BNAmericas: Rosy and bleak: the outlooks for Brazil’s gas imports from Bolivia and Argentina

27/07/2020 – Despite gas imports from Bolivia falling in recent months and expectations of increased domestic supply, the Andean nation will remain an important supplier for Brazil in the coming years, an analyst told BNamericas.

Brazil’s gas imports in January-April averaged 24.1Mm3/d (million cubic meters per day), of which 17.5Mm3/d came from Bolivia and the rest through LNG terminals, according to the energy ministry.

The country has seen a big drop in gas imports this year, from an average of 32.0Mm3/d in January to 11.8Mm3/d in April, a result of the economic crisis caused by the COVID-19 pandemic. Bolivian imports fell from 28.8Mm/d in January to 10.4Mm3/d in April. Preliminary data, however, shows that imports from Bolivia picked up in June to about 15Mm3/d.

“The expectation is for the normalization of [state oil company] Petrobras’ imports from Bolivia during the second half of the year, and in 2021 and 2022 the country will remain a relatively competitive source in the Brazilian market,” the CEO of consultancy Gas Energy, Rivaldo Moreira Neto, told BNamericas.

The two countries are connected via the Gasbol pipeline (in picture). Exports to Brazil currently account for 43% of Bolivia’s gas sales. Political instability, however, is an obstacle to greater integration. Last year, turmoil after the resignation of Evo Morales led Russia’s Acron to abandon talks with Petrobras on the acquisition of the Araucária Nitrogenados and Unidades de Fertilizantes Nitrogenados III fertilizer plants. Bolivia was due to supply natural gas for the units.

“Bolivians have a necessity relation with Brazil to sell their gas. It’s worth remembering, for example, that former Bolivian [left-wing] president Evo Morales went to the inauguration of Jair Bolsonaro as president, which shows the importance of Brazil to Bolivia,” Moreira Neto said, despite the two being on opposite ends of the political spectrum.

But Brazil’s natural gas market is currently undergoing various changes, due to Petrobras’ efforts to reduce its participation in the sector. The federal government is also moving ahead with the Novo Mercado de Gás (new gas market) program, which is aimed at opening up the market to private investors to make the sector more competitive, with several regulations being updated in recent years.

Brazil is expected to see a sharp increase in domestic gas supply in the coming years as new pre-salt fields come online. Earlier this year, Petrobras reduced the volumes hired from the Gasbol pipeline, following an expectation of increased local production. As a result, Bolivia will negotiate part of its gas export capacity with private Brazilian operators.

Bolivia’s state-run hydrocarbons firm YPFB has shown interest in creating a subsidiary dedicated to the Brazilian gas market and reaching transportation and supply deals, taking advantage of the links between Bolivian gas fields and Brazil’s south and southwest.

Moreira Neto believes the biggest challenge today for Bolivia to increase sales is the lack of access of private partners to Brazil’s pipeline infrastructure, which would allow it to reach clients in the free market, where consumers are not supplied by state distributors. Such a scenario could change, for example, with the connection of the lines operated by TBG and NTS, something that could happen after 2022.

“Such access would allow companies producing in the pre-salt region to develop projects to sell gas in the free market, with a combination of the offshore fields’ output and the gas imported from Bolivia, for example. The Bolivian gas could be very important to develop Brazil’s free market, especially after 2022,” the analyst said.

On the other hand, the outlook for imports from Argentina is not so rosy. Although the two countries have a small pipeline connecting them, Brazil has not imported significant volumes from its southern neighbor since at least 2016 and there is no prospect of change, except for isolated LNG sales during the summer.

“We don’t expect a sustained increase in imports from Argentina in the short or medium term. Despite the growing pace of Argentina’s gas production, any opportunities for imports are seasonal and it is a possibility for short-term solutions, because during the winter the country needs its gas and, therefore, it can’t close long-term sales contracts,” Moreira Neto said.

Still, integration opportunities are being studied by operators in Argentina’s Vaca Muerta formation, which have recently discussed enlarging the existing line. The expanded Uruguaiana-Triunfo duct, with an estimated investment of some US$ 900 mn, would have a maximum flow of 15 Mm3/d. Authorization for construction has been granted to concessionaire Transportadora Sulbrasileira de Gás, which is seeking partners for the project.

Economic integration between the two countries, however, has slowed since the right-wing Bolsonaro became Brazil’s president in January 2019 and Argentina elected left-winger Alberto Fernández. Their opposed ideologies have left the Mercosur trade bloc faltering.