Gas to Argentina: Bolivia earns more now, but risks main market Brazil in the future

RIO DE JANEIRO, BRAZIL – Bolivia decided a few weeks ago to sell more gas to Argentina and get a better price, but analysts warn that credibility is at risk with the main market, Brazil, which has a longer term.

YPFB decided to prioritize the export of 14 million cubic meters of gas (MCM) to the Argentine market, with the option of reaching 18 MCM and reducing shipments to the Brazilian market by 30%. An additional US$100 million is expected, even after the penalty is paid.

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Analyst Hugo del Granado recalled that as of March 10, 2021, the eighth addendum that ends the GSA contract with Brazil came into effect and the document establishes a mandatory export volume of 20 MCM that YPFB must comply with and 14 MCM of mandatory withdrawal from Petrobras.

But if 30% less gas is now sent to that market, there is a violation of the contract by YPFB, Del Granado warned. “Bolivia unilaterally stopped sending 6 MCM of the 20 MCM contract and fines and penalties are established in this situation. Since Bolivia failed to comply, it must pay a fine and that is 98% of the value of the gas not supplied,” he said.

However, the analyst pointed out that in contrast to that additional volume of gas, Argentina pays US$20 per million BTU (British thermal unit).

“The price that Argentina will pay exceeds the fine that it will pay to Brazil, that is to say that despite the fine, it obtains a profit for the best price that Argentina will pay,” he said.

In the addendum to the contract with Brazil there are clauses by which it is established that the parties can review the terms and it is known that both Argentine authorities and Bolivian negotiators proposed raising the price, but Petrobras refused.

However, he said that apparently the people of the Brazilian company acted badly and the president of Brazil, Jair Bolsonaro, fired the head of Petrobras for losing part of the shipments from Bolivia and not negotiating prices.

“What has to be put into the balance is that if in the medium term a greater amount of money that will be received from Argentina compensates the maintenance of a long-term client. Everyone understands that the Brazilian market is broader and permanent in the long term and a cordial relationship with Petrobras must be maintained”, he pointed out.

He added that lost confidence is difficult to recover in the short and medium term. “It must be taken into account that in the long term Brazil is a potential client of Bolivian gas, that does not happen with Argentina, which by developing its Vaca Muerta reserves can do without Bolivian gas in the short term,” he warned.

For Susana Anaya, an industry analyst, the Brazilian market will always need gas, especially in the border area, but in Argentina the Néstor Kirchner pipeline will be extended and Vaca Muerta gas will reach the north.

“It is unlikely that the Argentine market will be able to expand for Bolivian gas; there is more option with Brazil and this last negotiation puts us in a delicate situation”, she observed.

This is because a short-term economic objective is chosen to earn about US$100 million. “There is a gain, but there is a risk because Bolivia’s image of fulfilling its contracts may crack and weaken and may weaken a possible future negotiation with Brazil,” she warned.

Anaya recalled that when the eighth addendum with Brazil was signed, the conditions were different and there was no expectation of an increase in prices in the foreign market and the public oil company YPFB had to give in and assume the transportation cost that Petrobras previously paid.

For Anaya this represents a loss as well with the fifth addendum with Argentina, because in that contract for the additional volumes of gas to the base amount of 9 MCM, a new price formula was defined that eliminated the LNG component and the Henry Hub Price Index (HH) was introduced, as a reference price.

Analyst Francesco Zaratti said that with the decision to prioritize larger shipments to Argentina, to the detriment of the volume to Brazil, YPFB is mainly exposed to a loss of credibility in a market (the regional gas market) in which Bolivia already has less.

“The immediate result is positive in economic terms: the gas diverted to Argentina has a better price: US$12 per million BTUs versus the eight paid by Brazil and, in addition, Argentina pays the penalty of US$8 per million BTUs applied by Brazil to YPFB’s noncompliance,” he explained.

But, in the long run, he maintained that Argentina will do without the little gas that Bolivia has left and the only serious client will be Brazil, if that market still has confidence in the country.

For Zaratti, this is the result of “15 years of insane energy policy that has prioritized the monetization of reserves before the exploration and replacement of reserves, causing enormous economic damage.”

RÍOS: IT MUST BE EXPLORED, IF NOT, THE COUNTRY WILL RUN OUT OF GAS

Álvaro Ríos, former Minister of Hydrocarbons, stated that Bolivia must explore to find new reserves, because, otherwise, it will run out of gas and will have to import it in the next 30 years.

He assured that in Brazil there is an open market and also several clients who would like to buy firm Bolivian gas, but the country does not have enough production.

The volumes that are available are under contracts with Brazil and Argentina. “As of the end of 2024, the market is free in Brazil and there are many users who would like to buy at a better price than Petrobras, even now that would be achieved, but there is a current contract,” he explained.

He added that end users do not like Petrobras because it raised the price.

Ríos warned that gas production will continue to decline because nothing is being done to massively reactivate gas exploration.

He added that the state-owned YPFB has been showing different exploration plans for seven years that were not fulfilled.

“The announcements are not credible, what you want to see are wells being drilled,” the former minister pointed out.

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