GAZPROM MAKES INROADS INTO SOUTH AMERICA

On March 17 Gazprom International Business Department head Stanislav Tsygankov signed an agreement on natural gas exploration in Bolivia with Santos Ramirez, president of the Bolivian state-owned petroleum company Yacimientos Petroliferos Fiscales Bolivianos (YPFB) in the presence of Bolivian President Evo Morales (Bolivian Information Agency, March 17).

The new agreement builds on a February 2007 Memorandum of Understanding signed between Gazprom and YPFB. The MoU discussed broadly expanding cooperation between YPFB and Gazprom in Bolivia’s hydrocarbon exploration and development sector, envisaging possible joint infrastructure projects including pipelines, LNG production, as well as having Gazprom train oil- and gas-sector specialists. Morales commented, “Bolivia needs partners and within that partnership we will be responsible with companies that invest, guaranteeing the right to recover their investment and profit” (Noticias, www.poderciudadano.org.pe, March 19).

Under terms of the MoU, Gazprom must carry out its exploration work by the end of 2009. The MoU stipulates that YPFB will hold a majority stake in the field and retains the exclusive right to participate on behalf of the state in oil and gas projects and to sell hydrocarbons inside and outside the country.

Gazprom selected prime real estate for its efforts; namely three blocks (Sunchal, Acero, and Carohuaicho) in southeastern Bolivia. In a move akin to J.P. Morgan snapping up Bear Stearns financial services at fire-sale prices, Gazprom has inserted itself squarely into Latin America’s third-largest potential producer of natural gas after Venezuela and Trinidad and Tobago.

Tsygankov was in no doubt as to the value of Gazprom’s initiative, telling journalists, “Bolivia is the leader of the continent in registered commercial gas reserves, which is the reason why I am sure that we are going to be able jointly to accomplish a great deal in Bolivia” (APG Noticias, March 18). While the MoU does not put a price on the concession, according to YPFB spokesman Victor Hugo Chavez, Gazprom’s initial investment will be $250,000, but Gazprom’s collateral investments could run as high as $2 billion over the next couple of years.

Analysts estimate that 235,00 square miles of Bolivia’s 422,233 square miles of territory are potentially rich in oil and natural gas, with estimates of the country’s potential reserves reaching 1.5 trillion cubic meters. The block concessions leased by Gazprom in the Subandino Sur include the plains of the Benian Chaco, which are estimated to contain up to 300 billion cubic meters of natural gas. Bolivia’s major gas reserves are located in four large southeastern fields: Margarita, San Alberto, Sabalo, and Itau.

The reality is that Bolivian government policy over the last two years has severely damaged foreign investment in the country’s energy sector, and Morales’ government is desperate for success. On May 1, 2006, Morales signed a decree stating that all gas reserves were to be nationalized, adding that nationalization would not include expropriation. Although under the terms of the decree YPFB would pay foreign companies for their services, offering about 50% of the value of production, the decree indicated that companies at the country’s two largest gas fields would get just 18%. While complete details of the new contracts have not been released, apparently the government’s share of revenues from the country’s two major fields rose from 60% to 82%.

The decree ignited a fury in Bolivia’s gas-rich prosperous eastern regions, which last December saw Santa Cruz, Tarija, Beni, and Pando declare autonomy, as they moved to achieve full independence from La Paz.

While visiting Bolivia Tsygankov and the Gazprom delegation discussed regional cooperation with Repsol, and Tecpetrol Guaracachi, firms already operating in several South American countries (EFE, March 18). The discussions merely underlined the fact that Bolivia, which exports the majority of its natural gas production to its neighbors, is struggling to meet its obligations. Brazil currently receives 1.1 billion cubic feet of gas per day out of Bolivia’s daily 1.4 billion cubic feet of natural gas production – half its natural gas imports – while Argentina, which has a contract stipulating delivery of 271 million cubic feet per day, is currently receiving around 105 million mcf (Telam, March 17).

Gazprom’s operations in Bolivia will face a novel feature for the Russian company – competition. Foreign players currently operating in Bolivia’s natural gas industry include Spain’s Repsol, Petrobras, British Gas, and Pan-American Energy.

Petrobras, which controls 14% of Bolivia’s gas reserves, is meeting the challenge, announcing on March 19 it will invest an additional $123 million in the Bolivian hydrocarbon sector this year under its existing agreements with YPFB. According to YPFB president Santos Ramirez, Bolivia will need annual foreign investments at nearly $1 billion over the next five years to increase its natural gas production to be able to meet both internal demand and its commitments to Argentina, Chile, and Brazil (Prensa Latina, March 19).

The Gazprom-YPFB MoU is thus more a marriage of convenience rather than a harbinger of the Russian gas giant dominating Latin America’s energy production. Bolivia, which needs to quickly increase production to meet its obligations, had assumed that record-high prices combined with the tight energy market would attract foreign investment, but failed to take into account international reluctance following the government’s 2006 actions. Adding to the anxieties in La Paz, promised support from Venezuela and Iran failed to materialize. Gazprom, with its deep fiscal pockets, is a convenient, if temporary, solution.

As Gazprom executives celebrate their recent victory in America’s back yard, they would do well to recall what Morales said in May 2006: “The looting by the foreign companies has ended.”