FocusBrazil and Bolivia hold talks on gas

17 December 2007 18:48  [Source: ICIS news]

By John Waggoner

(Adds detail on Venezuela's ties to Mercosur)

HOUSTON (ICIS news)--Heads of state from Brazil and Bolivia met on Monday to discuss natural gas investments and trade amid concerns of scarcity in Brazil, which is Latin America’s largest petrochemical producer.

The meeting between President Luiz Inacio Lula da Silva of Brazil and his Bolivian counterpart Evo Morales was considered an important step toward solidifying the countries’ understandings on natural gas.

Brazil is dependent on natural gas imports from Bolivia.

Petrochemical producers in Brazil use predominately liquid feeds, but a scarcity of gas - or electricity that is derived from gas - could have an impact on the ongoing growth of the chemical industry, industry sources said.

In a Congressional hearing on the topic in Brazil last week, president Claudio Sales of the Brazilian think tank Instituto Acende Brasil warned that the nation’s electricity supply remains at the mercy of nature to provide enough rainfall to replenish hydroelectric reservoirs.

Electricity could run out “if it does not rain enough”, Sales said, adding that new rationing measures could be required as soon as next year or 2009. By 2011, however, he said that the pressure would be off, as regulators by then would have had time to implement measures to avoid a shortfall.

Brazil’s thermal power generation segment - supported in large part by state-run Petrobras - uses gas to supply the country’s power demand when hydroelectric generation falls short. In 2006, gas accounted for only 4% of the nation’s electricity supply, according to data from the Energy Ministry.

Public interest in the gas supply loomed large in October, when Petrobras was forced to ration the gas supply in the industrial core of the country due to increased demands from thermal power plants. The shut-off affected only a small number of chemical producers and the situation was normalised within days.

State-run Petrobras will be instrumental toward securing the country's natural gas supply situation. About $18.2bn (€12.8bn) will be invested in the natural gas sector by 2012, according to Sergio Guerbatin, general manager of natural gas logistics operations for Petrobras.

Guerbatin said that Bolivia would remain an important supplier to Brazil.

“It is Bolivia’s next priority after supplying the domestic market,” Guerbatin said in Portuguese during the hearing.

The meeting between Lula and Morales was expected to include talks about investments by Petrobras in Bolivia. The Brazilian state-run energy major has been looking for expansion opportunities in South America, a company executive said in November at the Latin American Petrochemical Association (APLA) meeting.

Petrobras had put its investments in the gas-rich country on hold after Evo Morales ordered the nationalisation of foreign investments in hydrocarbons in May 2006. That move chilled investment plans by petrochemical producers, but Lula has maintained close diplomatic ties and has supported Morales.

“Brazil and Argentina have to help Bolivia; have to help Uruguay; have to help Paraguay, allowing us to understand that integration is the best way out for all the countries of the Mercosur,” Lula said in Portuguese in a weekly radio broadcast on Monday. The Mercosur trade pact includes Argentina, Brazil, Paraguay, Uruguay and Venezuela.

Although Venezuela has signed a membership agreement with the Mercosur, full-fledged status has not been fully ratified by all the member countries.

($1.00 = €0.70)

By: John Waggoner
+1 713 525 2653

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