29 Dic Grandma’s jewelry in Bolivia (Brief discussion about natural gas reserves)
Last day I read something very funny: a pessimist sees a glass half empty, the optimist has a glass half full and a super happy optimistic finds a glass, so this joke suggest me that the same reality can be analyzed from several points of views. Such situations are usually present in the hydrocarbon sector, to paraphrase my good friend Gonzalo Chávez , when he commented the book I published about the oil nationalization in Bolivia, in this sector numbers are tortured until they confess the desired truth. (If you like the book, can be downloaded at this link).
A clear example of what I mentioned in previous paragraph refers to the natural gas reserves in Bolivia. In recent months the P1 reserves interpretation generated a debate about the duration of these in the future, with the ultimate certification report and current production the central question is: for how long can Bolivia supply natural gas using the current certificated reserves? For this reason, this time I want to share with you some views on this highly sensitive subject.
The reserves/production indicator (R/P) is widely used in the oil industry to analyze the trend in this relationship. How it works? Assume grandma, in an act of extreme generosity, left you a legacy 50 diamond necklaces, you, after the initial fainting, performs the following exercise, if I need two collars per year to live, I can use this inheritance for the next 25 years (50/2). Well, made the homework for the natural gas in Bolivia, the following figure reproduces this information using only certified proved natural gas reserves for 2009 and an estimate for 2012.
Does the R/P indicator is perfect? The answer is no, because is an static one, in fact, one of the main problems with this indicator is that it doesn’t consider future production. Returning to the problem of Grandma’s necklaces, when you made the calculation of 25 you didn’t consider, for example, that in the future you may need more than 2 necklaces per year, probably because you will get marry and have children. For that reason a second way to analyze the situation of reserves is to contrast the future situation with the current proved reserves. Perform this exercise always involves the problematics task of predicting the future (situation not present in the original R/P), however, taking appropriate precautions we can make it. In principle, using the gross production of natural gas the reserve estimates until December 2013 would be 7.45 TCF, see table . The construction of this table contains information of gross production of natural gas from the Ministry of Hydrocarbons and Energy, YPFB and, the certification of reserves as of December 2009.
Now, considering exports of natural gas to Brazil and Argentina, the domestic consumption growth, the urea and liquids separation plants, starting in 2014 the requirement for natural gas is approximately 1 TCF per year, in Bolivia’s case the «Grandma’scollars » could be use for 7.5 years, about 5 years less the result given by the indicator R/P.
Finally, a third way to analyze this issue is to verify production profiles of companies and compare them with demand profiles. Again, returning to the example of necklaces , imagine that Grandma did not give you all the necklaces at once and ordered to the bank to give you 2 per year, in this sense, when you get married and have children will start to have problems, your annual requirements could be 3 necklaces but the bank (and wicked grin of granny) will only give you 2.
Taking into account the production profiles of each field and the growth of demand, problems could arise to meet demand from 2016. This does not mean that the natural gas reserves run out at this year, this exercise reflects that the supply growth rate is less than demand growth. The rabid critical to this vision might well tell me: «it can be solved if the fields exploitation is more aggressive»… that argument will get sad to some petroleum engineers friends that I have, because they care about the «prudent exploitation» of such fields.
Each indicator has strengths and problems; however, are just that… indicators. The hydrocarbon potential in Bolivia is high but its development requires: 1) open attractive markets certainly produce more natural gas for the domestic market has a high social impact high, however, our subsidized prices doesn’t generate the necessary incentive to investment in exploration and exploitation; 2) reasonable tax system and prudent operation, production taxes of 50% are not part of a progressive system; 3) solve several problems in the institutional and legal field sector.
God was generous giving Bolivia «Grandma’s jewelry» (in the form of natural gas ) in the nineties (the horrible and perverse neoliberal era) Bolivians found market to sell these jewels and now we live from their sells. Finally ask the gentle reader: what would you do with Grandma’s Jewelry?
La Paz, March 14th, 2014
Mauricio Medinaceli
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