Analyst sees threats to Bolivian gas boom

Bolivia's upstream natural gas industry is poised on the threshold of a new and potentially bounteous era, but could lose its market lead to competitors.

This is the view of Wood Mackenzie Consultants Ltd., Edinburgh, which notes that construction of a pipeline to transport Bolivian gas to Brazil is almost complete, with first deliveries slated for Apr. 1.

Bolivia-Brazil pipeline role

"With the start up of the Bolivia-Brazil pipeline (BBPL)," said Wood Mackenzie, "Bolivia's gas producers will, in theory, have access to a seemingly limitless market, and the prospect of this has stimulated an unparalleled level of exploration and development activity in the country."

The analyst said the current position for Bolivia's gas producers in some ways mirrors the early 1970s, when a pipeline was built to export gas to Argentina.

Instead of the expected gas boom for Bolivian producers, however, gas was discovered in Argentina, and domestic production met most of the market's needs.

"The result," said Wood Mackenzie, "has been that demand has nowhere near kept up with Bolivia's supply capacity-domestic demand is very small-and over 2 decades of production quotas have been imposed on Bolivian producers.

The analyst thinks Bolivia already has enough production capacity to meet the requirements of Brazilian customers supplied through BBPL until about 2011. "During this period," said Wood Mackenzie, "producers will be competing for pipeline access, with most subject to quota restrictions. New discoveries will only exacerbate the situation. In this respect, the quotas that have dogged the industry will continue to be a feature."

The BBPL will have a throughput capacity of 1.06 bcfd of gas, "and this effectively puts a lid on future sales." Some forecasts predict the pipeline capacity will be fully taken up by 2004, while Wood Mackenzie believes this will not happen until 2010.

Second line needed?

The Bolivian government has already approved installing a loop to boost capacity of the BBPL system, but Wood Mackenzie reckons such planning is premature.

"The Bolivian reserves base," said the analyst, "while healthy in the medium term, does not yet warrant a second line, and it is very likely that, within the next 2-3 years, the first of several planned pipelines linking gas reserves in Argentina to markets in southern Brazil will materialize."

In addition to Argentina, other competition in Brazil for Bolivia's gas producers includes Peru's Camisea project, indigenous reserves in Brazil, and liquefied natural gas imports: "While Bolivia will steal the lead in supplying gas to southern Brazil, the market potential is such that it is unlikely to remain a monopoly supplier for long."

Bolivia's gas reserves were estimated at 6.12 tcf at the beginning of January 1999.

Brazilian demand

Brazilian state firm Petroleo Brasileiro SA (Petrobras) estimates Brazilian gas demand at 131 MMcfd in second quarter 1999, 155 MMcfd in the third quarter, and 222 MMcfd in the fourth quarter.

Petrobras has sole responsibility for marketing the gas and has made no volume commitments beyond this year, but it has requested that Bolivia's producers make 364 MMcfd of gas available as of 2000.

Wood Mackenzie contends that the BBPL 20-year supply contract will ultimately require Bolivia to deliver 6.8 tcf of gas to Brazil, while Bolivia's domestic demand over the period is expected to amount to 1.4 tcf.

"Based on the current 6.1 tcf reserve base," said Wood Mackenzie, "we estimate that Bolivia already has the capacity to fulfill our projections of both BBPL and domestic demand until 2011. Only after 2011 will a supply gap open, although this is likely to continue to be put back as new discoveries are made.

"We regard exploration potential in Bolivia to be excellent and, given the high level of exploration activity that has been committed to over the next few years-both by existing players in Bolivia and some more recent entrants-we expect significant new discoveries to be made."

Argentine competition

Argentina is viewed as Bolivia's greatest potential competitor for gas supplies to Brazil.

Argentina's reserves are estimated at 35 tcf of gas, but more than 32 tcf of gas is expected to be required to meet domestic demand and exports to Chile over the next 20 years.

"This leaves, at most, 3 tcf of excess reserves with which to supply Brazil," said Wood Mackenzie, "half that of Bolivia and too little to justify significant exports to Brazil.

"New reserves of gas are thus needed in Argentina, and exploration activity is continuing apace, notably in the country's Noroeste basin, a southern extension of Bolivia's producing basin. As in Bolivia, expectations are high for further significant gas discoveries."