Highlights
– State-owned oil company announces plan for additional oil wells in 2009; government pledges development of new liquefied petroleum gas plants
– Declining investment and heavy domestic subsidies likely to limit energy sector growth
– Foreign investors likely to remain wary in mid-term, leading Bolivia to fail to address energy shortages in near-term despite capital investments
Bolivia’s energy minister has announced plans to develop two new liquefied petroleum gas plants in attempts to address recent failures in meeting contractual agreements with its two largest customers, neighbors Brazil and Argentina. Despite maintaining South America’s second-largest gas reserves after Venezuela, Bolivia’s recent waning foreign investment has resulted in current production sites failing to meet established output goals. While state-owned energy company Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) released plans on December 10 to drill additional wells in 2009 to help balance production quotas, many foreign investors remain wary of investing in Bolivia’s energy sector given President Evo Morales’ history of nationalization policies. Though the government has pledged to continue to allow foreign companies’ operations “as partners”, Bolivia will likely continue to face challenges recruiting new foreign investors in the near to mid-term. New infrastructure investments will likely boost production levels in the mid-term, but fail to ultimately meet full production capacity if ongoing sources of foreign investment are not established.
New Development Projects Announced
According to a December 10th statement on Bolivia’s Hydrocarbon and Energy Ministry’s website, YPFB intends to invest US$20 billion over the next decade to expand its natural gas production. In addition to drilling 50 to 60 new wells, the company plans to devote approximately US$1.8 billion per year through 2020 towards additional infrastructure development. Additionally, Bolivian Energy Minister Saul Avalos announced on December 12th that two new liquefied petroleum gas plants would be built in the eastern province of Santa Cruz. The new facilities intend to produce approximately 200 tons of liquefied petroleum per day, helping to turn Bolivia’s current gas deficit into a surplus. The country’s current domestic supply fell short by approximately 50 tons per day from May to August 2008, forcing the country to import to meet demand. Both YPFB’s and Minister Avalos’ announcement indicate the country maintains a long-term commitment to balancing its chronic energy shortages.
Failing Investment and Subsidies
The shortages in deliverables to Argentina and Brazil are primarily the result of insufficient investment in Bolivian gas fields; investment plummeted to US$149 million in 2007, during a period of record energy prices, from a 1999 peak of US$580 million. In 2006, Bolivian President Evo Morales’ nationalization of the energy sector drove off much of the foreign investment necessary to meet export obligations to large consumers like Brazil and Argentina.
Additionally, Bolivia continues to heavily subsidize domestic energy prices, leading some citizens to smuggle cooking gas and diesel fuel across state lines for resale in neighboring countries. President Morales recently took action against smuggling operations, demanding that any vehicle caught transporting fuel out of the country would be seized, and troops have been deployed throughout the country to patrol gas stations for potential smugglers. Additional seizures of illicit fuel shipments are expected to continue in the near to mid-term, as an increasing number of law enforcement members are assigned to monitor the situation.
Outlook
As gas supply contracts with Argentina and Brazil do not expire until 2027 and 2018, respectively, Bolivia will likely continue to explore opportunities to increase energy production in the mid to long-term. YPFB’s decision to invest in infrastructure will likely increase Bolivia’s oil output in the mid to long-term, as it will likely take months before the wells reach full operation. Outside investors will likely remain hesitant of pledging assistance in the near to mid-term, as President Morales intends to hold another constitutional referendum in January 2009, which if it passes would solidify state ownership of the nation’s mines and natural gas. Though the government promised to allow foreign companies rights to develop and operate the sites, uncertainty over ownership and profit-sharing will likely continue to dissuade potential investors in the near to mid-term. However, investors are unlikely to stay away from the lucrative energy market that exists in Bolivia, even should nationalization efforts continue.
