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Chile and Peru are gatekeepers for Bolivia's export ambitions.

LA PAZ -- More than a century after the war that cost Bolivia its access to the sea, Chile and Peru stand in the way of Bolivian aspirations to become a major supplier of energy to the Pacific Basin.

Until 1884, Bolivia was a seafaring nation with a fishing industry and navy. However, a dispute with Chile over nitrate deposits in the Atacama Desert led to the disastrous 1879-1884 War of the Pacific, which left Bolivia landlocked.

The treaty ending the war granted Bolivia access the Chilean port of Arica via road and railway. These access rights later were expanded to include a pipeline that carries fuels and crude oil.

But these access rights give Chile a virtual stranglehold over Bolivian trade except overland exports to Argentina and natural gas sales via a new pipeline to Brazil.

This lingering dispute stands in the way of efforts to exploit Bolivia's burgeoning natural gas reserves by developing new export-oriented petro-chemical or natural gas export projects.

Bolivia's natural gas reserves have soared in recent years. In 1998, the country had proven natural gas reserves of 6.6 trillion cubic feet (Tcf), not enough to fulfill a 20-year sales contract with Brazil for 7.2 Tcf of gas. But an exploration binge by foreign oil companies has boosted the total to more than 50 Tcf now and it appears likely additional efforts will lift the tally to more than 60 Tcf soon. While domestic gas consumption is growing, Bolivia's small population and minuscule industrial base means that exports are the only viable option for Bolivia to exploit its large gas reserves.

Exports to Brazil, which started nearly two years ago, have been disappointing. Demand has been soft because government and private investors failed to build new gas-fired power plants as planned. Brazilian officials recently expressed interest in increasing purchases to 9.4 Tcf over the next two decades as new plants are built, but even if sales ultimately were to double or triple, this would still leave a substantial amount of gas available for other projects.

There is no shortage of ideas for new export projects. The most significant is a $5 billion liquefied natural gas (LNG) export project backed by France's TotalElfFina. There also are proposals to build a petro-chemical complex and a gas-to-liquids facility, which would use a new technology to converts natural gas into diesel fuel.

All of the projects would have to be built on the Chilean or Peruvian coast in order to serve Pacific Basin markets.

Bolivia in particular takes the dispute with Chile very seriously. Signs around the country remind Bolivians of the "duty to retake access to the sea" and in the mid 1990s, the Bolivian armed forces vetoed a plan to build a gas pipeline into northern Chile that would have fueled gas-fired power plants.

Complaints about Chile's plans to acquire modern fight aircraft from the United States provide a more recent example of how the dispute continues to taint relations in the region. Chile plans to buy 10 US-built F-16s, saying the purchase is a long-overdue upgrade of obsolete equipment. Peru and Bolivia both say the planes are offensive weapons and claim the purchase could trigger a regional arms race. Peru also has protested Chilean plans to buy eight new frigates from Germany.

The Chilean government for decades largely ignored Bolivian demands for territory or improved access, except to lay minefields in northern Chile. Recently, however, Chile has been more agreeable to talks regarding improved access and recently posted the first senior diplomat it has assigned to its mission in Bolivia in years.

Resolving this territorial dispute would be a prerequisite for building any export-oriented project. TotalElfFina officials downplay the dispute, saying they are confident a deal could be struck. However, Bolivian officials have taken a dim view of proposals that projects be built on the Chilean coast without some sort of guarantees from Chile, or better yet, sovereignty over the land in question.

An alternative route out of Bolivia would pass through Peru. There already is a project in development to export natural gas liquids and liquefied petroleum gas via a pipeline to the Peruvian port of Ilo. Technically, there is nothing standing in the way of other projects at Ilo. However, there are substantial economic and political factors that would have to be considered.

Peru, with gas reserves of about 13 Tcf, plans to build a pipeline over the Andes Mountains to the coast as part of a venture to develop the Camisea natural gas fields. Foreign investors, including US company Hunt Oil have formed a consortium to develop the fields and build the necessary infrastructure.

The challenge for backers of Bolivian-based export projects would be to structure a deal so that the foreign investors in Peru would benefit from an expansion of the project. It would also be important to see that Peruvian natural gas is not crowded out by a flood of Bolivian gas in order to ensure that the government of Peru lends its political and regulatory support to any new export projects.
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Title Annotation:political disputes inhibit development of gas industry in Bolivia
Publication:America's Insider
Article Type:Brief Article
Geographic Code:30SOU
Date:Aug 30, 2001
Words:842
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