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BOLIVIA: LNG Investments Move Forward Despite Nationalization Risk

Bottom Line: Despite the risk of falling victim to Bolivia’s resource nationalism trend, two Spanish companies— Sener Ingeniería S.A. and Ros Roca Indox Cryo Energy S.L.—have signed on with state-owned oil company Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) for investment in the $137 million construction and commissioning of a new liquefied natural gas (LNG) plant in Rio Grande, Santa Cruz. While Spain—which is a major player in Latin America—may be able to survive the political risk overall, investors should be aware that more nationalization plans are likely in the works and Bolivia remains below investment grade in Fitch ratings.

Analysis: The new LNG plant will have the capacity to liquefy 200 metric tons of gas a day. Conversion from a gaseous state to a liquid reduces volume by a factor of 600, permitting it to be transported more easily to remote areas, where Satellite Regasification Stations turn it back into standard natural gas for consumer use. The energy from the LNG plant will be distributed to 140,000 homes and 5,000 businesses in 26 municipalities across six departments. YPFB President Carlos Villegas said the first phase of construction would begin in October 2014.

Bolivia Natural Gas

The nationalization of strategic industries, along with changes to contracts and royalty schemes for oil and gas companies, have worked to significantly boost state revenues but have also led to declining interest by potential foreign investors.

Recommendations: The natural gas sector is the best play here, but political risk is high and we believe the risk will increase as the country continues to enjoy a significant boost in revenues due to nationalization projects and changes to contracts and royalties. There will be a certain period where this continues until investment declines to a more significant extent. For now, nationalization seems to be effective for Bolivia, but the longer term plans are not coherent.




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