RIO DE JANEIRO - Political crises in Bolivia have led five South American nations to rush together a natural-gas pipeline project that would give the region energy self-sufficiency at a time when oil and natural-gas prices threaten national economies.
Leaders from Argentina, Brazil, Chile, Peru and Uruguay have met four times in three weeks to discuss building a 745-mile pipeline from the Camisea Gas Field in Peru to northern Chile. The pipeline then would connect to 4,349 miles of existing lines in Argentina, Brazil and Uruguay. The project is expected to cost $2.5 billion.
Camisea pumps roughly 1.75 billion cubic feet of natural gas per day.
Political unrest in Bolivia led Chile and its three neighbors to propose the pipeline project in Lima, Peru, on June 13. The topic arose again on June 20 at the Mercosur Summit in Asuncion, Paraguay. Mercosur is the trade bloc of Argentina, Brazil, Paraguay and Uruguay.
Financing sought
Two days later, energy ministers flew to Washington to discuss financing at the Inter-American Development Bank (IDB). Energy and economy ministers met again in Buenos Aires on July 18.
IDB President Enrique Iglesias said the bank would help finance the project. “This project will be a milestone in the history of South America’s integration,” Mr. Iglesias said.
Bolivian engineers are expected to participate in the project, dubbed “the South American energy ring.” Bolivia’s interim president, Eduardo Rodriguez, said in a June 23 interview on CNN International that his government would develop policies favorable to national and regional energy needs first.
Bolivia’s original plan to export liquefied natural gas to the United States and Mexico has proved politically damaging. The country has gone through two presidents in two years over energy matters.
Bolivians have pressed their government, with some success, to nationalize the country’s natural-gas resources, 40 percent of which is managed by Petrobras, Brazil’s oil company.
Bolivia doubles tax
Last month, Bolivia increased taxes on energy production from 16 percent to 32 percent and said it would start auditing foreign energy firms to make sure they are up to date on royalty payments. Bolivia has the second-largest natural-gas reserves in South America, after Venezuela. Peru is a distant third.
Bolivia’s gas reserves are estimated to be at least 27.6 trillion cubic feet. By comparison, the Camisea field contains an estimated 8.7 trillion cubic feet, Peruvian figures show.
“This project is about becoming energy self-sufficient in natural gas, and in the volatile oil and gas world that we live in today, that means you’re guaranteed an energy supply and balance of payments,” said Claudio Porto, director of Macroplan Strategies, a consulting firm whose clients include Petrobras.
Burdens of history
Energy ministers have discussed energy integration for decades, but little has been accomplished. Peru and neighboring Bolivia do not have their gas lines connected to each other. Peru’s gas doesn’t reach its eastern neighbor, Brazil.
Political disputes between Bolivia and Chile that date back to the 1879-83 War of the Pacific haven’t helped. Bolivia’s natural-gas contract with Argentina specifies that Argentina cannot sell Bolivian gas to Chile, according to the Argentine Embassy in Brasilia. A plan for a natural-gas line between Argentina and Bolivia collapsed when Carlos Mesa stepped down as Bolivia’s president June 6 after just 20 months in office.
Secure energy supplies are on the minds of many national leaders because of wars in the Middle East and a rising imbalance between availability and demand. For South America, the project means cheaper energy and another step toward economic integration.
European model eyed
Peruvian Foreign Minister Manuel Rodriguez Cuadros compares the proposal to the coal and steel projects that led from the European Common Market to the European Union. “This is the most important economic integration project ever done in South America,” Mr. Cuadros said at the Mercosur summit in June.
Former Brazilian Energy Minister Dilma Rouseff said in Paraguay that “an energy ring like this one in Latin America makes the Latin America market more attractive, because it used to be that you looked at the gas market and would think instead about how to export it to the United States.”
Mrs. Rouseff was made chief of staff to Brazilian President Luiz Inacio Lula da Silva this month and was succeeded as energy minister by Silas Rondeau.
“Energy integration is crucial,” said Michel Alaby, president of the Brazilian Association of Market Integration, a Sao Paulo lobbying firm. “The tendency is for South America to become totally integrated within a generation or two — a new ‘European Union of the South.’”
Self-sufficiency goal
Becoming self-sufficient is good news for a region that has gone through nearly three decades of boom-and-bust cycles and does not want to be subject to global energy price shocks.
The oil crisis of the 1970s increased Brazil’s national debt, creating a burden that remains heavy. The debt has made Brazil subject to austere macroeconomic policies designed to pay lenders first, often at the expense of other national priorities, Vice President Jose Alencar says.
By contrast, higher natural-gas prices put the United States at a competitive disadvantage because natural gas costs less elsewhere, according to the American Gas Association.
“The best-case scenario is if the southern cone has a major grid to move natural gas around to other South American nations, driving economic growth at lower cost,” said Amy Jaffe, associate director of Rice University’s Energy Program. “That’s fundamentally cheaper than having to import liquefied natural gas, like the U.S. is going to have to do.”
The Chavez model
South American energy issues have taken center stage since Venezuelan President Hugo Chavez has used state-owned Petroleos de Venezuela to forge political alliances with energy-starved Caribbean nations. Part of Petroleos de Venezuela’s oil income has gone to social programs, including bringing in roughly 20,000 medical doctors from Cuba to serve poor neighborhoods.
Mr. Chavez has praised the energy ring and called for creation of a regional gas company. His proposal to create a regional oil company, called PetroSur, has been received well by Mercosur politicians. PetroSur calls for joint-venture projects among Petrobras, Petroleos de Venezuela and Enarsa of Argentina.
Petrobras and Petroleos de Venezuela will build a refinery this year in the Brazilian state of Pernambuco. Heavy Venezuelan crude will be refined there to serve northern Brazil.
Lofty goals espoused
In March, Mr. Chavez and Uruguayan President Tabare Vazquez signed a declaration regarding PetroSur, announcing as their goal to “guarantee our country’s access to its own nonrenewable natural energy resources and defend our people’s use of those energetic resources to create more just societies and fight poverty.”
On May 25 in Caracas, Venezuelan Energy Minister Rafael Ramirez Carreno declared that Petroleos de Venezuela’s mission was to build “new socioeconomic relationships,” leading to “socialism.”
Mr. Carreno is also the president of Petroleos de Venezuela.
Such rhetoric worries the Bush administration that Venezuela eventually could ground oil tankers heading for the United States, but Foreign Minister Ali Rodriguez has said the oil shipments will continue. The United States imports up to 15 percent of its oil from Venezuela.
But specialists say it is unlikely that any energy integration that included Venezuela would close the door to U.S. investment.
“Energy raises emotional and political reactions like no other topic,” said James Jones, U.S. ambassador to Mexico from 1993 to 1997 and a lawyer specializing in energy at Manatt Jones Global Strategies.
“If you look at PetroSur objectively, it makes sense. It’s worth talking about,” said Mr. Jones. Moreover, even when oil profits have been distributed to the poor, as in Venezuela and Brazil, inequality and poverty persist.
“You don’t see oil profits reducing poverty,” said Mr. Alaby, head of Brazil’s Association of Market Integration. “It’s not enough just to donate money. Petrobras isn’t building new schools. It’s not raising teachers’ salaries.”
Something is missing
“What’s missing is a shared strategy for development,” said Roberto Mangabeira Unger, a political consultant and lawyer in Rio de Janeiro who hopes to run for president of Brazil next year. “The energy project is incidental. We’re very far away from having a shared economic and social strategy. Venezuela’s petroleum populism is certainly not a model. The model is China, India and Russia. The nightmare of stagnant growth and inequality is one in which we have yet to awake.”
More oil and gas are being discovered in Brazil, Argentina, Venezuela and Peru. Petrobras produced more oil than Iraq back in 2003 at 1.5 million barrels per day, and expects to produce 2.3 million per day within the next five years.
But the region is no energy paradise. South America produced roughly 119.5 billion cubic meters of natural gas in 2003, compared with 766.4 billion in North America.
Only Africa produces less. South America also has the lowest number of proven natural-gas reserves, followed by North America.
Oil production isn’t much better. Brazil’s National Petroleum Association says the region produced 6.7 billion barrels per day in 2003, the least of any continent.
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