Gas shortage: Bolivia claims it sees no “leftist plot” in cutting off natural gas to neighboring Brazil

RIO DE JANEIRO, BRAZIL – Bolivia’s Minister of Hydrocarbons and Energy, Franklin Molina, said Wednesday (25) that the country is seeking the “best price for its natural gas” and “better conditions and a better market” by reducing exports to Brazil and increasing shipments to Argentina.

Molina made the statements after President Jair Bolsonaro (PL) suggested on Monday (23) that the agreement between Bolivians and Argentines was a “leftist pilot” against the conservative government in neighboring Brazil.

“Bolivia has cut 30% of our gas to deliver it to Argentina… How did Petrobras behave in this matter? It seems that everything is staged. If you want to buy your gas somewhere else, it’s five times more expensive. Who will pay the bill? And who will be responsible?” he commented to his supporters. “It’s a deal that looks like it was orchestrated precisely for the benefit of you know who,” Bolsonaro said.

LEFTIST PLOT AGAINST CONSERVATIVE BOLSONARO SHORTLY BEFORE ELECTIONS

Argentina, under leftist Alberto Fernández, and Bolivia, under far leftist Luís Arce, who is linked to former President Evo Morales, have governments close to former leftist President Lula da Silva of the PT, Bolsonaro’s main opponent in this year’s elections.

“It is not a socialist plot, but a question of commercial possibilities,” a Bolivian executive told the epbr agency on condition of anonymity.

Molina demanded that Petrobras revise the prices of Bolivian gas provided for in the 2020 contract revision signed during the transitional government of Jeanine Áñez after the resignation of Evo Morales.

“We have written and formally tried to request the renegotiation of the contract with Petrobras. Our president of YPFB [Armin Dorgathen] was in Brazil to obtain better price conditions for the gas supplied to Brazil.”

“The response was not what we expected, and in this situation, we focused on the contract, which includes a clause that says that if one of the parties is not satisfied with the price, it can seek a renegotiation,” the minister said, according to Agencia Boliviana de Información (ABI).

Molina stressed that the current contract hurts Bolivia because meager prices for Bolivian gas were agreed upon. In addition, the 2020 agreement transferred responsibility for transporting Bolivian gas to the border from Petrobras to YPFB.

The Bolivian government estimates that this change will cause economic losses for YPFB of about US$70 million per year.

“The result is not favorable for the country, and therefore we will seek better conditions for selling our gas. Bolivia must find a better price for its natural gas, better conditions, and a better market,” the minister said.

THE BOLIVIAN SIDE

YPFB assumes that this is not a breach of contract, as Petrobras claims.

What Petrobras says: Bolivian state oil company YPFB said in April that it would unilaterally reduce the volume supplied to Brazil by 4 million cubic meters per day starting in May.

The Brazilian oil company clarified that it “informed the relevant government bodies and communicated the measures taken to ensure supplies to its customers once it became aware of the situation.

Since Aug. 1, Petrobras has received an average of about 14 million cubic meters per day from YPFB. The Brazilian state-owned company also said it is “taking the appropriate measures to fulfill the contract.”

The contract between Petrobras and YPFB provides for penalties for both parties if the withdrawal and delivery obligations are not met:

• On Petrobras’ side, there is the take-or-pay clause: the provision establishes a minimum amount of gas that must be withdrawn to avoid paying the penalty – in this case, 14 million m³/day;
• On the YPFB side, there is a deliver-or-pay clause: if the supplier does not deliver the quantity previously requested by the buyer, it pays a fine proportional to the amounts not delivered.
• According to the Bolivian executive interviewed by the epbr agency, YPFB uses a contractual clause – the deliver-or-pay clause – and will pay the penalties in the same way that Petrobras has taken quantities below the take-or-pay limits in some situations in the past and was later compensated with credits.

Currently, Petrobras pays about US$7 per million BTU for Bolivian gas. YPFB claims that the price no longer reflects the value of the gas on the international market.

“Petrobras buys LNG today at a price of over US$25 per million BTU. It pays US$7 per million BTU to Bolivia and sells at US$14 per million BTU to traders. There is room for price renegotiation. Since our production is declining, we have defined as a strategy the valorization of Bolivian gas in trade relations. Gas has a new value today. This goes beyond the impact of the war in Ukraine. The gas is valued because of the energy transition,” said the source.

He cites that currently, there are private companies in Brazil interested in buying Bolivian gas at prices between US$15 and US$18 per million BTU.

Asked if Bolivia is trying to pressure Brazil to increase prices with the new agreement with Argentina, the executive said it is no pressure but a market opportunity.

“We don’t want to argue with Petrobras; it doesn’t make sense to start a war between supplier and customer. The renegotiation of prices is not a whim of Bolivia, but a reality forced by the market,” he added.