Amidst the decline of gas fields, reduced income from gas exports, unhealthy diesel and gasoline imports, low exploratory activity, and exploration solely undertaken by YPFB, adjustments are recommended.
ISSUE 119 | 2023
By Vesna Marinkovic U.
The situation of the hydrocarbon sector in Bolivia is concerning. All major natural gas fields, such as San Alberto, Margarita, and Incahuasi, are in decline. Investment projections are negative, and the possibility of becoming a transit country for gas sales between Brazil and Argentina is becoming more recurrent, according to experts invited to the monthly colloquium of ENERGÍABolivia magazine.
According to Iver Von Borries from the legal firm Wayar & Von Borries, the country’s situation is complex, especially due to existing regulations such as the Law 3058, within the Political Constitution of the State, , and especially Supreme Decree 28701 from May 2006, which nationalized hydrocarbons. These regulations prevent the compatibility of economic interests between the public and private sectors, thus undermining the national economy.
“The nationalization of hydrocarbons is taking a toll on Bolivia to the extent that in a few years, we could be importing gas from our former markets, such as Brazil and Argentina,” said Von Borries, acknowledging that beyond the political gain achieved through nationalization, it has had negative effects on the national economy in the medium term, highlighting the incompatibility of “welfare” measures.
POLITICIZED ECONOMY
Jorge Gumucio from the Milenio Foundation believes that the main problem has been excessive politicization of the Bolivian economy. He argues that the solution lies in implementing economic measures, such as eliminating fuel subsidies and creating conditions to attract foreign investment, in order to redirect the sector and the country’s overall situation.
According to Gumucio, the underlying issue is that important natural gas export markets (Brazil and Argentina) are shrinking, while the domestic market, which consumes gas at subsidized prices, continues to grow. This scenario would eventually lead to the medium-term importation of gas.
He considers the country’s risk to be very high at the moment. “We are heading down an irreversible path, and possibly by 2024, we will no longer export gas to Argentina, and we will only export a fraction of what we have been exporting to Brazil,” warned Gumucio, agreeing with Von Borries on the low levels of Foreign Direct Investment (FDI) in Bolivia, resulting in a significant reduction in natural gas production capacity. According to data from the Jubileo Foundation, gas production has dropped by 32% as of 2023.
Looking at these figures, Von Borries pointed out that, according to data from ECLAC, FDI in Bolivia is not even reaching 600 million dollars, compared to high levels of foreign investment in other countries in the region such as Brazil, where the figure exceeds 40,000 million dollars between 2021 and 2022.
Both experts believe that the solution would have been to have a legal framework that established compatible and guaranteeing relationships with investors while maintaining exploratory stability in gas production. This would prevent the current situation of increasing gasoline and diesel imports due to the growing demand for fuels and the decline in gas and associated liquid production. According to data from the Jubileo Foundation, gas production has fallen by 32% in 2023.
ARE BIOFUELS AN OPTION?
When asked if, under these circumstances, the option of biofuels could be a lifeline for domestic fuel supply, both experts expressed doubts and recommended not repeating the same mistakes made with the gas business, assuming it is economically feasible.
…manage natural gas markets properly in order to regain the status of a net gas exporter.
Both Von Borries and Gumucio agreed that including biofuels in the energy matrix would not solve the underlying issue, which is the need to import increasingly larger volumes of gasoline and diesel.
Regarding the recovery of mature fields as a way to address the absence of gas and liquids in Bolivia, they agreed that it is merely a temporary solution, regardless of whether the government is working in that direction or not.
THESE ARE CYCLICAL BUSINESSES
“What other natural resource could sustain the national economy if there is no gas?” both were asked. Von Borries stated that it is crucial to understand that businesses based on the extraction of natural resources are cyclical. “Without adequate extractivist policies, resources do not last forever,” he said, clearly referring to the lack of planning that allegedly accompanied the boom resulting from the exploitation of this hydrocarbon in Bolivia.
He recommended not repeating the same mistakes when it comes to the future exploitation of lithium, which would currently be the most desirable natural resource for foreign investors due to its compatibility with electromobility and new technologies. In his view, the origin of the investment would not matter, but having regulations that allow for a more planned exploration of this resource and a more investor-friendly framework would be strategic.
Gumucio suggested that the “industrializing” approach of the current government will likely extend similarly to the exploitation and production of lithium. He recommended strictly implementing economic measures to avoid calamitous consequences rooted in unnecessary politicization surrounding the management of natural resources in Bolivia.
In this context, faced with the decline of gas fields, reduced gas export revenues, unhealthy diesel and gasoline imports, low exploratory activity, and exploration solely carried out by YPFB, analysts recommend the urgent need for economic adjustments and a new energy policy that brings changes to the hydrocarbon and electricity sectors.
They also consider it vital to reduce hydrocarbon subsidies and start implementing policies that align with Bolivia’s current reality as a non-net gas exporter, requiring investments to reactivate its production capacity and avoid gas importation in the medium term.
