Sound Policies, Institutions and Structures needed to confront challenges facing South Americas Gas Market

(Paris) — 6 March 2003

South Americas gas markets hold enormous development potential. However, this promise will only be realised fully if policy makers recognise their responsibility for defining sound energy and gas policies, developing credible institutions and establishing a reliable fiscal and regulatory framework. According to a new study by the International Energy Agency, "South American Gas. Daring to Tap the Bounty", released today in Paris, governments in the region must also reduce barriers to entry and devise incentives and guarantees appropriate to mobilising both domestic private resources and foreign investment These efforts should be pursued both domestically and in co-ordination with regional neighbours and trade partners. South America has emerged as one of the most dynamic natural gas regions in the world. The continent boasts abundant gas reserves and high-growth energy markets.

A desire to diversify away from hydropower and oil is driving many countries in the region to promote natural gas use, especially for power generation Democratisation and economic reforms have opened up a number of sectors to private investment which were previously the reserve of the state. As a result, the region has succeeded in attracting significant investment in exploration and production, gas processing plants, pipelines, LNG facilities and gas-fired power generation. Several large cross-border gas pipelines now link the countries of the Southern Cone. Many more are planned. "South American Gas. Daring to Tap the Bounty" reviews current and future trends in the continents natural gas supply. It looks at existing and potential markets, and highlights the main engines of growth geographically and by sector. It examines the South Americas emerging gas trade, reviews existing and projected cross-border pipelines and assesses the potential for LNG exports. The report features individual profiles of Argentina, Bolivia, Brazil and Venezuela. These countries account for 80% of the regions proven reserves of natural gas and production. Argentina is a net gas exporter and boasts the most mature gas market in the continent.

A leader in the privatisation of state-owned utilities, Argentina implemented sweeping changes to its upstream and downstream gas industry in the early 1990s. Bolivias geographical position and recent remarkable increase in proven gas reserves make it ideally placed to become South Americas gas hub and to play a central role in Southern Cone energy integration. Brazil is the largest energy market in South America. Despite current low levels of gas penetration, demand and imports are expected to increase significantly in the near future, driving reserve development in neighbouring producer countries. However fall out from the recent power crisis suggests the need for a careful reassessment of the situation by the new Brazilian government and the formulation of a comprehensive energy policy. Venezuela holds the eighth-largest gas reserves in the world, mostly associated with oil. Though its gas production is still comparatively low, the government is now pushing to develop non-associated gas reserves with the aim of expanding domestic gas consumption and increasing exports.