Argentina Looks to Venezuela as Bolivian Report Points to Possible Supply Problems Ahead

Bolivia Could Struggle to Meet Argentina's Gas Needs

A report published in Bolivia's La Razón yesterday claiming that Argentina will only receive 27.7 mmcm/d of gas from Bolivia in 2014, four years later than initially planned, will add to concerns in Argentina about the risk of continued gas shortages over the next few years. The paper claims that this assertion is based on a new National Hydrocarbons Strategy drawn up by the Ministry of Hydrocarbons to which it had access. The failure of Brazilian President Luiz Inácio Lula da Silva, Argentina's Cristina Fernández de Kirchner, and Bolivian leader Evo Morales to reach an accord last month that would allow some of the gas currently sold by Bolivia to Brazil to be redirected to Argentina has already increased worries about the prospect of further gas shortages in Argentina during the winter months (see Argentina: 25 February 2008: Brazil, Bolivia, and Argentina Fail to Reach Accord over Gas Volumes). Under an agreement reached between Bolivia and Argentina in 2006, Argentina is currently entitled to up to 7.7mmcm/d of gas from Bolivia and export volumes are due to rise gradually following the construction of a new gas pipeline between the two countries until they reach 27.7 mmcm/d in 2010. However, Argentina is at present only receiving about half the amount of gas that it is entitled to under its contract with Bolivia and the report in La Razón claimed that Bolivia would only be able to comply with the 7.7mmcm/d minimum volume from 2010.

There has as yet been no official comment on the report, but it will add to speculation that Bolivia could seek to renegotiate its contract with Argentina to modify contract volumes. Bolivia's vice-president Álvaro García Linera sparked this speculation after suggesting in a radio interview last month that the anticipated export of 27.7 mmcm/d to Argentina should be postponed to 2012 or 2013, although he later backtracked and suggested that Bolivia would have had difficulties in meeting the timetable if there had not been a resumption of investments in the sector (see Argentina: 28 February 2008: Bolivian Vice-President Creates Unease with Comments on Gas Supplies to Argentina). Whatever the case, Argentina is likely to seek greater assurances from Bolivia that it can comply with its future commitments.

Argentina and Venezuela Sign New Energy Accords

In the meantime, Bolivia's difficulties in complying with its gas export contract with Argentina look to be pushing Argentina and Venezuela closer together. The two countries had already strengthened ties under the leadership of Fernández’s husband, former president Néstor Kirchner, particularly in the energy sector. Yesterday, the Argentine president and her Venezuelan counterpart Hugo Chávez signed a new series of accords bolstering bilateral ties. The two leaders agreed on the creation of a mixed company between their respective state-oil firms ENARSA (40% shares) and PDVSA (60%) to exploit heavy oil crude in the Ayacucho 6 Block in the Orinoco belt. According to the press communiqué from PDVSA, another accord will see Venezuela supply up to 10 million barrels of fuel oil annually to Argentina, as well as 2.3 million barrels of diesel. Argentina, meanwhile, has agreed to export food in exchange for oil. The fuel oil will be used in power plants in Argentina as a substitute for natural gas.

However, Venezuela's support for dealing with Argentina's natural gas shortages could extend beyond oil supplies. A separate report by Dow Jones said that PDVSA and ENARSA published ads in the Argentina press yesterday inviting companies to express interest in building LNG regasification plants in Argentina.

Outlook and Implications

President Fernández's decision to continue her husband's policy of closer ties with Venezuela is motivated in large part by Argentina's energy problems. Indeed, the Argentine president has indicated that her support for Venezuela's entry into Mercosur is because of its importance as an energy provider rather than her support for the leadership of President Chávez. Comments by President Fernández following the failure to reach a gas accord with Brazil and Bolivia, that Venezuela is needed in the Latin American energy equation, also appear to suggest that increased ties with Venezuela will be part of the government's strategy for dealing with supply problems with Bolivia.

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