LatAm oil & gas 2002 wrap
12/30/2002 - Source: www.bnamericas.com In the absence of major oil and gas finds in 2002, the biggest news was the wave of companies changing hands, new bidding rounds, Venezuela's two general strikes and developments in liquefied natural gas (LNG) projects. LNG Bolivia's government is doing the Pacific LNG consortium no favors by postponing the decision on using a port in Chile or in Peru. Also in Bolivia, France's TotalFinaElf is studying its own LNG project, and is reportedly in talks with Pacific LNG to merge the two projects. In Peru, Hunt Oil aims to secure a buyer by mid-2003 for LNG from Camisea, while in Venezuela, the government signed contracts to begin feasibility studies for the Mariscal Sucre project, and in Trinidad & Tobago Atlantic LNG began operations at Train 2, with Train 3 set to follow in early 2003, and Train 4 talks underway. Meanwhile, companies are competing for pole position in Mexico's market, where regasification plants would supply the local market and dispatch to the US. State power company CFE plans to buy LNG for power plants around Altamira. Companies jostling for position there and elsewhere include Marathon, El Paso, Phillips, Shell Gas & Power, Repsol-YPF, Gas Natural SDG and Tractebel. The Mexican government is scheduled to publish definitive LNG regulations in February 2003.
ARGENTINA - After the financial meltdown and the peso's devaluation, the government converted regulated tariffs into pesos. This hit the natural gas sector more than oil, as most natural gas continues to be consumed domestically and is now being paid for at much lower rates. Oil benefited through a combination of lower production costs and export prices that continue to be in dollars. Companies remain highly nervous about increasing their Argentine exposure due to exchange rate volatility and authorities prowling for ways to boost income from taxes on the highly visible oil and gas industry.
BOLIVIA - President Gonzalo Sanchez de Lozada took office in August and made it clear he would prioritize the direct consumption of natural gas, with an early plan being the connection of 250,000 residential and commercial consumers by 2005. State oil company YPFB has started connecting 14,000 households, and the government is preparing to tender a contract to make the remaining 236,000 residential connections with financing from the World Bank and the Andean Development Corporation (CAF). The government signed protocols with Paraguay for an 850km pipeline to Paraguay's capital Asuncion, which would give Bolivia an alternative export market and could be operating by 2H04. Upstream, proven and probable natural gas reserves were 52.3tcf at January 1, 2002, and the government scrapped a licensing round in September and plans to try again in 2003.
BRAZIL - Oil giant Petrobras took a controlling stake in Argentina's Perez Companc, adding exploration, production, refining and transport assets across the region to its international portfolio, firmly establishing Petrobras as Latin America's leading integrated oil company. The acquisition's impact will become more apparent once Petrobras selects areas for growth and expansion, and possibly some minor divestments. Fuel prices were deregulated in January and quickly became politically contentious, as Petrobras hiked prices closer to international levels, only for the government to peg the price of liquid petroleum gas (LPG) again. It remains to be seen whether the incoming Lula government sticks to deregulation, as there have been calls for all prices to be fixed again. Exploration and production activity was fairly muted through 2002, as companies that joined in the various oil licensing rounds over the last five years proceed with their exploration programs. The most significant announcement came from Petrobras, which discovered and is testing a 600 million barrel reserve in the Jubarte field. Domestic oil production averaged just over 1.5 million barrels a day (mb/d), out of the country's total consumption of about 1.8mb/d, and Petrobras expects the country will be self-sufficient by 2005. That prediction relies on boosting the local refining capacity, which is close to capacity. CHILE State oil company Enap announced plans to invest US$1.35bn over five years to double market value to US$3.3bn. Enap is building on its refining expertise and its RPC subsidiary started operations of a US$37mn plant to produce gasoline additive dipe in July, and is considering a US$26mn gasoline de-sulfuring plant and a US$19mn refurbishment of its cat cracker. Enap's Petrox refinery completed a US$32mn upgrade in June, and in December presented plans for a US$39mn clean fuels project.
COLOMBIA - All in all, a pretty bad year. Dwindling reserves and falling production means 535,000b/d crude production is expected for 2003, down from 687,000b/d in 2000. State oil company Ecopetrol plans to shed 17% of its workforce over the next three years, the gas sector marked zero growth, and plans surfaced to export Caño Limé¯n crude through a port in Venezuela to sidestep domestic security issues. Ecopetrol and its Venezuelan counterpart PDVSA floated the idea of building a natural gas pipeline to meet a short-term shortage in western Venezuela, reversing the flow once Lake Maracaibo gas production kicks in over the next few years. Companies including Seven Seas, CMS Oil, Petrobras, Tecpetrol, Petrolex and AEC divested upstream assets.
ECUADOR - The OCP heavy crude pipeline increased investment to US$1.3bn to make up for lost construction time, Vintage sold off Ecuadorian assets, and Noble started pumping gas from the Amistad field. State oil company Petroecuador called for bids on a US$100mn multipurpose pipeline, started the country's ninth bidding round and signed a production sharing agreement with Chile's Enap, while putting other plans on hold until the new government takes over in January.
MEXICO - State oil company Pemex completed the US$1.6bn workover of its Madero refinery in June, but missed the year-end target to call for bids on the US$1.2bn reconfiguration of the Minatitlan refinery. Crude production climbed slightly but steadily through the year, and Pemex and the government prepared the multiple service contracts that will allow greater private participation. Sector uncertainty however held up plans to put gas distribution in Veracruz state into private hands.
PERU - Construction of the pipeline that will carry Camisea natural gas to capital city Lima was 70% complete in November. Belgium's Tractebel took an 8% stake in the pipeline and in May signed contracts to distribute the gas once it gets to Lima and Callao. On the upstream side of the project, the consortium completed 3D seismic and its first development well and started drilling the second, and Argentina's Pluspetrol started the sale of half of its 20% project stake. Sector authorities meanwhile cut royalty rates for new exploration projects and started consideration of a similar cut for marginal fields.
VENEZUELA - President Hugo Chavez is a baseball fan and so knows the meaning of "three strikes and you're out." Strike one in April toppled him for 48 hours, while strike two in December gained much more support from both the oil industry and other sectors, although at the time of writing Chavez was still hanging in. Despite the political scenario, the government proceeded through the year with a number of huge natural gas projects. It has signed preliminary agreements for the Mariscal Sucre, received bids for the Deltana Shelf project and detailed anticipated investment at the Anaco gas project.