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Commentary

Nothing but Gas


     
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The United States needs to import more natural gas. Andean countries have plenty to sell. A bunch of politicians are standing in the way. What is the result? A missed opportunity to both boost the economies of the Andean countries and further diversify U.S. energy sources, as well as to enhance hemispheric relations, making Latin America relevant.

Let me quickly dispel the notion that development depends on natural resources and commodities. It does not. Some of the world’s economic stars actually lack natural resources. Commodities and primary products constitute no more than 4 percent of the world’s economy. In the case of Latin America natural resources have often been an obstacle to progress because they have provided despots and demagogues with a comfortable rent. In fact, many people believe that wealth is something you distribute rather than create.

Logically, a country that has abundant resources and the opportunity to exploit them profitably would be foolish not to use them for profit and development. South American leaders who love to talk about their “rendezvous with history” in their incantatory speeches are about to be stood up by her once again for failure to treat gas as a tool of development rather than of power politics.

The United States is fast becoming dependent on natural gas—one quarter of its electricity now comes from natural gas. Because coal and nuclear energy have become increasingly controversial, regulations have created an incentive to build gas-burning plants. Despite the U.S.’s abundant gas reserves, a number of obstacles, including political ones, has impeded a full development of its resources. The U.S. actually imports about 16 percent of its natural gas, most of it from Canada and, to a smaller extent, from Trinidad & Tobago. However, the expectation is that U.S. demand for imported gas will shoot up and Canada is not in a position to satisfy it; unless major discoveries take place soon, at the current rate of production Canada’s reserves will be depleted in less than a decade.

This is where the Andean countries come in. Between them, Venezuela and Bolivia have close to 250 trillion cubic feet of natural gas. Brazil and Argentina also have huge reserves, but both countries actually import gas because of a combination of booming demand and, in the case of Argentina, shortages created by price controls.

The international conditions are in place for booming gas exports in Venezuela, Bolivia and, to a lesser extent, Peru. And the shipping time from the Andes to the U.S. coast is much quicker than from Russia or the Middle East, the big competitors! But Venezuela and Bolivia have decided to blow it. Venezuela, of course, is not a realistic prospect while Chávez is in power (U.S. imports of Venezuelan oil are enough of a headache already). Bolivia, for its part, was on its way to creating the right internal conditions. Between 1997 and 2004, almost $5 billion was invested by foreign companies, mostly European, in Bolivia’s natural gas. The idea was to export it via Chilean ports to the U.S. and to Mexico. Although Mexico has large reserves of natural gas, government meddling hinders investors and that country’s undercapitalized state company cannot do the job. However, the man who is currently running Bolivia, Evo Morales, led a successful campaign to block foreign investors while in opposition. A president was toppled, the successor was forced by street protests to raise royalties dramatically and to alter the existing contracts. That was not enough to save his neck and he was toppled too. Finally, investors ceased to invest.

Exporting gas over long distances is a problem. Pipelines of more than two thousand miles are not practical. Shipping entails liquefying the natural gas at the point of departure and re-gasifying it at the port of entry—all of which requires big capital investments. The political, legal, and bureaucratic offensive against foreign investors in Venezuela and Bolivia has made sure those companies that were in a position to supply the capital decided to abstain. What a contrast with Trinidad & Tobago, where foreign capital was welcomed as soon as natural gas reserves were discovered and a booming petrochemical industry has materialized in recent years! Andean gas, meanwhile, is nothing but…gas.

Venezuela’s government wants to build a 5,000-mile pipeline all the way to Argentina through the Brazilian Amazon that would cost $20 billion dollars. No investors in their right minds would put a dollar into that; the money will have to come from poor Venezuelans. Bolivia, for its part, is hoping Brazil’s state-owned Petrobras will bear the burden of the investment needed to exploit its natural gas. But that company was also negatively affected by the Bolivian crisis of the past two years. To make matters even worse for Bolivia, which has had to raise the price of gas it exports to Brazil, Brazil has apparently discovered new energy reserves and is planning massive domestic investments with a view to reducing its dependence on foreign sources!

Seldom have the conditions been better for Andean countries to exponentially increase their exports of a valuable product to the U.S. market and become relevant for reasons other than white powder. Andeans just haven’t noticed them.


Alvaro Vargas Llosa is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His Independent Institute books include Global Crossings: Immigration, Civilization, and America, Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth and the Future of Liberty, and Liberty for Latin America.

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