(Note: This piece has been modified from its original form, first published by the Power and Interest News Report.)
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...Evo Morales propelled Bolivia into South America's geopolitical spotlight when he announced on May 1 the nationalization of Bolivia's energy assets. The timing of his announcement did not come as a surprise. Morales displayed a flair of authority by announcing nationalization by presidential decree and using the Bolivian military to implement his long-time promise. His first significant geopolitical move as president of Bolivia left regional leaders concerned about the future of their gas supply.
Evo Morales spent the last weekend of April in Havana. The following Monday, he nationalized Bolivian energy assets, timing that led many to believe Morales has made his choice to position Bolivia into an axis of political power, trade preferences, and energy integration led by Hugo Chavez. Chavez met with Morales on May 3, and arrived at the May 4 summit arm-in-arm with Morales to discuss matters of energy supply that in truth had little to do with Venezuela.
Brazilian President Luiz Inacio Lula da Silva immediately called for a summit to be held just three days after Morales' announcement to exercise his regional leadership role and provide a diplomatic arena for private discussion and a public display of solidarity with Bolivia. Yet, by the morning of May 2, Lula was already feeling the pressure from members of his own party that argued Morales' move underlined a weakness in Lula's diplomatic efforts to keep Bolivia close and protect Brazil's supply of natural gas.
Argentine President Nestor Kirchner, like Lula, is worried about an increase in prices. Kirchner's government subsidizes gas sold to the domestic market in Argentina. An increase in price would force Kirchner to further subsidize the price of gas, meaning a sharp reduction in funds available for federal spending leading up to his reelection bid. Kirchner could also raise the price of gas, but this policy would run against his populist momentum, leaving him vulnerable to political opponents looking for another reason to demystify Argentina's popular president before elections. Kirchner attended the mini-summit to table a plea for low prices.
Chavez's presence at the meeting was no accident. He provided political muscle in support of Morales' announcement. Lula likely took an opportunity to share words with Chavez about what many Brazilian politicians consider two-faced diplomacy. On one hand, Chavez has been promoting a transnational pipeline that would penetrate Bolivia's two gas markets. On the other hand, Chavez has put heavy rhetorical support behind Morales' nationalization moves, putting Brazil's energy future at risk. Chavez's astute diplomacy put Lula in a bind and helped buoy Morales' popular support at home.
At current production and export levels, Bolivia has 70 years' worth of natural gas reserves, according to the Cambridge Energy Research Associates (SERA). SERA research reveals that at year-end 2004, Bolivia's proven gas reserves stood at 26.7 trillion cubic feet (Tcf); proven and probable reserves increase that number to 48.7 Tcf. Bolivia exported 735 million cubic feet of gas (MMcf) per day to Brazil in 2004. In 2006, Bolivia is expected to export some 1,200 million cubic feet of gas per day to Brazil, possibly up to 1,350 million cubic feet of gas per day in 2008 if current pipeline networks are expanded.
In the wake of Morales' May 1 announcement, this may change. Petrobras president, José Sérgio Gabrielli announced on May 3 that Petrobras would freeze all investments in Bolivia, including the expansion of the pipeline that moves gas from Bolivia to Brazilian markets. Gabrielli stated that Petrobras would not accept an increase in prices, citing a contract good through 2019. If prices are increased for Petrobras, the company will seek international arbitrage, he said.
Gabrielli knows he is in a well-leveraged position. Petrobras has invested more than a billion dollars in Bolivia in the last decade. The company's Bolivian subsidiary, Petrobras Bolivia, started operations in 1996. In less than ten years, the company has become responsible for 57 percent of overall natural gas production; it is responsible for 98 percent of the refinement of Bolivia's natural gas, corresponding to some 25 percent of the production of combustibles and some 63 percent of lubricants. These products are sold through a network of 100 Petrobras gas stations, one fourth of all gas stations in the country.
Additionally, Petrobras Bolivia is the largest company in Bolivia, responsible for 20 percent of Bolivian G.D.P. It employs over 850 Bolivians and represented some US$563 million of state revenue in 2005.
Revenue generated from hydrocarbon exports to Brazil and Argentina, Bolivia's two major export markets, represented some 38 percent of total export income in 2004. Losing companies such as Petrobras and Repsol YPF would be damaging to Bolivia's economy. Additionally, Morales knows he needs foreign investment to maintain and improve upon the country's gas export infrastructure. New pumping stations, pipeline networks, and development of other gas-based products are essential to take advantage of Bolivia's energy assets still underground.
A day before the May 4 mini-summit, Lula stated that Brazil has become overly dependent on Bolivian gas. He also said he accepted Morales' announcement and thinks that it is a fair play for Bolivians, despite the losses it may mean for Petrobras Bolivia. Upon the conclusion of the summit, it was clear that the negotiation of prices had not even begun. Morales did state gas exports to Argentina and Brazil would not be interrupted. Gabrielli noted that with the mini-summit out of the way, the table was set for more technical discussions concerning prices and what Bolivia's nationalization of its energy assets really means for energy companies in Bolivia.
Beyond the ramifications of private-sector interests, a regional shift of alliances has begun to form, revealing to all that Bolivia, under Morales, has gravitated toward Venezuela's more nationalist policies, away from Brazil, which under Lula is considered the region's center of geopolitical gravity.
This may be a blow to Lula as a regional leader, but not to Brazil as a consumer of natural gas. Brazil imports some 40 percent of its natural gas supply, mostly from Bolivia. Yet Petrobras has already begun making the necessary investments in development and pipeline infrastructure to reduce this dependency. For Argentina, Kirchner's only worry is price, yet he is already working on other sources of natural gas, mainly through increased deep water production efforts.
Despite who wins the October presidential elections in Brazil, Brasilia will move toward securing its natural gas resources. There is talk of re-gasification plants, which would receive liquid natural gas from Trinidad and Tobago. Nuclear energy, hydroplants, and even bio-energy will continue to meet Brazil's energy needs, placing downward pressure on the demand for natural gas.
If Morales is moving closer to Chavez, he would do well to develop Venezuela as an export market. Any pipeline from Bolivia to Venezuela, however, would need to involve another country. To the west, Bolivia may look to Chile. Many believe that Morales and Chilean President Michelle Bachelet have been talking about a gas-for-Pacific deal for over a year.
Chile's need for natural gas will only grow as Argentina struggles with Bolivia's price increases and national demand that paces ahead of domestic supply. A pipeline that opens Bolivian natural gas to a Pacific port would be mutually beneficial to both Bolivia and Chile, yet historical tension and petty politics may scuttle economic prudence. Chile will likely rely more on a planned liquid natural gas port.
In the short-term, Morales may have put himself and Bolivia in an excellent position. However, his abrupt move to nationalize Bolivia's energy assets by decree and with military force has further convinced Bolivia's two export markets, Brazil and Argentina, that they must become more independent. This trend may reduce Argentine and Brazilian dependence on Bolivian gas in the mid- to long-term. Morales has taken a step in the direction of political assertion and Bolivian self-fulfillment as a regional player. What remains now is the follow-through necessary to secure Bolivia's nationalization of energy assets without isolating the country from her only natural gas customers.
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