BOLIVIA-BRAZIL GAS PIPELINE ABOUT TO TAKE OFF; SEEN AS LITMUS TEST FOR SOUTHERN CONE GAS GRID
After more than 4 decades of studies, plans, and shelved projects, the proposed Bolivia-Brazil gas pipeline (20878 bytes) is finally about to get off the ground. The 3,700 km gas pipeline (Fig. 1)(170919 bytes) will require an investment of at least $2 billion and is viewed by many as a litmus test for the developing gas market and energy integration of South America's Southern Cone countries.
Overall, industry officials see eventual emergence of two large integrated gas grids serving South America: one for the northern countries and another for the Southern Cone. This will enable the six countries with gas surplus to their needs to export the surplus to neighboring, gas-short countries. The northern gas-long countries are Venezuela, Colombia, and Trinidad and Tobago; those in the Southern Cone are Argentina, Bolivia, and Peru.
In order to develop, market, and transport South America's vast untapped gas reserves, industry officials estimate an investment of about $35 billion will be needed in the region's natural gas chain, from wellhead to burnertip.
AUGUST TENDER
Antonio Luis de Menezes, head of Petroleos Brasileiro SA's (Petrobras) Bolivian project, told OGJ an international tender will begin in August, split into three parts: supply and transportation of pipe, pipelaying, and supply of other materials.
The administration and distribution of imported gas will be under the responsibility of Petrobras subsidiary Intergas - 49% of whose capital will be open to subscription by private Brazilian and international companies.
The project management committee has six representatives with one vote each: the Bolivian government, Yacimientos Petroliferos Fiscales Bolivianos (YPFB), Enron Corp., the Brazilian government, Petrobras, and the BTB group of British Gas plc, Tenneco Gas, and BHP Petroleum Pty. Ltd.
Under a contract signed in February 1993 between Petrobras and YPFB, Bolivia will supply 3.7 tcf of gas for 20 years beginning in 1996.
FINANCIAL DETAILS
Menezes noted that financial details of the project, including negotiations to establish direct participation by domestic and foreign companies, have been hammered out.
Up until last year, the World Bank was opposed to Petrobras taking a 51% stake in the project on the Brazilian side. However, Brazil's lower house of congress voted overwhelmingly in June to do away with Petrobras monopoly (OGJ, June 19, p. 30), and the senate is expected to follow suit in August when congress returns from recess. So it is possible that Petrobras will reduce its stake in the Brazilian side of the project as demonopolization would enable foreign companies to make direct investments in upstream activities and natural gas transportation in Brazil.
Petrobras says it is willing to turn over 10-15% of its share in the project, seeking to keep at least 25%. According to Menezes, the World Bank and the Inter-American Development Bank have committed to $700-800 million in loans for the project.
Brazil will account 35% of project financing through participation of Brazil's National Development Bank, Corp. Andina de Fomento, and Eximbank as partners accounting for $500 million. With Brazil accounting for 80% of the project equity, investors on that side currently break out as Petrobras 51 %, YPFB and Enron 20%, and BTB group 25%. The remaining 4% will be distributed to as yet undetermined Brazilian investors. As for the 20% of the project e i held on the Bolivian side, YPFB will hold 85%, with Petrobras currently holding 15% that it probably will split with BTB.
Menezes said with an expected annual rate of return of about 18.5%, capital investment in the pipeline likely will yield lower profit than from crude oil exploration and production.
PROJECT DETAILS
YPFB Pres. Arturo Castanos said that as a result of the recent meeting of the Bolivia/Brazil pipeline management committee, the general pipeline diameter has now been set at 32 in. The pipeline committee was attended by Castanos and representatives of Petrobras, Enron, BTB.
Castanos further confirmed the pipeline will be extended beyond Sao Paolo to the south of Brazil as far as Porto Allegre. The management committee is now in the process of setting up working groups to analyze construction costs of the pipeline and carry out environmental impact studies. The next meeting of the committee was scheduled for July 19 in Santa Cruz, Bolivia, just ahead of this report's presstime.
This decision increases the pipeline's diameter from its previous 28 in. and greatly improves the chances that an increased volume of gas exports from Bolivia will now be agreed to in the medium term and thereby enhances Bolivia's capacity to transport gas from neighboring countries to the Brazilian market.
Increased volumes would also mean a decrease in the unit cost of gas transportation, opening the way for Bolivia to argue for a higher wellhead price for its gas than 90/Mcf.
PIPELINE CONSTRUCTION
Castanos now believes the project will be ready for public tendering for construction of the 3,415 km. pipeline in August.
The first phase has been penciled in to commence on Aug. 17 to coincide with the possible signing of the contract between the two countries the same day, although Castanos emphasized that a specific timetable for the work has not been formulated.
Further confirmation that public invitations to supply equipment will begin in August came in a press statement by Petrobras' Menezes.
If everything goes according to plan, then construction could start in March 1996 with gas being delivered to Sao Paulo in 1998 and to Porto Allegre a year later.
Work is under way on the terms of reference and specifications to allow construction contracts to go to public bidding. A full evaluation of project costs should be ready in time for the Aug. 17 contract signing between Presidents Itamar Franco of Brazil and Gonzalo Sanchez de Lozada of Bolivia. The meeting is to finally agree and ratify the addendum negotiated a year ago, which was tacked on to the original gas sales contract agreed between the two countries. The addendum reopened the possibility of negotiating an increased volume of gas sales as well as an increased price for the gas.
The two presidents will have to agree on the final details of the scheme on Aug. 17, and it is likely that a final announcement on gas price and export volumes will be left until then. A surprise visit to Bolivia was made by the Brazilian energy secretary for the state of Sao Paulo, David Zylbersztajn, to meet with Gonzalo Sanchez de Lozada on June 28. The impromptu meeting has paved the way for a pre-meeting between the two presidents, scheduled for the end of July. The pre-meeting is to be used to iron out the outstanding details in time for the mid-August contract signing.
PETROBRAS STRATEGY
It is widely acknowledged that Petrobras has little experience in operating and managing major natural gas transmission and distribution networks, hence its willingness to let other companies take a major role in developing the pipeline project. Not only does Petrobras have limited resources, its priority has always been oil production.
Another reason for delays in scheduling the tender for pipeline construction is that Petrobras wanted to certify Bolivia's natural gas reserves (Fig. 2)(60212 bytes). A U.S. consultant verified reserves a little lower than the volume committed to Brazil, but Menezes would not disclose that figure.
"As for the gas we are buying from Bolivia, we consider that our natural gas market will reach up to 665 MMcfd in the next 20 years," he said. "But the potential Brazilian market is for 1.4 bcfd."
It is expected that 282 MMcfd of gas will move to Brazil by 1998 from the Santa Cruz de la Sierra area in Central Bolivia. In order to reach Brazil's main gas consuming markets in the south and southeast, this gas will have to be transported 3,400 km.
The southern regions of Brazil, around Sao Paulo, account for 82% of the country's industrial production and in turn consume 75% of Brazil's total energy supply. Sometime between 2003 and 2016, when the current Bolivian gas supply contract ends, the demand for gas in that region is expected to double (Fig. 3)(79400 bytes).
During the next 2 decades, Brazil's energy mix will change dramatically as gas increases its market share to about 10% of total primary energy consumption from the current level of about 2% (Fig. 4)(60992 bytes).
Another hurdle that seems to have been overcome as a stumbling block for the project concerns complaints over gas prices. Bolivian officials wanted more than the agreed upon 90/Mcf Petrobras would pay for Bolivian gas at the wellhead. At the same time, officials of Sao Paulo gas distribution company Comgas wanted to pay less than the delivered city gate price of $2.70/MMBTU. Menezes said he expects this discussion to continue because of the natural tendency for sellers to seek a higher price for their commodity and buyers to seek a lower price.
PETROBRAS INTEGRATED PROJECT
Petrobras sees the Bolivia-Brazil pipeline as an integrated project for the company, encompassing exploration and production operations as well as transmission and distribution.
Petrobras is seeking to participate in E&P operations in Northwest Argentina, Bolivia, and Peru through subsidiary Braspetro in an effort to secure more foreign gas supplies to feed into Brazil's growing gas grid.
In Northwest Argentina, Braspetro acquired a 15% interest in the Aguarague Unit, an area that include Aguarague gas field and extensive acreage with prime exploratory potential. Aguarague's proved reserves are estimated at 1.6 tcf, and its production averages 106 MMcfd.
Braspetro and partners Ampolex Ltd., YPF SA, Techpetrol, Ledesma, and CGC are committed to drill exploratory wells on the Argentine acreage.
Braspetro and YPFB also are negotiating exploration contracts for two Bolivian blocks, designated San Alberto and San Antonio, located in the Sub-Andean basin near the border with Argentina. Although no seismic has ever been shot in this area, existing geological surveys together with subsurface data from the few deep wells drilled on the blocks and nearby indicate possibly huge gas reserves, speculated at potentially equal to half of Bolivia's current gas reserves.
In addition, Braspetro is continually evaluating areas and discussing exploration projects with oil and gas companies operating in Northwest Argentina, Bolivia, and Peru. Braspetro's strategy is to seek participation in E&P projects that meet its market requirements in terms of timing and volumes.
ARGENTINE PIPELINE PROJECTS
Braspetro's Argentine F&P venture is not just targeting gas for Brazil. In Petrobras' view, Argentina has Latin America's best developed gas market.
Following privatization of Argentina's energy sector, domestic demand for gas there is expected to grow 3.7%/year to almost 1 tcf in 2005. With proved reserves of more than 20 tcf, the country also is a potential exporter to Chile via the $1.65 billion trans-Andean trunk pipeline proposed by a group of British Gas, Tenneco, Chile's Empresa Nacional del Petroleo (ENAP), and Argentine companies or via a shorter line proposed by Canada's NOVA Corp. and Chilean companies.
The trans-Andean line is to be laid between the Argentine province of Neuquen and the Chilean cities of Concepcion and Valpariso. This project is scheduled to be completed in 1998. It competes with the GasAndes project, a 470 km pipeline extending from Mendoza, Argentina, to Santiago, Chile. The $879 million GasAndes project is expected to start up in 1997 and will transport 70 MMcfd of gas to Chile. Participants in this project are NOVA, Canada's Transalta, BHP, Duke Power, Lone Star, Sante Fe Energy, Monument Oil, Cia. General de Combustibles, Techint, and Chilean companies Chilgener, Gasco, Copec, Enagas, and Cia. General de Electricidad.
OTHER PIPELINE PROPOSALS
Several other Southern Cone gas pipeline projects have emerged recently.
One, involving YPFB, BHP, and ENAP, entails laying a 700 mile gas pipeline from Bolivia to Antofagasta in northern Chile.
Another possible pipeline to Brazil could entail supply of gas from Peru's supergiant Carmisea complex, currently slated for development (see related story, p. 51), Carmisea fields could supply Brazil with as much as 2.1 bcfd of gas. Petrobras could take Camisea gas via an exchange/transportation agreement with Bolivia through Bolivian gas lines or via a new line through the northern Brazilian state of Acre, with the gas being incorporated with Petrobras gas reserves under development in the Rio Urucu area (see related story, p. 46) of Brazil's Amazon region to be distributed throughout northern Brazil.
Also under consideration are other proposals for a 700 mile gas pipeline from Bolivia to Peru and a 1,300 mile gas pipeline from Argentina to Brazil.
Castanos has also said that a pipeline project to supply markets in northern Chile is not dead, as some commentators have reported, but is being left dormant for the time being to concentrate efforts on the pipeline to Brazil. Previous comments by Bolivia's minister for Economic Development Jaime Villalobos indicated that the project is not economically viable due to the small size of the Chilean market and competition from imported coal.
Another possible gas export project to Brazil has also been revealed by a YPFB representative who described discussions that have been taking place between YPFB and Petrobras concerning the possible sale of wet gas to Brazil. Both companies have agreed to study the feasibility of the project after Castanos and the Bolivian Ambassador to Brazil, Jaime Balcazar, met with Petrobras representatives in Rio de Janeiro on June 21.
The scheme would involve laying a second pipeline to supply a gas processing/fractionation plant at Corumba, in Brazil's Mato Gross do Sul state. The plant would process ethane and natural gasoline and supply treated gas to East Central Brazil and possibly export markets in neighboring countries as well.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.