Industry Trend Analysis - More Gas Exports Shifting To Argentina - JUNE 2017

BMI View: Bolivia ' s growing supplies of natural gas will increasingly be sent to Argentina. Midstream developments and favourable pricing dynamics will boost trade ties and service growing Argentine demand.

Natural gas production in Bolivia will rise over the next three years as the existing project pipeline continues. Specifically, we believe the August 2016 start-up of the Total-operated Incahuasi gas project will yield additional upside as subsequent phases come online. Phase one of the USD1.2bn project added an estimated 7.0mn cubic metres per day (mcm/d) of output, with the next phase of the project expected to double capacity.

The Incahuasi project spans the Ipati and Aquio blocks approximately 250km south of Santa Cruz de la Sierra and will help push production levels to record rates. We expect output will reach nearly 23.0bcm per year by 2018, and just shy of 25.0bcm by 2021. This compares to an average production rate of 21.0bcm per year since 2012.

On The Up
Bolivia - Natural Gas Production, bcm
f = BMI forecast. Source: YPFB, BMI

We acknowledge downside risk to our forecast due to sustained commodity price weakness which has reduced investment and slowed developments across the sector. However, given the success of Incahuasi Phase I, we maintain our more upbeat outlook for the next several years.

Trade Dynamics Set To Change

Growing supplies will be increasingly directed toward the domestic market which comprised an estimated 22.0% of total demand in 2016. We believe its share will rise as thermoelectric generation capacity rises. Specifically, expansion of the 200MW Warnes plant - completed in September 2015 and located in Santa Cruz department - will more than double the capacity of the facility to 480MW to supply the country's national grid. In May 2016, Siemens was awarded a contract to expand the capacity of Bolivia's three existing thermoelectric plants by a total of over 1.0GW.

However, the export market will remain a crucial source of demand for Bolivian gas for the foreseeable future. Brazil has typically imported the lion's share of Bolivian gas via the Gas Transboliviano (GTB) pipeline which services Sao Paulo via Mutun. Brazil took nearly 65% of exports in 2016.

Argentina Will Comprise Larger Share
Bolivia - Natural Gas Exports By Country, mcm/d
*Note: April 2017 data through 4/4/17. Source: YPFB

We believe Argentina's role in the Bolivian gas export market will grow over the coming years. This is primarily due to two factors:

  • Brazilian imports will not fully-recover: Shipments into Brazil fell over 10.0% y-o-y in 2016 to an average of 28mcm/d. Imports from Bolivia remained low through Q117, hitting 14.54mcm/d in January, the lowest level observed since records began in 2007. This was primarily due to falling Brazilian demand for power feedstock amid an economic downturn and replenished hydropower reservoirs. Though we expect the Brazilian economy will improve over 2017, we believe the country will increasingly source its natural gas from growing domestic supplies ( see ' Additional Presalt Gas Will Support Power Mix Diversification ' , October 29 2015). We therefore believe Brazilian state-owned Petrobras is unlikely to renew its take-or-pay contract at the current minimum rate of 24mcm/d for its new supply agreement which takes effect in 2019.

  • Argentine incentives are growing: Argentina accesses Bolivian gas via the GIJA pipeline which transported nearly 15.5mcm/d of supplies in 2016. We believe shipments into Argentina will rise over the coming years on the back of rising domestic demand which will not be adequately supplied by domestic gas. The Argentine government is actively pushing to expand the country's midstream network to facilitate higher rates of consumption, particularly in the central Pampas and southern Patagonia regions.