Sunday, November 07, 2010

Bolivias Shrinking Gas Reserves - The Price of Evo's Nationalization Part 1


Bolivia's government has finally confirmed what Bolivian analyst Hugo Del Granado reported a month ago,  tthat the country's natural gas reserves have dropped precipituously.

From Merco Press

According to a recent audit commissioned by the Bolivian government and conducted by US-based consulting firm Ryder Scott allegedly shows that the country has only 8.3 trillion cubic feet of proven gas reserves, sharply lower than the range of 12.8 trillion to 26.7 trillion that has appeared in contradictory official versions.
“It's a blow to the expectations that have been built up since the start of the decade concerning ... (factors) that gave Bolivia an economic advantage in the regional context,” energy sector analyst Hugo del Granado is quoted in La Paz press.

Del Granado caused a stir days ago when he published an article about a preliminary yet reliable report he had seen concerning a sharp drop in proven gas reserves, noting the government has been keeping the information secret since June.
Apparently the recent audit commissioned by the government and conducted by U.S.-based consulting firm Ryder Scott shows that Bolivia has only 8.3 trillion cubic feet of proven gas reserves, sharply lower than the range of 12.8 trillion to 26.7 trillion that has appeared in contradictory official versions.
Bolivia is “resisting the truth” because acknowledging the reality would mean losing its status as the second-leading natural gas power in South America, Del Granado said, adding that the country currently ranks fourth in the region in terms of proven reserves.
Venezuela has 200 trillion cubic feet of gas reserves, followed by Argentina, with 13.2 trillion; Brazil, 12.7 trillion; Peru, 11.2 trillion cubic feet; and Colombia, 4.4 trillion, according to figures cited by the expert.
Bolivia's former superintendent of oil and gas, Carlos Miranda, told the media that, if the drop in reserves is officially confirmed, Bolivia would be faced with “the nation's biggest-ever natural resources disaster.”

 Its A Gas --

Bolivian law requires an annual certification of its proved natural gas and oil reserves for the previous year ending December 31st, by an independent certification firm.   Proved reserves of natural gas are "estimated on the basis of geological and engineering data that make it possible to determine with reasonable certainty if the oil and gas found in known fields could be recovered in current economic and operating conditions", to use the widely accepted SEC definition.    In order to perform the certification,  certifiying company would send personnel to the country, go on-site to the gas fields and headquarters of everyone involved in oil and gas, and pore over seismic, production and financial data and present a certification report.

But Who's Counting?
 Carlos Villegas - President of YPFB, very recently Morales' Hyrocarbons Minister, a main architect of Evo's nationalization strategy, finally admitted that the gas reserves were at 12.8 Trillion Cubic Feet, after months of dodging the question of what the results of the 2009 certification were. 

Amazingly enough during his tenure running the nationalized hydrocarbons sector there has been no certifcation of reserves.  Ironically, the same "neo-liberal" governments Villegas made a career out of vilifying complied with this certification rather scrupulously.
 Bolivia previously used,  De Goyler & MacNaughton,  until 2006 when  Evo's government fired them.  Using a new methodology D & M had given a report lowering reserve estimates in some of Bolivia's major gas fields from 22,48 TCF in 2004 to 12,86 TCF for 2005 - leaving around 15TCF total.    Evo's government was angered with this report, saying it was "politically motivated" to harm Bolivia's nationalization process.   This argument is being used again, but without mentioning that Bolivia's largest gas producer Petrobras (and the multi-national that would be behind any of  D&M's dastardaly "plots") was vociferously against this report.    And alienating a State company like YFPB would not seem in character for a company whose client list includes many large State Oil Companies of countries with prickly rulers like Libya and Russia.  That also brings up the point that if the 2005 report if accurate could mean that D&M over-estimated gas reserves in the preceding 8 years to inflate corporate filings.   Then again, part of that downward estimate could have involved  the change in hydrocarbon laws and taxation regime in 2004 and 2005, that made recovering a certain percentage of that gas economically inviable and/or resulted in lower spending on exploration, maintenance, and drilling which would also affect the numbers down.   Problem with all of this is that the report and certification was not accepted by the government, and its contents are privileged information that can only be revealed by the government. 

 Whatever the real figures were for 2005, there was nothing to compare them to.  Morales' MAS administration violated existing (and current) laws requiring annual certification of reserves.  Any doubts from D&M's report, could have been resolved by simply hiring another auditing firm.   Despite a public licitation no one was hired to audit the 2005 year, and for that matter 2006, 2007 and 2008.  Finally another certification company Ryder Scott was hired to do the work

This goes to very basic transparency in resource management.   Evo's government has resolutely failed to show where reserves are at.  According to the 2010 report from Revenue Watch  Index of Transparency: Governments and the oil, gas and mining industries  Bolivia's State hydrocarbon sector ranks among the least transparent in the region.  below countries like Chile, Peru, Brazil, and Colombia whose state companies publish regular information on reserves, volumes of sales, etc.

As Revenue Watch points out the success of Chile and Peru:

According to this model, fisca lpolicy and tax collection is the finance ministry’s domain, an autonomous agency regulates and sets policy for the extractive sector, and a state-owned company is in charge of purely commercial activities. The existence of autonomous regulatory agencies overseeing exploration and production of hydrocarbons with relatively strong tax systems and publicly listed yet state-controlled companies creates multiple sources of information on these countries’ extractive sectors, which reflects strong
disclosure of information. They therefore provide examples of strong legal and regulatory structures
that, when implemented effectively, can enhance extractive sector transparency.
During the much pilloried "Neoliberal" administrations after 1997 there was actually a somewhat clear-cut division of responsibilities and independent regulation of the sector.   An independent Hydrocarbons Superintendency regulated all the players in the industry, and acted as a consumer watchdog in such areas as gas stations.  The Hydrocarbons Ministry set policy, and YFBP and its 00 employees were charged with supervising and enforcing the contracts with the private-party partners in exploration, production and refining.
These three public sector entities also provided detailed information on contracts, public licensing rounds, daily gas and oil production volumes, and annual reserves. 

Paradoxically "nationalizing" the hydrocarbons industry and centralizing its operations, has "deregulated" and de-institutionalized the entire sector.  Morales government folded the Superintendency transferring some of its functions into the Ministry of Hydrocarbons, in effect making the Ministry responsible for regulating itself.   YFPB is now theoretically in charge of the entire downstream and upstream sectors of the oil industry, with no real oversight.   The MAS has also De-professionalized and politicized the running of State entities placing political hacks and industry neophytes The ideologically charged and rather confusing MAS constitution has also further muddled the entire industry.    Meanwhile there is little real public information from the authorities, including something as basic as daily gas production which is released not by the State but by a third party company.

It is this ideological backwardness, lack of transparency, and downright technical ignorance that has set the stage for this gas catastrophe.  These conditions have created an environment where the companies with the know-how and money have stopped investing in the sector, which is why reserves are where they are at

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