Argentina and the evolution of South America's gas geopolitics

 

According to Bolivia's state-owned oil company YPFB, Bolivia's natural gas exports to Argentina have ceased following almost two decades of trade. This is due to a decline in production in Bolivia and Argentina's increasing status as a fuel exporter. This marks the end of the Kirchnerist and Evista (Evo Morales) era, as well as the true nature of the evolution of Bolivian fields and disinvestment in exploration and development in the Andean country.

It is important to recall that during the Kirchners' initial period of statist rule, significant damage was done to Argentina's gas capabilities in the areas of exploration, development and transportation. Following the expropriation of foreign private companies exploring and establishing production capacities, Bolivia was able to capitalise on the results of their work in the gas industry. The Bolivians failed to capitalise on the opportunities presented to them and are now facing challenges. The Argentine turnaround did not originate with Milei, but rather with the Macri government's continuation of Fernández's policies and subsequent acceleration under Milei's leadership. The Bolivian recovery is a more challenging undertaking, requiring a minimum of 10 years of legal certainty for future investments. The consequence of this, with Brazil exerting pressure from the north, has been a disruption in the flow of gas in the Southern Cone since 2005. This has prompted a recovery in the region's efforts to resume its previous level of activity through the utilisation of LNG. This is crucial for maintaining social stability in each of these countries, including Chile, which previously relied on Argentinean gas pipelines and is now turning to LNG.

Argentina, which has had a negative energy trade balance for years, is nearing completion of projects that will allow it for the first time to export gas to its South American neighbours through pipelines and to global markets through LNG shipments. There have now been no Bolivian imports for six weeks. This ends almost 20 years of Bolivian gas exports to Argentina. Paradoxically, surplus LNG in Chile continues to flow to Argentina through a separate pipeline. These pipelines were built to supply Chile from Argentina, not the other way around. It was the idea of supplying Chile from Bolivia that generated the famous gas war that catapulted Evo to power. Today Bolivia has no gas; Chile imports LNG from the United States, giving Argentina a helping hand, which could soon start exporting again both to the Atlantic coast (Brazil could be among its clients) and to the Pacific coast, with Chile as a client.

The geopolitics of natural gas in the Southern Cone returns to what was expected in the 1990s. Paradoxes of this kind also exist between Colombia and Venezuela. Petro, like the Kirchners, always in an ideological register, believes that Venezuela could supply him with gas (after Colombia supplied Venezuela in the past), but unlike Bolivia at the time, Venezuela is an energy disaster and with Maduro at the helm the chances of Venezuelan gas produced by ENI and Repsol reaching Colombia are still low. That's what happens when you interpose ideology into the economics of energy. Like Argentina, Colombia has its own potential deposits for its energy security that, due to ideology, are stalling its development (in the Colombian case there is still hope as long as Petrismo leaves power in two years), Bolivia and Venezuela are also in chaos due to disinvestment, they have the deposits and more potential, but they do not develop it.

Now a new era is beginning. Argentine and Brazilian energy companies are in talks to export gas from Argentina's Vaca Muerta shale formation by reversing a Bolivian pipeline network that has brought gas to the south, as part of an effort to address a regional deficit. Bolivia would become a transport broker like Ukraine is in Europe. That implies a risk. Bolivia is a sleeping socio-ethnic volcano.

At the moment, a preliminary proposal on the pipeline change initially failed to gain traction with Bolivia, leaving Brazil increasingly exposed to volatile LNG prices. YPFB (Bolivia) is awaiting a response from the Argentine government on how to proceed and is indicating that problems in tariff negotiations to transport the gas have delayed talks. It is already known that a Bolivian proposal in June to charge a fee for the passage of gas from Argentina to Brazil through the existing pipeline was ‘too high’. There is also the ideological issue. Negotiations have moved slowly since then as Brazilian and Argentinean government officials and companies are exploring other route options, including through Uruguay and Paraguay. However, reversing the flow of Bolivia's pipeline remains the easiest and quickest option to secure Argentina's gas for its neighbours. The infrastructure is already in place.