29 Dic Consumption of Natural Gas and Liquefied Petroleum Gas in Bolivia
The debate about policy pricing of Liquefied Petroleum Gas (LPG) and natural gas in Bolivia focuses on whether these prices are enough to promote investment in order to satisfy the internal and external Bolivian markets. Since these prices are currently below their international opportunity cost, we (in Bolivia) said that they’re subsidized.
Because the concept of subsidy has a very broad scope, several times the subsidy debate is, at least not friendly. First, it’s mentioned that only if production and commercialization costs are above the final sale price, then you may discuss the presence of a subsidy. Also some people mention that not always a subsidy arises when the sum of costs is greater than final sales price, a subsidy could be present when the domestic market price is lower than its opportunity international cost.
Of course, consider any of the two visions explained in the previous paragraph, involves different energy policy decisions. Thus, if we consider that there is only a subsidy when costs are higher price, then the final decision would be to raise the price and match the sum of these costs, even if the final price is below its opportunity the external market cost. Conversely, if one considers that the subsidy arises when the domestic market price is below its international opportunity, the energy policy decision could well be, raise the domestic market price until it’s equal to export parity price, even if the final price is higher than the production and commercialization costs.
Consider alternative one seems not to be the best solution, since the market acts ruthlessly, because when domestic market prices are below its international option, there are two negative elements: 1) the informal trade rises demand and dramatically and; 2) investment to increase production capacity falls sharply. The second option, set the domestic prices to export parity prices entails considerable social costs, they can be summarized in the commentary I heard from a good housewife: «I don’t understand why, if we (as Bolivians) have oil, we must suffer whenever international oil rises? «.
In this sense, and in order to provide some analytical tools for this complex situation, here’s some statistics on natural gas and LPG consumption in Bolivia. We’re particularly interested in knowing the characteristics of households that consume these products, since, if the country decides to adopt a subsidy, it’s necessary to know who benefits from it.
It is useful to note that the primary source of information are household surveys, periodically conducted by the National Institute of Statistics of Bolivia (INE). This survey questions cover the main features of the household, respect to employment, health, education, infrastructure, etc.
Table 1 presents the consumption of natural gas, expressed in energy, for each income quintile in urban areas of the country. For example, households located in quintile 1 (the poorest) consume an average of 0.691 MMBTU/month; families belonging to Quintile 5 (the highest income) consume an average of 1.134 MMBTU/month, consume 64% more energy compared to the poorest families. Thus, it can be seen that consumption of natural gas has a high correlation with household income, the higher the income… the higher the consumption.
1: Household consumption average natural gas (MM BTU/month)
Table 2 presents the energy consumption of LPG for each income quintile in the urban area of Bolivia. It also notes that higher family income implies a higher consumption of LPG, but the relationship is less compared to the natural gas. For example, while in 2007 the richest quintile households consume 64% more natural gas than the poorest quintile, in the case of LPG, this indicator decreases to 39%. Thus it can be inferred that the amount of energy consumed by the wealthiest families is proportionally greater than the poorest families where such households use natural gas. In other words, if families have access to natural gas, the energy consumption is higher, probably because the substitution effect is more pronounced, for example, an electric water heater may well be replaced with a working natural gas, but only if the family have access to LPG, substitution is not simple.
2: Household consumption average of GLP (MM BTU/month)
Table 3 presents the percentage of households using natural gas in each income quintile, for example 1999 1.1% of households in quintile 1 natural gas used for cooking and only 0.6% of households in the 5th quintile did . However, the policy of expanding distribution networks of natural gas in Bolivia, the percentage of households now use this energy is higher, further, are higher-income families who take advantage of the best enlargement.
3: Use of natural gas by income quintile -Urban
The brief analysis in this text suggest the following hypothesis: families who benefit in greater proportion from low natural gas prices are those with a high income. The reasons could be: 1) are those families who most likely could convert their portfolio of durable goods (such as a water heater or air conditioning) from natural gas to electricity; 2) poor families generally only use LPG for cooking, thus, a rush of natural gas certainly allows a monetary savings, but in smaller scale; 3) although not shown in the statistics presented, since they related only to the urban area, the national results (urban and rural) show that the poorest in the country families use wood for cooking, therefore, are not recipients of subsidies that may have LPG and natural gas prices.
Mauricio Medinaceli Monroy
La Paz, December 2010