The Natural Gas Market in South America: When changes are here to stay

The Natural Gas Market in South America: When changes are here to stay

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Natural gas markets in the world are subject to constant technological innovation, new techniques for exploration and exploitation of deposits, involve higher levels of efficiency. Moreover, the significant impact of improvements in transportation and sales techniques of this product is not a waste of time. Indeed, there’s evidence about natural gas transport in ancient times through rudimentary ducts (940 BC in China), but is the growth in the metallurgy in twentieth century that enables massive pipeline construction that, first allow the transport inside the country and also consolidated international markets.

Unfortunately, the economic crisis experienced in Latin America during the eighties didn’t allow progress in the aforementioned negotiations, because credit constraints were aggressive. After this period, the nineties appear as a decade rich in pipelines construction. In particular, in South America, the set of interconnections between Argentina-Chile and Brazil-Bolivia megaproject, draw attention of many analysts. While the use of natural gas in Argentina and Bolivia was already common within their economies, it’s in 90’s that international trade takes on new momentum and, once again, a renewed idea of energy integration, market-driven and the private sector takes remarkable strength.

However, during the first decade of the new millennium important changes happening in technology and energy policy. On the first point, it appears that, once again, technological advances in transportation and sales of natural gas changes the configuration of markets in the region and the world. The ability to transport natural gas across the sea (LNG projects) now allows this product to be bought and sold internationally, without the need to build a large pipeline. Through this new technology, natural gas (changing pressure and temperature) can be changed from the «expensive» gaseous state to «convenient and cheap» liquid state. Therefore, if a country wants or needs natural gas and has access to the coast, the only thing required is to build a regasification plant and a pipeline connecting this point with the market.

Regarding energy policy, in producing countries (in particular natural gas) is observed a change in energy and fiscal policy. Rising oil prices generate high economic rents, that increased the traditional appetite to increase taxes and consequently decreased investment in exploration and exploitation. This caused the security of supply in the markets involved, to say the least, be questioned.

In this new situation, with high uncertainty about the supply of natural gas in the region, importing countries started to look alternative sources for energy. The technological progress mentioned above showed to these importing countries that it was possible to buy natural gas from other parts of the world, through LNG projects, they only needed to build regasification plants (stationary or not) in order to obtain natural gas and thus achieve the desired supply. It is no coincidence that in recent years Chile, Argentina and Brazil started the construction of regasification plants.

Perhaps one of the main lessons from the performance of natural gas international trade in the region is that, markets and consumers are impatient and therefore the search for alternative sources of energy supply is a priority, even with high prices, because cheaper options contain a great deal of uncertainty. As I said in a course in Colombia: «Markets don’t wait for government decisions.»

Mauricio Medinaceli Monrroy

La Paz – Bolivia, September 2011.

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