Bolivia natural gas production, exports collapse dramatically

Over the last decade, Bolivian natural gas production has collapsed, from over sixty million cubic meters a day in 2014 to just 24 million last year, risking energy shortages.

“Today, Bolivia is going through one of its worst periods in terms of energy,” Raul Velasquez, an energy analyst at the Jubilee Foundation, told Gas Outlook.

A country was which once a major supplier of natural gas to its neighbours is now importing 95% of its diesel and 60% of its gasoline.

But it is not just a question of fuel shortages. The policy has brought Bolivia’s finances and economy to the brink of collapse.

As currency reserves dwindled because the government was forced to import fuel at a loss, crowds gathered outside banks demanding their money.

The roots of the crisis date back to the 1990s when Bolivia discovered huge natural gas reserves.

With business-friendly policies that attracted significant investment from oil majors, the country looked like it was on the brink of a major energy boom.

But politics intervened. Afraid that foreign companies would capture an unfair slice of their energy wealth, Bolivians rose up.

State intervention

A project to export gas via a Chilean port triggered a massive uprising known as the Gas War, forcing President Gonzalo Sánchez de Lozada to flee. In a referendum the next year, Bolivians voted overwhelmingly to scrap the existing hydrocarbon law, reassert state control over reserves, increase taxation and require state participation in the downstream industry.

Leftwing agitator Evo Morales, who was elected president the following year, massively expanded the role of state oil firm YPFB.

As production and exports rose and oil prices soared, his government reaped an unprecedented windfall which it used to ramp up public spending on infrastructure, industry, welfare and keeping down living costs for ordinary Bolivians.

Government spending drove a steady expansion of the economy, millions were lifted out of poverty, and paved highways crisscrossed much of the huge country for the first time.

“Natural gas was seen as an opportunity to overcome economic and social problems,” noted Velásquez.

Some was inevitably squandered. Morales built a huge new official residence and offices in downtown La Paz, complete with gym, spa and helipad.

While spending ballooned, investment shrivelled. The new legal regime gave little incentives to the private companies that remained to explore. Inevitably, reserves began to fall and production as well.

By 2016, Bolivia was unable to meet export commitments to Brazil and Argentina, paying penalties for shortfalls. Major discoveries in both countries – Argentina’s Vaca Muerta gas field and Brazil’s pre-sal offshore deposits – meant they were no longer reliant on Bolivian gas.

Revenues from natural gas exports tumbled from over US$6.0 billion in 2014 to just US$1.1 billion in 2025.

As the pipe dream evaporated, voters vented their frustration at the polls.

In last October’s national elections Evo Morales’s MAS party was virtually eliminated as a political player, its candidate coming sixth in the first round of voting with just 3% of the vote.

The winner, centre-right former senator Rodrigo Paz has promised sweeping reforms after two decades of socialist rule, with actions to stabilize the economy through fiscal discipline and opening key sectors to foreign investment.

The administration has moved quickly, eliminating fuel subsidies which were costing the government US$2.0 billion annually but has struggled to normalize fuel supplies.

Foreign investment

This month the government is expected to send legislation to open up the oil and gas sector to foreign investment again for the first time in a generation, cutting the onerous royalties and limiting the requirement for state participation.

Despite the country’s desperate need for investment, securing parliamentary approval could be a struggle.

“In Bolivia, the problem isn’t simply that we’ve had a statist or socialist government, but that Bolivia itself has a rent-seeking mentality,” said Velasquez.

Under the right conditions, energy companies could be tempted to get drilling, especially those like Petrobras and Total which still have a presence in the country.

But without investment, Bolivia is set to become a net importer of natural gas with dire implications for its economy.

“If that political consensus isn’t reached, Bolivia is in deep s***. It’s a very profound problem,” Alvaro Rios, president of consultancy Gas Energy Latin America, told Gas Outlook.

But Bolivia’s potential is limited.

“The mega-fields have already been discovered and what remains are small and medium-sized fields, so the law needs to reflect that,” the consultant said.

Market conditions have also changed dramatically from two decades ago. While higher gas prices should make projects more competitive, Bolivia faces a much more competitive regional market. Thanks to Vaca Muerta, Argentina has become virtually self-sufficient while Brazil is developing its huge offshore reserves.

“It’s no longer an open market like it used to be,” said Rios.

Any new discoveries could meet domestic demand and prevent Bolivia becoming a net gas importer. But another boom looks impossible.

“Those days are over,” Velasquez added.

(Writing by Tom Azzopardi; editing by Sophie Davies)