First, the good news.
Bolivia has South America's second largest proven natural gas reserve, totaling approximately 24 trillion cubic feet (tcf), according to the U.S. Geological Survey. Of this, 85 percent is located in the Tarija region.
Bolivia is on schedule to produce 52 million cubic meters of natural gas per day beginning in April, according to Bolivia’s state-owned oil and natural gas company Yacimientos Petrolíferos Fiscales Bolivianos SA (Bolivian Oil Company, or YPFB). YPFB-Andina CEO Jorge Ortiz said that the San Antonio Bloc’s Chad Field, located in Gran Chaco near the border town of Villa Montes and operated by Brazil’s energy giant Petrobras, is the country’s leading producer of the fuel, telling reporters, "Chad is the most important field in the country today, with an investment of $100 million in its facilities, natural gas production there has increased by 6.7 million cubic meters per day (mcm), so that this year we will be able to produce and market 18 (mcm) of natural gas from the Chad field alone. Today we have major contracts with Argentina and Brazil that give us a good price…” By 2014 YPFB is projecting to produce 61 mcm of natural gas per day.
And in January, according to Bolivia’s National Statistics Institute (INE), Bolivian natural gas sales to Brazil and Argentina were up 44.74% compared to the same period in 2011, worth $204.77 million and $127.2 million respectively. In 2011 Bolivia earned more than $2.9 billion from natural gas exports alone.
The news is also good from the country’s oil sector. Last year YPFB reported, “During 2011 oil exports reached a total volume of 3,048,912 barrels (bbl), 75 percent higher than total exports in 2010.”
So, what’s wrong with this picture?
Bolivia’s Treasury is heavily dependent on the country’s natural gas and oil exports.
According to the World Bank, in 2010 they provided 41 percent of Bolivia’s Gross Domestic Product, one of the poorest and least developed countries in Latin America.
More ominously, Bolivia is heavily tied to the ongoing purchases from its two neighbors, both of whom are beginning to develop their own natural gas reserves. Two months ago Bolivian President Evo Morales expressed his concerns about the development in a speech in the southern Bolivian province of Chuquisaca, commenting, “I’m worried what would happen to Bolivia if it didn’t have a market for its gas... We now depend on Argentina and Brazil because we sell our gas there. If they no longer want our gas, who do we sell our gas to? Some will say that we’re going to industrialize. Of course, we’re already beginning with two natural gas liquid separation plants ... but even so, the Bolivian market is small. Who are we going to sell these products to?”
If geography (Bolivia has no pacific coastline from which it might tap into Asia’s lucrative energy markets) and possible market loss have unsettled Morales, recent heavy-handed tactics against investors have only worsened the situation. Seeking a share of the investment pie, on 24 January his administration stripped Argentina’s Pan American Energy LLC of its stake in the $1.6 billion Caipipendi natural-gas project.
Far from retreating from the uproar, Morales told his audience at the inauguration of the third module of the gas processing plant of the Chad Field, he may seize more foreign oil companies’ investments if they refuse to renegotiate new contracts, stating that Bolivia has the “capacity to recover shares from companies who are sabotaging investment.”
Defending his administration’s actions Morales said, “All the oil companies want to tell you that your investment is well protected... as partners of the state. We welcome the acceleration of investments (in Chad), but as not all Bolivians are equal, not all companies are equal (in terms of investment performance).”
Last but hardly least, Morales is beginning to alienate his political power base, the Bolivians of Indian ethnicity who make up roughly 60 percent of the population, particularly the Guarani, who inhabit Bolivia’s southeastern provinces rich in natural gas, but who feel marginalized and who have recently blocked several key energy projects over not being consulted, demanding compensation for anticipated environmental damage.
As Morales gears up to attempting to win a third presidential term in 2014, he should remember that Bolivia has the dolorous reputation of having had more coups than any other state, over 200, and that the period 2003-05 was characterized by political instability, racial tensions, and violent protests against plans - subsequently abandoned - to export Bolivia's newly discovered natural gas reserves to large northern hemisphere markets.
Fellow native Bolivians ironically now represent the biggest threat to Morales' goal of winning reelection, with even his support declining even among the Aymara, his own tribe, and the Quechua, who dominate Bolivia's more populous highlands.
Alienating your customers, much less your political support base, seems hardly a recipe for electoral victory, but in Bolivia’s case, simply more and more the precursor to another coup.
By. John C.K. Daly of Oilprice.com