Despite the fact that it would be very important for the government to eliminate fuel subsidies due to the impact on YPFB’s finances, sources close to the company told ENERGÍABolivia that it is very difficult to think that this could be promoted by the government, even in a gradual manner, as it would affect the economy of the population.

ISSUE 120 | 2023

Raúl Serrano

Reversing the decline in gas fields is a priority for Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), formerly Bolivia’s most strategic company, founded on December 21, 1936, by a Decree Law during the presidency of David Toro, with the purpose of managing the hydrocarbon business as a factor for national development.

Under attack from various fronts, the company, which excelled and enjoyed high commodity prices from 2006 to 2015, and maintained the goal of making the country the regional energy center based on the quality and quantity of its gas reserves, has begun to encounter problems.

According to sector experts, the value of natural gas exports reached a peak of USD 6.011 billion in 2014, in a context of increasing volumes and high export prices. Since 2015, the situation has been different as the lower production significantly reduced the export value. In 2021, gas exports amounted to USD 2.249 billion; USD 260 million more than in 2020 but lower than the value exported in 2019. At the moment, natural gas export volumes are showing a downward trend, exacerbating the situation of uncertainty in the sector and the overall national economy.

THE RECOVERY PLAN

In this context, YPFB has once again emphasized the Upstream Reactivation Plan (PRU), which aims to develop 36 exploratory projects in the departments of Santa Cruz, Tarija, Chuquisaca, Cochabamba, La Paz, and Pando, and is being implemented from 2021 to 2024.

Regarding biodiesel, it presents itself as a long-term industrialization alternative…”

Armin Dorgathen, President of YPFB Corporation, has emphasized that this plan seeks to increase hydrocarbon production and replenish reserves through the optimization of existing resources and investments in exploration and exploitation.

“In July 2021, YPFB announced the launch of the Upstream Reactivation Plan (PRU) with the aim of making investments in hydrocarbon exploration and exploitation in the country. In 2022, we began drilling, and conducted studies. Our PRU also includes the reactivation of mature fields, which are already in production,” said Dorgathen, acknowledging that all these efforts are not easy to resolve and will take time to yield results.

The President thus confirmed the efforts of the state-owned oil company in exploration projects, both YPFB Corporation and its subsidiaries such as Chaco and Andina, which have undertaken production development. Andina focuses on crude oil in Yapacani, while Chaco focuses on gas in the Monos area, near Villamontes.

It is also known that there are small activities by private operators involved in field development, highlighting the case of Margarita 10, launched last year and operated by Repsol, which helps to replace the decline of Margarita 3.

Currently, the production of natural gas, after reaching a level of 60.8 million cubic meters per day (mmcmd) in 2014, has decreased to a minimum of 44.5 mmcmd in 2020; a decrease of -26.7 percent during that period. In 2021, production increased by a modest 4.4 percent, reaching 46.5 mmcmd, highlighting the difficulty of the hydrocarbon sector to reverse its deteriorated production capacity and manage the demand from both the domestic and external natural gas markets, according to Fundación Milenio’s notes.

The main criticisms are directed at the lack of Foreign Direct Investment (FDI) for hydrocarbon exploration, due to regulatory policies of the State that have led to a marked legal insecurity for potential investors since Evo Morales Ayma assumed the presidency in 2006.

On top of this, there are the consequences of the pandemic, the war between Russia and Ukraine, and the trend of prioritizing investment in favor of renewable energies, to the detriment of fossil fuels, in a world facing the consequences of climate change, with no definitive results thus far. In this undoubtedly adverse context, YPFB’s situation has changed from previous years to the point that many wonder if it is necessary to suspend fuel subsidies to overcome the crisis in the sector.

THE GOVERNMENT WILL NOT TAKE RISKS

Analyzing the contexts, there are two types of subsidies. One is paid by the General Treasury of the State (TGE) for diesel, gasoline, and liquefied petroleum gas; the other is the subsidy that the oil sector foregoes, selling below the export parity price, which results in lower income and lower taxes, but helps maintain a low price for natural gas in the domestic market and enables crude oil and condensate, processed in refineries, to have low prices relative to international markets.

The first subsidy, which is the most significant and amounted to USD 1.730 billion last year, obviously severely impacts YPFB’s finances and the accounting of the TGE, which reimburses this subsidy through credit notes. In this regard, it would be very important for the government to act on this front due to the financial impact on the state-owned oil company and its effect on the TGE’s economy. However, it is clear that in the current situation, and given the relevant price as an economic indicator for Bolivia, it is very difficult to think that it can be moved even gradually, as it would impact transportation costs and, consequently, product prices and inflation, affecting the Bolivian population with significant political costs for the government.

ON THE GAS INFRASTRUCTURE

Additionally, given the precarious level of natural gas reserves, experts have begun to question the fate of all the gas infrastructure in Bolivia in the short, medium, and long term. Some speculate that they may become new “white elephants” from a moment of economic boom, assisted without responsible planning, while others still consider them viable gas pipelines for the gas industry.

Within YPFB inner circles, it is stated that the gas transport infrastructure will not only be used to supply gas to Argentina and Brazil. First, this is not possible until 2025, and second, even though Argentina has expressed this as a goal, the volumes to be transported are still not clear. However, according to YPFB, the transportation infrastructure is currently being utilized, in the case of export pipelines, at around 50% to 60% of its installed capacity, and the rest is “idle.”

It has been reported that other domestic market gas pipelines have even higher occupancy rates, which means that they are not becoming empty pipelines, but rather expressing “excess installed capacity” that can easily transport Argentine gas to Brazil if that were the decision of Argentine producers and if this gas finds buyers in that country.

In any case, YPFB has stated that Bolivia will continue exporting gas to Brazil and Argentina. To Argentina, until 2024, as before that date, they will not have the gas pipeline currently served by Bolivian gas and the declining gas they produce in the northwest basin reversed.

Regarding the Brazilian market, YPFB continues to export, and once it concludes with Argentina, it will continue to do so, according to government sources. They indicate that the export volumes to Brazil will obviously depend on the evolution of production and the evolution of the domestic market, which is a priority as Bolivia exports what is left after meeting the domestic market, as established by Law 3058, and as is stated in legislation in many countries around the world.