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66 | DAVID MARES ENERGY, DEVELOPMENT, AND REGIONAL INTEGRATION | 67 Integrating electricity markets is much more challenging than integrating raw materials. Consider, for example, the case of Chile. When Argentina began reducing its natural gas exports to Chile in 2004, the Chileans had an adjust- ment problem: they had to figure out how to run their power plants without natural gas from Argentina. More expensive and more contaminating options existed; diesel, coal, etc. But consider what would have happened in Chile if, rather than importing gas from Argentina via pipeline to run power plants in Chile, the power plants themselves were located in Argentina and the transmis- sion lines came from Argentina into Chile. If, because of domestic considera- tions and priorities, the Argentines decided not to fuel the power plants that sent electricity to Chile, Chile would have had a much more difficult time sub- stituting for imported power. Consequently, power integration is a much more delicate, intimate, and deeper level of integration. It is thus more problematic, particularly when countries have a variety of options at their disposal. South America is crisscrossed by natural gas pipelines. The first transna- tional pipeline was from Bolivia to Argentina in the early 1970s, a point at which Bolivia sold large volumes of natural gas to Argentina. In the 1980s, however, Argentina deregulated its domestic market, attracted capital into the sector, and discovered that it had significant amounts of natural gas. Consequently, Argentina did not need any natural gas from Bolivia. Partly as a result of countries’ search for self-sufficiency, and partly as a result of the political instability of exporters of energy, markets have been experiencing a great deal of fluctuation. The new situation in the 1980s created tensions between Bolivia and Argentina. First came price revisions, as the Argentines insisted that Bolivia lower its prices to levels prevailing in the deregulated Argentine market. Disputes then erupted over volume when Argentine production not only sup- plied the domestic market but also produced a surplus for export. Rather than understanding that the market for natural gas had undergone a dramatic shift, Bolivians felt exploited by their neighbor. The progress of regional energy integration has slowed since 2004. Amid great fanfare, the Gran Gasoducto del Sur linking Venezuela with Argentina, with touted benefits for all countries in between, was proclaimed to be a major step forward in energy integration. The project was never economically viable, and in 2007 Venezuelan President Hugo Chávez, the principal force behind the project, announced that he understood that it would not go forward. The failure to move ahead on the Gran Gasoducto is illustrative of the on- and-off energy relationship between Brazil and Venezuela. There has been a great deal of discussion about the two countries working together, spurred on by President Chávez and Brazilian President Lula da Silva. Initially, the two countries were going to collaborate on a re-gasification plant and a refinery in Brazil, and Brazil was going to invest in the Mariscal Sucre gas field in Venezuela. But Brazil has commenced work on the re-gasification plant and refinery without Venezuelan participation, and Petrobrás has announced that it will not be investing in the Venezuelan gas field. Bolivia and Brazil have also experienced a great deal of uncertainty in their energy relationship. In 2006, Bolivia nationalized its natural gas fields and dra- matically increased its share of the royalties from non-Bolivian companies oper- ating in Bolivia—both national oil companies (NOCs) and private internation- al oil companies (IOC’s). State-owned NOCs are thus not immune from the effects of changing contracts, and have many of the same kinds of concerns as IOCs do with respect to foreign investments. Brazil’s developing gas market at home, some deregulation of its energy sector, and Bolivian nationalization of the oil and gas fields and refineries stimulated new investments in Brazil’s oil and gas sector. The result is that Brazilian hydrocarbon discoveries have been constant and large, investment in alternative fuels has grown, and the country is developing a capacity to import liquefied natural gas (LNG) from other countries in the region (Trinidad and Tobago, possibly Venezuela) and beyond (West Africa, the Middle East, and Southern Asia). This evolving energy picture affects the Bolivian-Brazilian energy relationship: Petrobras has gone from being a major investor in Bolivia, to freezing investments, to re-entering the Bolivian market in order to relieve short-term supply problems. Two more problematic energy relationships are those of Argentina-Chile and Bolivia-Argentina. In the end, Argentina was unable to meet its contrac- tual obligations to Chile and violated a state-to-state treaty between the two countries that guaranteed the Chilean market national treatment (that is, the Chilean market would be treated as if it were the Argentine market). Bolivia also is unable to meet its contractual obligations to supply gas to Argentina. Bolivia does not produce enough gas to honor its contractual obligations with both Argentina and Brazil. And despite the fact that Argentina pays a higher price for Bolivian gas, Bolivian authorities opted to drastically cut exports to Argentina in order to fulfill the entire volume stipulated in the contract with Brazil. These Argentine and Bolivian decisions send one more signal to the marketplace that the credibility of contracts in the region is very low. The questions today for the governments and private investors of consuming countries are not whether the resources are in the ground, or not even whether price will direct the flows, but whether those resources will get into the mar- ket according to contractual obligations.PDF Image | Energy and Development in South America
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