WILL BOLIVIA MAKE GOOD ON NATURAL GAS CONTRACTS?

 

Originally published in the Latin America Energy Advisor a publication of the Inter-American Dialogue 11/18/2016

Question:

Argentine state oil and gas company Enarsa has fined Bolivian state-owned oil company YPFB $2.1 million, saying it failed to export a contractually required amount of gas to Argentina in July, Platts reported Monday. Bolivian Vice President Álvaro García Linera said YPFB exported a lower amount so that it could meet domestic demand, and that the failure to make good on the contract was not due to a drop-in production. Will Bolivia pay the fine and be willing to incur others? Does the development diminish the country’s ability to attract foreign investment to its energy sector? Will Bolivia need to revisit similar contracts moving ahead?

Answer:

Mauricio Becerra de la Roca Donoso

Managing Partner at Becerra de la Roca Donoso & Asociados SRL (BDA Abogados)

The current average domestic demand of gas is 13,2 MMm3 per day and it is expected to grow 10 percent per year, easily reaching up to 20 MMm3 per day by year 2020. At the same time, the gas export contract with Argentina stipulates a delivery of 27.7 MMm3 per day until 2021, and the contract with Brazil about 31 MMm3 per day which ends in 2019. The current production of gas is estimated at about 60 MMm3 per day, which leaves a quite tight demand-supply balance and could give a deficit if Brazil and Argentina demand the maximum and at the same time.

The supply in the short term will depend on the entry of production of the Aquio field which will give another 6.5 MMm3 per day and with the speed with which gas in the fields of San Alberto and San Antonio decline.

In order to attract investment, Bolivia has enacted Law No. 767 on December 11th, 2015 with a series of incentives of up to 55 $us/Bbl to promote investment in exploration and exploitation of hydrocarbons. The Minister of Hydrocarbons mentioned that thanks to the incentives program many oil companies will invest close to 1000 million dollars in exploration and development of hydrocarbons. The main exploration projects are Boyuy (potential 4 TCFs) and Boicobo (1.13 TCFs), in the Caipependi area South of La Paz. The consortium formed by Repsol, PAE and Shell has recently signed an agreement with YPFB to extend the term of the contract for the Caipipendi area for up to 15 years (until 2046) and to invest a minimum of 500 million dollars in the next few years.

Moreover, YPFB and Petrobras have signed a contract for San Telmo and Astillero fields that announces an investment of 1200 million dollars with an estimated reserve of 4 TCFs to guarantee extending the gas sales contract with Brazil beyond 2019. In the gas fields in current production, it is highlighted the execution of Phase 2 and 3 of Aquio and Incahuasi by Total E&P with an estimated investment of 800 million dollars.

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