South American demand for natural gas in the near term will grow at about four times the rate in North America, Amoco Corp. predicts.
Roger K. Stehn, Amoco vice-president for natural gas, told an Institute of Gas Technology conference in Caracas South America will be among the fastest growing gas demand regions in the world.
NORTH AMERICAN LESSONS
"If countries are looking for ways to regulate their respective gas industries, important lessons, positive and negative, can be learned from the evolution of the North American industry," Stehn said. "We see the long term success of the gas business in South America hinging on creation and integration of gas infrastructure throughout the region."
Currently, South American markets have limited links to gas supply. Major pipeline infrastructure is localized within countries, Stehn pointed out.
He added, "Gas trade is entirely intracountry with the exception of Bolivia and Argentina, which engage in intercountry gas trade.
"We believe North American gas market growth drivers also exist in South America and will stimulate a similar pattern of growth regardless of differences in social, political, and economic structures," Stehn said.
He cited these main drivers in the growth of North America's gas business: economic growth, application of new technology, government energy security policies, regulatory restructuring and new fiscal structures, environmental concerns, balanced supply/demand, regional trade opportunities, and the competitive price of gas compared with other fuels.
"We see these same drivers impacting South America, as well as others, such as liberalization and privatization, an increase in gas production capacity, and a general increase in power demand," he said.
NORTHERN COUNTRIES OUTLOOK
Amoco believes Trinidad and Tobago, Colombia, and Venezuela will remain supply driven, given combined reserves of more than 150 tcf compared with expected total demand of 1.5 tcf/year in these three countries.
"Venezuela will continue to hold about 90% of the reserves and about 60% of the domestic markets in the region," Stehn said. "We also believe Venezuela will likely participate in one or more regional gas export projects."
Stehn also said Colombia's gas industry will be strong and show continued growth as a result of completing plans to boost gas consumption by building infrastructure and replacing high cost fuels with gas. Domestic demand could approach 350 bcf /year.
"We believe the most economically viable opportunities will be in the liquefied natural gas and possibly pipeline export markets," Stehn said.
He said the Trinidad LNG export project, in which Amoco is a partner, is ideally located near Venezuela. It possibly could deliver cost competitive supplies from a Trinidad-Venezuela supply hub to markets in the U.S., Europe, Argentina, and emerging markets in Brazil and the Caribbean.
"One could easily envision an LNG export market of 2.5 tcf /year as a possibility, resulting in a total domestic and export demand of 4 tcf/year for this region," he said.
SOUTHERN CONE OUTLOOK
Stehn contends the Southern Cone countries of Argentina, Brazil, Chile, and Peru will become increasingly market driven, shifting from indigenous supplies to imports from other South American regions, possibly other regions of the world.
He cited major pipelines that will link supply in Peru to Bolivia and Brazil, Northwest Argentina supply to Brazil, and Central Argentina supply to Chile.
"In spite of an increase in demand to about 375 bcf/year in Brazil, Argentina will continue to dominate demand, contributing nearly 1.4 tcf/year of the (Southern Cone) region's total demand of 2 tcf/year.
"The Chilean market is expected to have increased to 225 bcf/year by this time, although the market is relatively small."
GOVERNMENT ROLE
To achieve this kind of growth, however, Stehn said governments must be willing to create and support viable fiscal, commercial, and regulatory frameworks.
"This includes appropriate levels of government take, assurance of long term stability, market based pricing, and a regulatory framework that encourages development of infrastructure," he said.
Because many investments in this region will be extremely high, there will be an increasing need for partnerships and joint ventures among investors to share the risk and reward. In many cases, partnerships and joint ventures may be the only viable means of establishing integrated positions in projects.
"In addition," Stehn said, "because most of these projects are truly international projects with national significance, involvement of host governments and state owned enterprises as key players will be an absolute necessity."
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