September 23, 2007

Bolivia Has a Shortage of Natural Gas

MABB © ®

If you follow Bolivian affairs you'll get a kick out of this photo. In it you can see arch rivals and now best friends Evo Morales and Ruben Costas, Santa Cruz Prefect. The photo was taken during Morales' visit to Santa Cruz, where the biggest industrial fair has started this weekend, ExpoCruz 2007.

While the Santa Cruz economy seems to be sailing with good wind, the rest of the country is experiencing troublesome trends. For example, the most important natural resource for Bolivia today is natural gas. As you probably already know, the government recently nationalized it and the current government is planning to use it to develop the Bolivian economy. However, in the last months Bolivia has been suffering a shortage of natural gas. Of course, people asked themselves (perplexed, because Bolivia was said to have the second biggest natural gas reserve of the region) how is that possible? Some were quick to point out to the demand from Brazil and Argentina, to whom Bolivia exports natural gas. In fact, these two countries have been asking Bolivia to increase its production, because they need more gas.

But, now there seems to be another culprit. It seems that internal demand is also increasing. The talk is not only about the traditional household demand, but also of industry and cars. Especially affected are the industries in the city of El Alto and La Paz. Also, the amount of cars using natural gas as fuel is increasing. This last point is the one I find interesting. Below you can see an nice graph outlining the increase of cars that use natural gas and the corresponding increase of the demand for natural gas.

After my last visit, I am not surprised that La Paz is running behind this trend. Apparently, Cochabamba is leading and Santa Cruz is behind.

The lack of natural gas has an important effect on the rise of prices. Many 'first necessity' products such as bread are affected by this situation. Inflation is expected to hit double digits for this year.

To that, another worrisome news is the down trend of the trade surplus. This year is gone down 13%, as reported by La Razón. That means Bolivians are selling less to the rest of the world. I am afraid some link exists between natural gas shortage and export decrease. The impact is not good on the Bolivian economy.

From here on it doesn't look as the Bolivian economy is in trouble for now, but some red lights are definitely there.


Frank_IBC said...

The results of the "Gas War" make those of the "Water War" seem like the first Gulf War.

Anonymous said...

Gas, gasoline, and diesel have been subsidized pretty heavily in Bolivia. You would expect shortages to result, as more is diverted to exports (some by smuggling). Recall also that the furor against Carlos Mesa and the January 2005 cabildo in Santa Cruz were driven by Mesa's attempt to reduce subsidies.


The distribution system has problems as well. Tarija had been suffering from gas shortages for what seemed like a long time.


galloglass said...

Isn't this like Saudi Arabia running out of sand? What kind of capacity do they have? Are they building more plants?

Jesse Heath said...

I thought that the 'nationalization' was in name only, and that the government was in reality just renegotiating the contracts with foreign corporations. Are these negotiations ongoing and therefore production has dropped? Is it really all demand? And what about in March when there was, literally, no gas in La Paz? Is it related?

miguel (mabb) said...

You are right, subsidies have had an impact. I forgot about that.

Not so much distribution but quotas implemented by the government. Some producers cannot sell more than what the government says. Additionally, in some refineries the lack of production capacity also plays a factor.

And, no they are not building more plants. More are planned, yes.

Nationalization, the transfer of ownership of natural gas resources to the government, has been implemented already by Mesa. Morales has made the symbolic take over and has raised the government's take to more than 50%.

The contract re-negotiations are still ongoing and, yes, they've had an impact in supply. But, not as much as demand, I think.

Anonymous said...

The Houston Chronicle reports that Bolivian internal demand for gas is increasing 12% per year.

By the way, I disagree with the article. They present the gas supply problem as Bolivia's problem. But Bolivia will continue to collect lots of money on what it can export to Argentina and Brazil. In the longer run, Argentina, Chile, and Brazil (though Brazil is less vulnerable) have much to lose from failure to develop a fairly cheap, easy source of energy.

It might be that these countries will find better deals than Bolivian gas somewhere else. I don't see that happening soon.


miguel (mabb) said...

Brazil has a lot to loose. It is pretty much dependent on Bolivian gas for its southern region. That is one reason why Lula is investing on Chavez's South American pipe line. The crazy idea of building a pipe line from Venezuela to Southern Brazil (even to Argentina). Brazil does not want to remain dependent of Bolivian natural gas. Who'd want to.

Also, gas for Argentina and Brazil was fairly cheap (at special relationship prices). However, with Morales it has become more expensive.

And you are right, it will be pretty much difficult to find other sources of natural gas in that region. Unless, Camisea in Peru turns into a major supplier soon, which I don't expect.