Neighbors Challenge Energy Aims in Bolivia
January 9, 2010 - New York Times (AP)

By SIMON ROMERO and ANDRÉS SCHIPANI

LA PAZ, Bolivia -- President Evo Morales's leftist government, which has asserted greater control over some of South America's most coveted natural gas reserves, is facing a challenge as neighboring countries move to achieve energy security by cutting their dependence on Bolivian gas supplies.


Map (at right): Bolivia has South America's second-largest gas reserve. Map: The New York Times

New gas projects in Brazil and Argentina have come on line at a time when Mr. Morales is winning plaudits for a strong economy. It grew 3.7 percent last year, enabling him to consolidate control over energy resources, including natural gas, South America's second-largest such reserve after Venezuela's, and huge lithium deposits.

But even as Mr. Morales has emerged as one of the region's strongest leaders, bolstered by a landslide re-election victory in December, concern is surfacing here over Bolivia's long-term financial underpinnings as its neighbors start importing gas from distant sources like Qatar, and not so distant ones, like Trinidad and Tobago.

(left) Mr. Morales greeted supporters during the takeover of a BP subsidiary last year. Photo: Martin Mejia/Associated Press

The reorganization of South America's energy relationships is being closely followed by countries trying to limit their reliance on energy-rich nations that are in political flux or that use their resources as a political lever, as Russia's state energy company has bullied former Soviet republics and Europe.

"The new projects in South America offer a striking example of how countries can cut their umbilical dependence on pipelines, said Carlos Alberto López, an energy secretary in a previous administration here. "We are awakening to the reality that our energy nationalism is shooting us in the foot.

The new gas-import ventures in Brazil and Argentina, as well as two in Chile, once a potential market for Bolivian gas, all use ship-borne imports, in which the fuel is cooled into liquefied natural gas for transport from exporting countries and reheated on delivery. This increasingly common transport method has provided substantial competition with pipelines in some markets.

Bolivia itself once had plans to export liquefied gas by sending it first to a Chilean port, from where it would be shipped north to Mexico or the United States. But the plan caused so much outrage -- driven in part by historical tensions with Chile and by resentment of the political elite here who had championed the project -- that it was a major factor in an uprising by Bolivia's indigenous population in 2003.

Mr. Morales, 50, helped lead those protests and announced the nationalization of the energy industry after he became president in 2006. He sent soldiers to occupy gas installations, raised royalties on foreign energy companies and bolstered nationalistic institutions like the navy, which patrols rivers and lakes, and pines for sea access in this landlocked country.

While these policies intensified fears in neighboring countries over Bolivia's ability and willingness to export its gas at certain prices, they hold wide appeal among Bolivia's voters, reflected in the election victory here last month of Mr. Morales, the country's first indigenous president.

"We've been ransacked for so long, said Domitila Mora, 46, a fruit seller in El Alto, the city of slums located above the capital, La Paz. "The nationalization gave us back our dignity, and now things are better. Brother Evo Morales is taking care of our natural resources for us.

The symbolism of his energy policies permeates El Alto's bleak cityscape in the form of state advertising.

One billboard paid for by YPFB, the national energy company, extols social spending made possible by higher royalties. "There is no development without nationalization, it says, showing Mr. Morales holding a schoolgirl in his arms.

Relatively sound economic stewardship, particularly compared with Venezuela, Bolivia's top ally, makes a sudden crisis over losing gas-export markets unlikely. Bolivia's growth last year contrasted with Venezuela's 2.9 percent economic contraction, as Venezuela struggled with high inflation and a dearth of private investment.

Brazil, the region's rising power, is also not eager to see Bolivia, a major producer of cocaine and still one of South America's poorest nations, lose its hard-won economic stability.

While trying to avoid confrontation with Mr. Morales, Brazil has reassured Bolivia that it will keep importing its gas, even as Petrobras, Brazil's national energy company, has cooled to large new investments here. And private Brazilian companies like HRT have made breaking dependence on Bolivian gas a central mission.

Meanwhile, cracks are already emerging in Bolivia's energy industry as the focus of international energy companies in South America shifts decidedly to Brazil, which is developing its own new discoveries of offshore oil and gas, and away from Bolivia and Venezuela.

Prices for Bolivia's gas fell sharply in 2009, with income from gas exports declining 39 percent to $2.1 billion, according to the Bolivian Hydrocarbons Chamber, an industry group.

As foreign companies slow investments here, drilling for new fields is almost at a standstill, Bolivian energy consultants said.

YPFB, the national energy company, also faces a scandal involving a kickback scheme and the recent killing here of an energy executive who was carrying $450,000 in cash, events that Mr. Morales attributed to infiltration of the company by the Central Intelligence Agency.

But the liquefied gas projects in neighboring countries, including two in Brazil and one in Argentina, loom as a bigger challenge.

Two more liquid projects in Chile, which does not import Bolivian gas, would alter the region's energy dynamic further. Gas from those projects could also be shipped by pipeline to Argentina, a top Bolivian market.

For now, the possibility of Bolivian energy exports to Chile seems increasingly remote as Chile remains resistant to aspirations by Bolivia, reiterated here last month by Adm. José Luis Cabas, the commander of Bolivia's armed forces, to regain coastline from what is now Chilean territory.

"Evo's nationalization was an astute move politically in the short term, said Roger Tissot, a specialist in South American energy politics at Gas Energy, a Brazilian consulting firm, citing the increase in social spending made possible here by higher revenues. "But in the long term Bolivia is boxing itself in.

Miguel Yague, a senior energy official in Mr. Morales's government, said that Bolivia remained optimistic about maintaining exports to its neighbors and possibly establishing pipeline routes to Argentina, Paraguay and Uruguay. "Looking at Brazil, he said, "it is a market of almost limitless potential.

Still, Brazil is now drawing up plans of its own to tap its newly discovered gas reserves and build its own separate liquefied natural gas terminal to possibly export the fuel during months of low demand.

And Peru, Bolivia's northwestern neighbor, is preparing to export liquefied gas, potentially shipping to markets that could have been Bolivia's.

At the same time, Bolivia is focused on smaller projects like expanding a pipeline to Argentina. Fanfare followed a recent announcement by Repsol, the Spanish energy giant, that it would increase investments in Bolivia. But skepticism persists as to whether the move was similar to those by foreign companies in Venezuela, where they seek to keep a seat at the negotiating table in a country with large energy reserves but rarely follow through on talk of large projects.

"A decade ago Bolivia was preparing to be the energy nerve center of South America, said Gonzalo Chávez, an economist at this city's Catholic University. "Now a loop of energy-security projects is going up around us.