he said. 

Rystad Energy’s vice president for Latin America Schreiner Parker told NGW that therecent approval of the exploration incentive law could extend Bolivia’s horizon as a natural gas exporter."

As a result of changes to the addendum, Bolivia’s combined petroleum revenues are forecast to exceed $2.6bn in 2019 as the adjustments will add as much as $500mn to revenues, Sanchez said. While no official data is available for 2018, Bolivia’s combined petroleum revenues in 2017 reached $1.9bn, almost the same as $1.8bn in 2016, but down from peaks of $5.5bn in 2013 and 2014, before the oil price crash.

Bolivia can produce around 45mn m3/day, enough to fully cover demand in the domestic market and capture clients, says Rios. 

Gas industrialization

Bolivia has made a qualitative leap of sorts in terms of gas value aggregation and industrialisation through activities at its ammonia-urea plant in Cochabamba department and its liquids separation plants in Santa Cruz and Tarija departments. 

Additionally, efforts in Bolivia continue to expand gas demand, including gas as a vehicle fuel and adding more houses and businesses to the grid. This frees up additional LPG supplies for export.

The state’s Bulo Bulo ammonia-urea plant is the first 100% petrochemical project in Bolivia to start commercial operations and its completion represents a turning point in Bolivia’s history, ushering in a new industry. The plant is expected to have a multiplier effect across Bolivia and trigger development of other industrial capacities. 

It uses 1.4mn m3/day of gas and can produce 1,200 metric tons/day of ammonia, used to produce 2,100 mt/day of granulated urea. Production from the plant will meet demand from Bolivia’s agro-sector, according to YPFB. The remaining 80% to 90% will be sold to Brazil, Argentina, Uruguay, Paraguay and Peru and sales are expected to yield nearly $300mn/year of revenues which will go directly to Bolivia’s general treasury, according to YPFB.

Bolivia has two liquids separation plants designed to cover its LPG demand. Any that is left over will be exported. Other hydrocarbon products will also be exported, such as gasoline and stabilised gasoline, according to Bolivia’s national hydrocarbon agency, as well as isopentane which is used in geothermal power production to drive turbines.

The Rio Grande plant in Santa Cruz department can produce 361 mt/day of LPG; 540 b/day of gasoline; and 195 b/day of isopentane, while the Carlos Villegas Quiroga plant in Tarija department can produce 2,247 mt/day of LPG; 1,044 b/day of stabilised gasoline; and 1,658 b/day of isopentane.

Between 2013 and 2016, YPFB registered LPG export revenues of $87.3mn from sales to neighbouring Paraguay, Peru and Uruguay. The company expects expansion into the bigger Brazilian and Argentine markets will generate additional foreign revenues. 

Yet, those plans could come under competition from Bolivia’s two largest and primary gas export clients: Brazil and Argentina.

Wood Mackenzie analyst Mauro Chavez told NGW:“What could derail the strategy, is the increased supply of LPG in Argentina and Brazil, by Vaca Muerta gas produced in the condensate-liquid windows, and pre-salt rich associated gas production. These two countries could also aim exports to countries like Paraguay, Uruguay or Peru.” 

Gas first

Gas demand in the domestic market continues to ramp up. Under the policy “gas first for Bolivians,” the government has prioritised domestic gas supply by building pipelines as gas replaces LPG.

As of June 2017, there were about 744,764 households on mains gas. And between 2017-2021, about 470,000 new connections are planned, according to YPFB. 

As a result of this, and greater use of gas as vehicle fuel, Bolivia uses now between 13mn m3/day and 14mn m3/day, compared with 12.9mn m3/day in 2016 and 9.2mn m3/day in 2012.

The future

While economic issues cannot be ruled out in either Brazil or Argentina, there is also the real issue of competing LNG from the US now reaching the continent.

Besides exploration, Bolivia has to focus on end-markets other than Brazil and Argentina and potentially on markets where its gas is only accessible as LNG, according to analysts.

Peru, on South America’s Atlantic coast, could be a large export market for Bolivia. 

“Bolivia could successfully export its gas to Peru to fulfill domestic demand there and specially in the southern provinces of Peru like Tacna, Moquegua, Puno and Arequipa as there is a significant potential demand there not covered due to the delays of construction of the Peruvian Southern Gas Pipeline,” said Wood Mackenzie’s Chavez.

Another option on the table includes export of Bolivia’s gas to Peru for export as LNG. It’s a long shot but being discussed. In order for LNG to become a factor, Bolivia would need a train with capacity of 25mn m3/day of gas, said Bolivia’s hydrocarbon minister Sanchez.

Another LNG export option for Bolivia also exists in Argentina.

“Surely with Bolivia’s gas volumes plus those from Argentina we could develop a partnership at some point and invest in building liquefaction plants, maybe someday YPFB would have the possibility of exporting its gas overseas,” Sanchez said.