One step forward, two back for Bolivia’s gas [NGW Magazine]

Bolivia is one of the more important natural gas producing countries in Latin America with 10.7 trillion ft³ of gas reserves. As well as supplying its own market, it exports to Argentina and Brazil.

And the South American nation might have hopes for better days for natural gas supply as it has the chance to overcome the problems related to its gas output decline. But attracting investors is not easy and decline has set in.

Output peaked at 20.3bn m³ in 2014 and fell to 15.0bn m³ in 2020, the same level it was at in 2011.

In December 2020, the president, Luis Acre, who took office last October, announced a relatively large natural gas field discovery. According to the Bolivian state-owned oil and gas company YPFB, the discovery of a gas field in the Caipipendi block may add roughly 1 trillion ft³ to the nation's total gas production.

The Boicobo Sur–X1 reservoir, in the Caipipendi field of the southern department of Chuquisaca, is operated by the Spanish company Repsol with Anglo-Dutch major Shell and Pan American Energy. This company is still split 60-40 between UK BP and Argentina’s Bridas after BP failed to sell its stake to raise money in the wake of the Gulf of Mexico Macondo oil disaster.

The drilling of a well began in October 2019 at a cost of $74mn and went down more than 5,000 metres.

Another foreign investor in Bolivia is Russian Gazprom, although it did not give NGW many details of its activities there, beyond confirming they were in “line with the plan”. It signed an agreement with YPFB on strategic co-operation in 2018 which it said is still valid. It told NGW that it was producing gas and condensate in the Ipati and Aquio fields and carrying out geological research on the Azero block, for YPFB.

According to Yanna Frade, an energy expert at Rio de Janeiro Federal University, the discovery might attract international investments, reversing a trend of low interest by investors because of political and economic uncertainty over the past years. Yet she warns that Bolivia will have to move fast in a world where debates over the energy transition process are gaining momentum and fossil fuel investments are as a result slowing down.

"Since the last energy reform in 2006, Bolivian fiscal terms have not been attractive for new gas exploration activities. Therefore, investments in upstream operations have lagged behind the growth in production," Frade said.

The consultant explains that Bolivian production capacity has steadily decreased since 2014 as some large fields have declined in production, such as the San Alberto field. The discovery might increase national gas production but it is more likely that the new field will only offset the declining gas output of older fields.

“It is important to analyse the discovery with caution before stating that it could radically change the landscape in the Bolivian gas market,” Frade told NGW. 

She added that the rate of reserve depletion has been higher than new reserves addition. "Aware of this issue, since 2015, the Bolivian government implemented several policies to attract investors and increase investment in exploration, but it has not had any significant results in improving reserves so far."

In late January, Wilson Zelaya, the head of national oil company YPFB, announced an investment plan of $756mn for the year, with the challenge of increasing reserves of both natural gas and oil.

Zelaya stated that raising gas output needs a new exploratory policy, focusing on increasing production and satisfying domestic demand and foreign markets.

“The discovery was related to resources found in an exploration well. This is a good sign, but there are some doubts about technical and economic feasibility. Besides, even if there is great potential, it might take years to start producing the gas,” the expert said.

Brazil and Argentina

South America’s regional gas market has been changing fast. The new administration needs to create new strategies to monetise the country’s natural gas output. Establishing a relationship between Brazil and Argentina is crucial for Bolivian financial health. Yet, Bolivia can take advantage of some problems that Brazil and Argentina are experiencing in their domestic natural gas production. However, Bolivia must overcome its lack of infrastructure to compete against LNG produced in Asia and Africa.

The Brazilian gas market, for instance, is still dependent on imports, despite its giant gas reserves found in the pre-salt. This situation happens because Brazil does not have infrastructure and logistics to offload gas from the pre-salt to the coast, according to the energy ministry.

However, Bolivia is exporting less gas to Brazil because of its infrastructure hurdles and low gas output, while Brazil’s imports of LNG are going up thanks to its lower price.

From January to October 2020, Brazil imported $825.4mn-worth of natural gas from Bolivia. This is 10.9% less than the $926.8mn imported in the same period of 2019, according to the Brazilian department of foreign trade. On the other hand, Petrobras is working for a 50% capacity expansion at its Rio de Janeiro liquefied natural gas (LNG) import terminal to 30mn m³/day, the company said in an official statement released in September 2020.

Argentina, which is the biggest customer for Bolivia’s gas, is also trying to enhance domestic supply, in its case from the giant Vaca Muerta shale basin, in order to reduce its import dependency. Yet the Vaca Muerta plan has not achieved this goal as investments have slowed. This situation might lead Argentina to increase gas imports both from Bolivia and from other countries as LNG, mainly during the winter season when gas imports grow to meet local demand.

As local supply decreases, Argentina might increase its natural gas imports. In 2020, Argentina's gas trade balance had a deficit of about $900mn in 2020, some of which is due to gas imports.

Frade points out that Bolivia needs to grant flexibility and design strategic plans to the Argentinian domestic market in order to compete against LNG.

“Bolivia has the upside of having low production cost compared to Vaca Muerta and the Brazilian pre-salt, the main challenge is also to be more competitive in the other commercial terms. The non-associated Bolivian gas could be a source of flexibility for the regional market, Bolivia needs to take advantage of this opportunity,” Frade concluded.