A new natural gas market in 2 years

By Luciano Codeseira, executive director and founder of Gas Transition Consultant (GTC) and co-director of the Energy Institute at Argentina’s Universidad Austral.

Negative news regarding the regional balance of the gas market has increased in recent months, but behind these imbalances rests a new opportunity: the ability to place firm natural gas from Argentina, like what happened 15 years ago.

Bolivia surprises again

In recent weeks, uncertainty has prevailed in Bolivia’s natural gas export business like never before, after the president once again lamented the decline in production. Currently, Bolivia has average production of 35-36Mm3/d (million cubic meters a day), and is projected to be about 32-33Mm3/d in 2024.

Some time ago, Bolivia recorded deliveries to Brazil with maximums of about 30-31Mm3/d, levels that by 2022 had decreased around 40%, to 18Mm3/d, and so far this year have averaged 16Mm3/d – around half of that record rate. 

Meanwhile, Argentina had delivery rates of 17-18Mm3/d but in 2022 they also decreased around 40%, to 11Mm3/d, and in the first week of September, stood at 8Mm3/d – less than half of the 2022 level. Finally, Bolivian internal demand has remained at 12-14Mm3/d.

	Brazil	Argentina	Internal market	Total
Jan-22	21.3	9.6	13.2	44.1
Feb-22	22.6	7.4	14.0	43.9
Mar-22	21.4	8.7	13.5	43.6
Apr-22	16.4	11.4	13.5	41.2
May-22	14.9	13.6	13.8	42.3
Jun-22	15.8	13.9	13.9	43.6
Jul-22	16.2	15.0	12.5	43.7
Aug-22	16.5	12.7	14.0	43.2
Sep-22	12.7	14.1	14.1	40.9
Oct-22	18.2	7.1	14.1	39.4
Nov-22	19.1	6.0	13.2	38.3
Dec-22	18.1	6.7	13.3	38.2
Jan-23	18.0	6.9	12.8	37.7
Feb-23	18.0	6.7	12.3	37.0
Mar-23	19.5	4.6	13.1	37.2
Apr-23	17.7	5.1	13.0	35.9
May-23	13.9	6.2	12.3	32.3
Jun-23	13.7	8.4	12.4	34.5

Bolivian natural gas deliveries in 2022-23 in Mm3/d. Source: GTC based on records from Brazil’s mines and energy ministry, Argentine gas regulator Enargas and Bolivia’s state company YPFB.

So, during the first half of 2024, if Bolivia manages to produce around 32Mm3/d, with a domestic market of around 14Mm3/d, the export margin would be 18Mm3/d. If Brazil intends to maintain the 16-18Mm3/d for its market, the margin towards Argentina is gone. This is the severity of the balance between Bolivia, Brazil and Argentina.

That is why the current addendum to the contract between YPFB and Enarsa has been discussed under the theory of impossibility. What is established in the 7th addendum, in force, is that for the first half of 2024 about 8Mm3/d will flow, but that possibility no longer exists in view of the production projections for next year. The 8th addendum, soon to be signed, refers to about 4 or 5Mm3/d and possible interruptibility of the contract starting in July. Furthermore, YPFB is willing to pay the penalty for non-compliance with Argentina (which is 15% of the price) instead of doing so with Brazil, whose penalty amounts to 185% of the value. The truth is that those 4-5Mm3/d will be the result of political agreements or disagreements between the actors of the three governments and the hydrology conditions in the Brazilian market.

For years, the supply of northern Argentina has been viewed with concern. It should be remembered that Bolivia has room to deliver just 2Mm3/d in summer when Brazil takes more gas and that the Argentine region supplied by Bolivia needs up to 12Mm3/d in winter periods. This context is not new, nor does it surprise the parties. That is why the reversal of the Gasoducto Norte pipeline has been the priority of the Argentine system for at least a year, as much if not more than the GPNK: if the reversal of the gas flow is not resolved, an entire region of Argentina would be facing a material supply shortage.

From Crisis to Opportunity

The reversal of the northern gas pipeline represents an expenditure of US$750mn, for which CAF is providing a loan of US$540mn while the rest will be covered with funds provided by Cammesa, and its first stage was already completed in June this year with the adaptation of the Tío Pujio and Leones compressor plants, allowing a flow of 10Mm3/d from San Jerónimo to the center of the province of Córdoba.

Reversal of Gasoducto Norte: Stage II

The second stage includes the new 36-inch pipeline that connects La Carlota-Tío Pujio (122km, along with 30-inch loops of 62km and reversal work at four compressor plants, allowing up to 19Mm3/d to be dispatched north).

These works are expected to be ready in May or June 2024, which will not only decompress import requirements from that date, during the cold months, but also allow for exportable balances to the north of Chile in the summer period: up to 2Mm3/d.

The third stage is expected to be completed in the second half of 2025. It adds 96km of loops, capacity to the compressor stations and the reversal of the remaining five compressor stations and would allow a flow of up to 29Mm3/d. Thus, there would be seasonal exportable balances in the summer period of 14-16Mm3/d and year-round exportable volumes of 9Mm3/d to the north of Chile, at least from an infrastructure perspective. By then, this work would include the Presidente Néstor Kirchner pipeline (GPNK), with capacity of 39Mm3/d in Tratayén.

We are facing a change in the axis of gravity of the gas market in the region that will occur in the next two years, a true way out of the energy labyrinth in which the region finds itself. It is time to rethink and build that new market.

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