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  Geotimes - May 2008 - Winter of discontent

Winter of discontent

As the Southern Hemisphere prepares for the onset of winter, tight natural gas supplies are straining diplomatic relations in South America. Brazil and Argentina rely on Bolivia’s natural gas to keep their economies humming. But lower than expected production has forced Bolivia to cut exports, leaving its neighbors scrambling to secure enough gas to heat their houses.

Bolivia boasts the second largest reserves of natural gas in South America, but recent political instability has made foreign investors leery of financing expansion of the country’s oil and gas industry. In 2006, Bolivia’s leftist government seized control of oil and gas fields, a move that alienated foreign investors and stunted the industry’s growth.

The region’s hunger for gas, however, may be strong enough to overshadow any lingering bitterness. In November 2007, Brazilian oil producer Petróleo Brasileiro S.A. — which suspended investment in Bolivia after nationalization — announced it would again begin to explore the possibility of major new investments. Brazil, which began importing Bolivian gas in 1999, is now the primary consumer, importing between 27 million and 30 million cubic meters per day — about half of the natural gas Brazil consumes and more than two-thirds of Bolivia’s output. Other investors appear to be reconsidering as well: According to Bolivian newspaper La Razón, foreign oil and gas companies have promised to invest more than $900 million in 2008. But that money, and the increased gas production officials hope it will bring, won’t come in time to stave off shortages this winter.

So far, Bolivia has been able to meet domestic demand and keep enough gas flowing to Brazil to fulfill its obligations. But it has failed to meet the quotas outlined in the optimistic contract it signed with Argentina in 2006. Bolivia sends roughly 3 million cubic meters of natural gas to Argentina each day — less than half of the 7.7 million it promised in 2006. If Argentina can’t find a way to make up the difference, the country could face an energy crisis when demand peaks this winter. Last winter, gas shortages temporarily idled Argentina’s fleet of natural-gas powered taxis and forced chemical factories to close.

The leaders of all three countries met in February to discuss the situation, but no immediate solution emerged. Bolivian President Evo Morales and Argentinean President Cristina Fernández de Kirchner asked Brazil to cede some of its Bolivian gas to Argentina, at least until spring, but Brazil refused. According to Sergio Gabrielli, head of Petróleo Brasileiro, the country cannot spare “a single molecule.”

Cassandra Willyard

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