20030131-IEA-South_American_Gas_Daring_to_tap_the_Bounty_248页_3mb

South American Gas Market Summary

Core Content

South America has become one of the most dynamic regions for natural gas development in recent years, with significant investment in exploration, production, processing, pipelines, LNG facilities and gas-fired power generation. The region's gas markets are evolving rapidly, driven by structural reforms, economic stabilisation, and the need to diversify away from hydropower and oil.

Main Points

• Natural Gas Growth: Natural gas is the fastest-growing primary fuel in South America, with annual demand increasing by 5.1% between 1990 and 2000, compared to 3.2% for total energy demand.

• Reserves and Production: South America has abundant natural gas reserves, with proven reserves exceeding 7 tcm in 2002 and potential for further growth due to recent discoveries and deep offshore fields in Brazil.

• Market and Infrastructure Challenges: Despite significant reserves, the main constraints for gas development are market access and infrastructure. Argentina is the only country with a mature gas market and well-developed infrastructure, while others like Bolivia and Peru have large reserves but limited domestic markets.

• Cross-Border Trade: Gas projects in South America often involve cross-border trade, particularly in the Southern Cone. Several major pipelines have been built or are under development, connecting Argentina, Brazil, Chile, Bolivia, Paraguay and Uruguay.

• LNG Development: LNG exports are becoming a key part of South America's gas strategy, especially from Trinidad and Tobago and Venezuela. Trinidad and Tobago is projected to become one of the largest LNG suppliers in the Atlantic market, while Venezuela has the potential to increase LNG exports despite past challenges.

• Industry as the Largest Consumer: Industry is the largest consumer of natural gas in South America, primarily using it in the industrial and oil and gas sectors. Residential and commercial use remains limited due to the lack of space heating needs and limited infrastructure.

• Power Generation: Gas-fired power generation is growing, especially in response to the vulnerability of hydropower due to recent droughts. Between 1995 and 2000, gas-fired generation grew by 8.4% annually, compared to 4.5% for total generation.

• Policy and Reform: South American countries have implemented substantial reforms in the gas sector, moving towards liberalisation and private participation. These reforms have led to increased investment and technological development, with Argentina, Bolivia and Peru being the most advanced in this regard.

Key Countries in the Region

Argentina

• Has the most liberalised gas market in the region.
• A significant number of private companies are active in all segments of the industry.
• Gas-fired power generation has grown rapidly, and the country is a major gas exporter to its neighbors.

Bolivia

• Possesses large gas reserves but has a small domestic market.
• Has seen increased private investment in the upstream sector, leading to a significant increase in proven reserves.
• Plans to export gas to neighboring countries and potentially via LNG to the west coast of Mexico and the US.

Brazil

• Relies heavily on gas imports due to limited domestic reserves.
• Has implemented power-sector reforms that have encouraged gas-fired generation.
• The country is exploring LNG export options, with plans to build an LNG import terminal on the eastern coast.

Venezuela

• Has substantial gas reserves, but production is closely tied to oil output.
• Has shown interest in increasing domestic gas consumption and developing LNG projects.
• The state-controlled PDVSA has started to engage with private companies for gas infrastructure development.

Key Trends and Future Prospects

• Infrastructure Development: The construction of cross-border pipelines and LNG facilities is progressing, especially in the Southern Cone.
• Market Liberalisation: Reforms have allowed private companies to participate in various segments of the gas industry, leading to increased investment and efficiency.
• LNG Potential: Trinidad and Tobago and Venezuela are poised to become major LNG exporters, driven by improved economics and new policies.
• Regional Integration: Cooperation among South American countries is advancing, particularly through regional trade blocks like Mercosur and the Andean Community, which have contributed to greater political stability and economic growth.
• Environmental and Economic Considerations: The region's gas resources are often located in environmentally sensitive areas, which presents challenges for development and exploitation.

Policy Recommendations

• South American governments need to implement sound energy and gas policies.
• Credible institutions and a transparent fiscal and regulatory framework are essential for attracting private investment.
• Efforts should be made to reduce barriers and create incentives for both domestic and foreign investment.
• Regional cooperation and integration are critical for the development of a unified and efficient gas market.

Conclusion

The development of natural gas markets in South America is a long and challenging process. While the region has substantial reserves and growing demand, success depends on overcoming market and infrastructure constraints, implementing effective reforms, and fostering regional cooperation. The future of South American gas is promising, with potential for significant exports, especially in the LNG sector.