A South American story: part three

Read part two of this article here.

Bolivia

Bolivia is one of the few Latin American countries with a thriving natural gas exporting sector. According to the CIA, the landlocked country produced 2 billion ft³/d in 2013 and exported 1.7 billion ft³/d to neighbouring Chile and Brazil. In 2005, however, newly elected President Evo Morales nationalised the industry, effectively curtailing international investment.

In order to stimulate its petrochemical sector and add value to its natural resources, YPFB, the Bolivian state-owned oil company, announced plans to boost output at its Gran Chaco facility. It will invest over US$600 million to extract 3140 tpd of ethane, 2240 tpd of LPG and other products from wet gas. Most of the output will be sold to neighbouring countries, but there are plans afoot to build a nearby plant capable of producing up to 750 000 tpy of various polyethylene products. Tecnimont, an Italian engineering firm, has been conducting front end engineering design (FEED). The Central Bank of Bolivia will be funding the project with approximately US$1.8 billion, while the startup date for the latter facility is tentatively set at 2022.

Brazil

Brazil is both blessed with natural resources and cursed with greed and corruption. Thanks to the immense resources of the offshore subsalt play, Brazil’s output has risen to 2.25 million bpd and 2 billion ft³/d of gas. Hardly a month goes by without an announcement of a new discovery, a new production platform, or a new pipeline system.

Yet Petrobras, the flagship of the country’s oil and gas sector, is listing badly as it cruises into treacherous waters. For over a year, federal investigators have been uncovering a massive scheme of chicanery that may reach up to the highest levels of government. As of late 2015, 87 people, including two former Petrobras directors, have been formally accused of offering and accepting approximately US$800 million in bribes and other inducements by inflating Petrobras contracts and funnelling part of the money back, including to the ruling Workers’ Party.

The imbroglio is having far reaching consequences within the sector. Moody’s has downgraded Petrobras to junk status, which denies the company access to international credit markets where it needs to raise over US$100 billion to develop the subsalt play. Its annual research and development (R&D) budget has dropped from US$40 billion in 2013 to US$19 billion in 2016. Local contractors under investigation cannot seek new deals with Petrobras; many are going under because of unpaid bills.

No one knows how the situation will end; prosecutors now have Supreme Court permission to investigate senior politicians, including the president of the country. A round of union strikes has crippled production; workers are calling for big raises and the reinstatement of cancelled projects. Braskem, one of Brazil’s leading lights in petrochemicals, has opted to build its new capacity in Mexico.

One bright light for the gas sector remains; a decade of droughts has reduced water levels at the major hydroelectric reservoir to 6% of capacity. Since Brazil relies upon hydro for over 70% of its needs, cities such as Sao Paulo are facing rolling blackouts. Recently, the government awarded contracts to build over 4000 MW of new coal and natural gas-fired facilities, and hopes to significantly increase utility gas consumption over the next decade as sources associated with the subsalt play come onstream.

The future?

Few doubt that, over the next decade, Latin America’s natural gas sector will be in flux. Modernising countries, such as Mexico, are making great strides in opening up opportunities for international investment in the upstream, midstream and downstream portions. Some countries, such as Argentina, are grudgingly allowing concessions in the face of grim finances and energy shortfalls. Others, like Venezuela, stagger from calamity to calamity, creating unacceptable above ground risks for potential investors.

When the Latin American Petrochemical Association (APLA) gathered for its 2015 conference in Cancun, Mexico, the overall mood was one of cautious optimism for the future. There was widespread acclaim for the host country, but, except for Braskem’s Ethylene XXI plant, there was little consensus that petrochemicals would significantly advance. “Nothing is going to happen in the region as far as a grassroots facility prior to 2022,” said Rina Quijada, IHS Chemical Senior Director.

Regardless, the region contains vast natural gas potential, and the kinds of political and social conditions that make their development a challenge can change overnight. Colombia went from a civil war basket case to a champion of the free market, welcoming international investments that managed to double energy output within a decade. Argentina has a new government, and Venezuela may see the current regime replaced by a capital friendly administration. If there is anything in Latin America that can be relied on, it is change.

Written by Gordon Cope, Contributing Editor. This is an abridged article taken from the February 2016 issue of Hydrocarbon Engineering. Subscribers can view the whole issue by logging in.

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/05022016/a-south-american-story-part-two-2313/