Actuality March 18, 2008

The Russian corporation is ready to invest billions of dollars into joint gas projects, including construction of transcontinental gas pipeline through South America.

The agreement signed between Gazprom and the state-owned petrol company of Bolivia (YPFB) presupposes the conduct of geological prospecting at such blocks as Sunchal, Acero and Carohuaicho located in southeastern Bolivia within Subandino Sur oil and gas basin. According to expert estimations, these blocks gas-bearing potential amounts around 300 bcm. Gazprom and YPFB intend to arrange the joint venture within the transaction framework. The controlling interest will belong to the Bolivian company.

The parties do not announce the capital investments amount. However, according to the British Financial Times data, the contract value can attain $2 bln. Gazprom foreign economic activity department head Stanislav Tsugankov said that the "company examines the issue of investing billions of dollars in Bolivia", although the preparatory work is conducted at this stage. "Bolivia possesses large gas reserves and this country interests us more in this region", declared Tsugankov. "I think it becomes the gas leader in its region. And our aim is to take as much advantage of it as possible".

We will remind that the Russian-Bolivian strategic alliance has been started in February, 2007, when Gazprom and YFPB have signed Memorandum of Understanding. This document presupposes the cooperation in the following areas: hydrocarbon prospecting and development in Bolivia, opportunity studying of infrastructural projects participation including liquefied natural gas (LNG) production as well as opportunity of training and advanced training of oil and gas sector specialists.

According to the Bolivian president Evo Morales, "the agreement signed between the Russian Gazprom and the state-owned petrol company of Bolivia (YPFB) in La Pass will arrange terms for gas supplies increase to the neighboring countries, Argentina and Brazil foremost". And the Latin American mass media report that the Russian corporation is also ready to participate in project development and in giant transcontinental gas pipeline construction, which should connect Argentina, Bolivia, Brazil, Venezuela, Paraguay and Uruguay. It is 8 000 km long and construction costs are estimated at $23 bln.

Bolivia occupies the third place in Latin America after Venezuela, Trinidad and Tobago by the natural gas reserves, which amount 1,5 Tcm. The main gas reserves are located in four largest fields, namely Margarita, San Alberto, Sabalo, Itau, discovered in the southeastern part of the country. Moreover, Bolivia is the main natural gas supplier to such countries, as Brazil and Argentina. Currently, the Argentina’s market gets around 3 mcm of Bolivian gas daily. And Brazil also gets 27-30 mcm of gas from Bolivia daily.

However, Bolivia can not provide such volumes of deliveries lately. In experts’ opinion, Bolivia will be unable to fulfill contractual obligations to the neighbors and provide the growing demand of the internal market without putting into operation the new oil and gas fields. Foreign investments into oil and gas industry have sharply gone down since Evo Morales has nationalized the country by his left-radical policy in May, 2006.

The foreigners, working on the Bolivian territory, were offered very hard terms. Around 50% profit from oil and gas extraction and processing is withheld from the companies, which have signed contracts with the state YPFB. No wonder that Morales has left nothing but to look for the new partners, as hardly any large European company would cooperate with YPFB under present terms. As the Independent Consulting Group "2K Audit-Business consulting" management partner Ivan Andrievsky marks the issue of Gazprom keeping is of vital importance for the Bolivian president, thus not only from economic (there is the real threat to disrupt the export supplies to Argentina and Brazil), but also from political viewpoint.

Evo Morales is simply obligated to prove that his "left" government is able to attract favorable foreign investments. And even after the agreement signing he marked he would welcome any transaction with Gazprom. In his turn, the acting director of YPFB Santos Ramirez Valverde commented the country’s head policy and said that "Bolivian gas extraction industry needs partners, but not patrons". "Gazprom will be our partner", he explained.

However, if Bolivian part interests are quite obvious, it is hard to understand the Russian gas corporation motivation, in Andrievsky opinion. Though this Latin American republic disposes the large gas reserves, they are insignificant by the Gazprom standards. And moreover, the financial solvency of the Latin American consumers is far lower than the European ones. However, Gazprom pursues the international expansion policy and is ready to take a risk and enter the new market outlets. Thus, as Bolivia is interested in the cooperation far more than the Russian corporation, Gazprom can bargain and demand more favorable terms for itself after the prospecting.