Chavez's
Great Pipeline
By
Energy Correspondent
Trinidad
Express
Petroleumworld.com,
06 18 06
Latin
America has long been known for its revolutionary
fervor. It may be then, that Venezuelan President
Hugo Chavez feels obligated to etch his name in
this rich history through his "socialist revolution
for the poor." He is known as an unabashed
ultra-left wing leader, with a policy history that
makes him the arch nemesis of George Bush and the
USA, not least with the recent re-nationalisation
of Venezuela's oil industry, which he touted as
"liberation from the hands of the imperialists."
There is no doubt that Chavez's Bolivarian Alternative
for the Americas, including the Petrocaribe, is
a direct attempt to undermine US influence in the
region, particularly FTAA.
Perhaps,
Chavez's grandest idea on the energy front is "El
Gran Gasoducto del Sur," or The Great Southern
Gas Pipeline.
According
to PDVSA, the pipeline "is a gas interconnection
project that the governments of Venezuela, Brazil,
and Argentina are evaluating to have clean energy
at a fair and reasonable price to foster the development
of South American countries and substitute volumes
of liquid fuels that are much more costly."
It is by far the most ambitious petroleum distribution
project in the history of the world. If it is completed,
it will be over 10,000 kilometres long and would
allow the distribution of the equivalent of 628,930
barrels of oil a day. The Druzhba, a 4000 kilometre
pipeline sending oil from Russia to Western Europe,
is currently the world's longest line. If the physical
magnitude of the project is staggering, the economic
outlay required is equally as monumental. The pipeline
is expected to cost a whooping US$23 billion to
build, and would provide an estimated one million
jobs, during an eight-year construction period.
For Chavez, the main rationale for the project would
be to compete with and eventually eke out US presence
in Latin America, while promoting self sufficiency
in energy, and "independence and development".
But
while Venezuela and PDVSA work on convincing the
world about the pipeline, voices of concern have
arisen, even within in Latin America. The economics
of the pipeline have been questioned, particularly
in academic and political circles. According to
Wagner Victer, Secretary of Energy for the State
of Rio de Janeiro, "Energy integration cannot
be at any cost. It has to be domestically and internationally
competitive."
Victer
feels that there is little "technical or commercial
basis" for the project and questions the capability
of expertise in Venezuela or any of the other countries
to construct and maintain the pipeline. Victer fears
have been fuelled by the poor record of Latin Americans
in pipeline maintenance.
The
capital cost of the pipeline also has come under
fire. US$23 billion is no piece of cake for a region
that remains heavily indebted. According to Edmar
Fagundes de Almeida, an economics professor at the
Federal University of Rio de Janeiro long-term contracts
and guarantees would be required to make the project
attractive to private investors. However, Brazil,
Venezuela and Argentina, all have different policies
toward private investment. In addition, recent events
in Bolivia and Venezuela have heightened country
risks considerably in Latin America.
Given
the heavy capital outlay, there is considerable
doubt about the competitiveness of the prices of
the gas transported through the pipeline. According
to PDVSA, initial estimates place a long-term marginal
cost floor of at least US$5 MMBTU for gas coming
from Venezuelan reservoirs to Argentina. Independent
estimates have stated that the price would have
to be at least US$8.50/MMBTU for the pipeline to
be viable. In any case, Bolivia currently sells
gas to Brazil for $3.23/MMBTU, and charges $3.18/MMBTU
for gas delivered to the Argentine border. It would
take a very special set of circumstances to encourage
someone to contract for gas above those prices.
The
most compelling issue, however, is the demand scenario.
The pipeline is predicated on demand from mainly
Argentina and Brazil. Argentina, which is now a
net importer of gas, uses 140 million cubic metres
of natural gas per day. Brazil, the region's economic
powerhouse, consumes approximately half as much
gas as Argentina, 35 per cent of which comes from
Bolivia. By the time the pipeline is complete, Brazil
expects to be producing more than three million
BOPD of crude oil within its borders along with
100 million cubic meters of natural gas. Brazil's
Petrobras, asserts that Brazil will become self-sufficient
in crude by the end of 2006 and expects the same
will happen with regard to natural gas within a
decade. Petrobras' richest oil and gas fields are
located in Atlantic waters off the coasts of Sao
Paulo and Rio de Janeiro states, the very places
Venezuela hopes to sell its gas. Moreover, it is
conceivable that an LNG option can provide gas to
the target market in a shorter timeframe and lower
cost than the pipeline. These developments could
render Chavez's pipeline redundant in the long-term.
Where
does Trinidad and Tobago stand, if anywhere, in
all this? There is no doubt that a growing market
exists in South America. Venezuela's focus on a
pipeline to the South would further consolidate
Trinidad and Tobago's position as a main exporter
of LNG to the North. This opportunity is counter-balanced
by the challenge of obtaining a cross border gas
agreement with Chavez, who, if anything, seems to
be hardening his position against the US and anyone
perceived to be an ally. A useful compromise may
be to pursue the LNG option jointly with Venezuela.
Of course, this would require a level of diplomatic
skills that may be a scare supply.
Trinidad
Express
Wednesday, June 14th 2006
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©2006 Trinidad Express. All Rights Reserved.
