WoodMac: Bolivian gas lags pipeline demand

Bolivia's proven plus probable reserves as of Jan. 1, 1997 [138,961 bytes]

Although a new gas pipeline from Bolivia to Brazil is due to deliver first gas early in 1999, Bolivia does not have sufficient gas reserves to meet expected demand in Brazil.

This is the view of Wood Mackenzie Consultants Ltd., Edinburgh, which says the Bolivia-Brazil pipeline project has a reserves shortfall of 2.3 tcf of gas.

"This leaves the door open," said Wood Mackenzie, "for E&P companies active in Bolivia to pursue aggressively exploration opportunities to supply the shortfall. In addition, there is potential for Argentine producers to supply the shortfall if Bolivian discoveries are not made or not monetized quickly enough."

Pipeline

In August 1997, work began on building a 3,100-km, 32-in. pipeline from Rio Grande in Bolivia to Sao Paulo and along the Brazilian coast to Porto Alegre (OGJ, Aug. 4, 1997, p. 26). The $1.9 billion project is being financed in two sections, with construction of the Bolivian section set for completion by Dec. 15, 1998, and completion of the entire line by March 1999.

Interest holders in the Bolivian section are: Transredes 51%, Enron Corp. 17%, Shell International Gas Ltd. 17%, Petroleo Brasileiro SA (Petrobras) 9%, and BTB 6%. Transredes comprises Enron 25%, Shell 25%, Bolivian Pension Fund 34%, and employees 16%. BTB is equally owned by BG plc, El Paso Natural Gas Co., and BHP Petroleum Pty. Ltd.

The Brazilian section of the pipeline is owned by: Petrobras 51%, BTB 25%, Transredes 12%, Enron 4%, Shell 4%, and Gaspart 4%.

Gas Trans Boliviana SA is the new name for the group operating the Bolivian side of the pipeline, said Wood Mackenzie, and is effectively controlled by the Shell/Enron combine.

The new name for the group operating the Brazilian side of the project is Transportadora Brazileira Gasoduto Bolivia-Brazil; it owns just under 80% of the total project.

Demand hike

Brazilian gas demand was intended to be fulfilled in three increments, or "blocks," through the 24-30 million cu m/day pipeline: supply of 16 million cu m/day to Petrobras, to be achieved within 8 years; a further 6 million cu m/day to Petrobras later; and capacity for additional supply, to be "open access."

"As a result of increasing gas demand by Petrobras," said Wood Mackenzie, "an alteration in the initial contracted volume is being negotiated, increasing to 18 million cu m/day in the first 8 years.

"Petrobras is currently requesting that throughput should be increased to 30 million cu m/day by 2003. It is currently expected that the new requirement will be met and a new contract for this amount will be signed by mid-1998."

Bolivian state firm Yacimentos Petroliferos Fiscales Bolivianos (YPFB) is expected to require some time to have gas reserves estimates re-evaluated, said the analyst.

"Petrobras is aware of the potential gas supply problems," said Wood Mackenzie. "It has included a clause in the gas supply agreement, stating that Petrobras has first refusal for any additional gas Bolivia is able to supply, having first met the requirements for the first block."

Petrobras has also allowed for access to the Bolivia-Brazil pipeline by third-party suppliers, so that producing regions, such as Argentina's Noroeste basin, can meet any shortfall in supply.

Reserves/production

From the conception of the Bolivia-Brazil gas pipeline, there has been debate about whether Bolivia has the required gas reserves, said Wood Mackenzie. The analyst reckons Bolivia's remaining proven plus probable reserves, on blocks currently under license, amount to 4.9 tcf of gas and 194 million bbl of oil (see table).

Bolivia's domestic gas market is small, although growing strongly, so future production levels will be dictated by exports. Domestic demand rose from 59 MMcfd in 1993 to 90 MMcfd in 1996.

"Bolivia will need to increase current reservesellipseif the country is to fulfill new Brazilian demand," said Wood Mackenzie.

"All companies currently active in Bolivia and new entrants from the 1997 exploration licensing round are actively seeking to increase reserves of gas to supply the Bolivia-Brazil pipeline. It is estimated that, to supply the Bolivia-Brazil pipeline for the term of a 20-year contract from the initial supply date, reaching 30 million cu m/d in 2003, Bolivia would require gas reserves of 7.2 tcf.

"We estimate that additional gas will be required from 2003 onwards. This gas will have to come from either undiscovered reserves in Bolivia or from the Noroeste basin of Argentina, where the major players are currently Pluspetrol, Tecpetrol, and (Argentine state firm) YPF."

Returns

While there is a gas demand shortfall expected in Bolivia, Wood Mackenzie reckons Bolivia's gas producers will have-at best-marginal returns for supplying the Brazilian market.

The analyst says the gas price at the gathering station at Rio Grande will be $1.31/MMBTU when deliveries begin in 1999. Pipeline tariffs from Rio Grande to Sao Paulo are expected to amount to $1.60/MMBTU.

"Short-term margins are expected to remain low," said Wood Mackenzie. "Major players such as Shell/Enron have invested heavily to enter into the Bolivia-Brazil gas chain because of the envisaged long-term strategic value of the assets.

"These companies are willing to take the current low margins in order to reap the long-term benefits. The Brazilian market is the fastest growing market for gas in Latin America. Government controls are currently regulating the gas price in Brazil as a method to ensure rapid gas penetration of the energy market."