Energy Experts Question South America Natural Gas Pipeline Project

The energy ministers of Argentina, Brazil and Venezuela recently confirmed in Caracas the construction project of the Southern Natural Gas Pipeline, the largest energy project in South America. The entire project is expected to invest US$20 billion, with a planned gas transmission capacity of 150 million cubic meters per day, and will be completed in 2012. However, this ambitious project has also caused doubts among many energy experts in South America.

The total length of this gas pipeline is 8,000 kilometers. It runs from Port of Ordaz in Venezuela in the north to Manaus in Brazil in the south, and is divided into two branches at Manaus, one extending to northeastern Brazil and the other leading to Brasilia. In addition to the three countries mentioned above, the ministers also decided to seek to include other South American countries such as Bolivia and Uruguay in the project. This project is being studied by six expert groups from three countries, and a more specific plan may be proposed by the middle of the year.

However, some energy experts in South America believe that there are many difficulties in this project:

First, the project is extremely large and involves many countries, especially many bilateral energy agreements among South American countries. Therefore, it may be quite difficult for this project to be approved by national parliaments.

Second, the gas pipeline needs to pass through the Amazon primeval forest and multiple rivers, and its engineering cost is unprecedented. In addition, the presidents of Afghanistan, Pakistan, and Venezuela have instructed that the construction of this project should be undertaken by state-owned companies, and private companies cannot participate. Experts question whether countries can provide the necessary funds as scheduled.

Third, natural gas travels thousands of kilometers to reach countries such as Argentina, and its price is bound to be very high. So, can this natural gas have a big market? To compete with Argentinian and Bolivia gas, the "FOB" price from Venezuela should be zero or even negative, which is impossible. Argentina's current low natural gas prices have made it unnecessary for the country to develop new natural gas resources. In addition, Bolivia is rich in natural gas and is closer to the consumer markets of Brazil and Argentina. For Brazil, Bolivia has been a "natural strategic partner" for its natural gas trade since a few years ago. Petrobras has invested hundreds of millions of dollars in Bolivia's natural gas and imports 30 million cubic meters of natural gas from the country every day.