
01 Sep The natural gas market in South America: When changes are here to stay
Natural gas markets worldwide are in a constant state of evolution, driven by technological innovation. Advances in exploration and production techniques continue to enhance efficiency, while improvements in transportation and commercialization have transformed the industry. Although rudimentary gas pipelines were reported as early as 940 BC in China, it was the metallurgical advancements of the 20th century that enabled the large-scale construction of pipelines. Initially, these allowed for domestic distribution within countries, but over time, they laid the foundation for international markets. In the 1960s, for example, the United States developed an extensive network of natural gas connections between states, which in turn inspired Latin America in the 1970s to consider regional energy integration through large-scale pipeline projects.
However, the economic crisis that gripped much of Latin America during the 1980s stalled progress on these initiatives, as severe credit restrictions made financing such projects nearly impossible. It wasn’t until the 1990s that the sector experienced a resurgence, marked by a wave of pipeline construction. In South America, the growing network of interconnections between Argentina and Chile, along with a major project linking Bolivia and Brazil, captured the attention of both local and international analysts. While Argentina and Bolivia had long relied on natural gas for domestic consumption, this decade saw a renewed push toward international trade. Once again, energy integration—this time driven by market forces and the private sector—gained significant momentum.
The early 2000s, however, brought profound shifts in both technology and energy policy. On the technological front, advancements in natural gas transportation and commercialization once again reshaped market dynamics, both regionally and globally. The development of liquefied natural gas (LNG) technology made it possible to transport gas by sea, eliminating the need for costly pipeline infrastructure. By altering pressure and temperature, natural gas could be converted into a “convenient and cost-effective” liquid state, stored in maritime vessels—much like oil—and shipped anywhere in the world. This breakthrough meant that any coastal country requiring natural gas needed only to build a regasification plant and a connecting pipeline to its final consumers, making it possible to source gas on the spot market rather than committing to long-term pipeline contracts.
At the same time, hydrocarbon-producing countries—particularly those rich in natural gas—underwent significant policy shifts. Rising prices and the lucrative economic rents generated by the sector fueled a growing fiscal appetite, leading governments to impose stricter regulations and higher taxes. While these policies increased short-term revenues, they ultimately discouraged investment in exploration and production, raising concerns about long-term supply security. The effects were evident: Argentina’s natural gas exports to Chile declined sharply, while Bolivia’s exports to Brazil stabilized at 30 million cubic meters per day—the maximum contractual volume.
Faced with growing uncertainty over regional gas supplies, importing countries began exploring alternative energy sources. In the past, their only option would have been to import ever-increasing volumes of liquid fuels such as diesel or fuel oil. However, the technological advancements of the early 2000s provided a viable alternative—LNG imports. Countries now need only to construct regasification plants—either fixed or floating—to secure reliable gas supplies from international markets. It is no coincidence that, in recent years, Chile, Argentina, and Brazil have significantly expanded their LNG infrastructure, ensuring greater energy security through diversification.
One of the key lessons from the region’s natural gas trade is that markets and consumers are impatient. Securing alternative supply sources is a priority, even when they come at a higher cost than traditional options. Uncertainty in supply can be far more damaging than higher prices. As I once remarked during a course in Colombia: “Markets do not wait for Governments.”
When discussing the hydrocarbons sector —especially natural gas— I often find myself using analogies. I liken the industry to a massive ship: when it changes course, the shift is slow and deliberate (it is not a speedboat with an outboard motor), but once it does, returning to the previous trajectory becomes nearly impossible.
S. Mauricio Medinaceli Monrroy
La Paz
September 1st. 2011
No Comments