Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

SOUTH AMERICA: Energy Crisis Highlights Risk of Dependency

Mario Osava

RIO DE JANEIRO, Apr 12 2004 (IPS) - Natural gas, which has fuelled growing physical integration among countries in the Southern Cone region of South America, has now revealed the risk of energy dependency.

The recent reduction in Argentina’s natural gas exports to Chile and Uruguay, a result of Argentina’s inability to cover domestic demand while fully living up to the terms of export agreements, has become a source of tension between countries that enjoy strong, friendly relations.

The Uruguayan government seems to have a solution close at hand to avoid blackouts, which have largely become a thing of the past: buying electricity from its other giant neighbour, Brazil.

But in the case of Chile, there are no near-by alternatives to make up for the shortfall in gas from Argentina.

The average 22 million cubic metres a day of gas that Argentina was exporting to Chile represented more than one-fourth of the energy consumed in Chile. But the exports have been reduced by 3.3 million cubic metres a day so far and the flow continues to shrink, due to the continuing energy crisis in Argentina.

The Chilean government has protested, demanding compliance with the energy integration agreement signed by the two countries in 1995, under which Argentina committed itself to putting the same priority on exports to Chile as on supplies for its domestic market.

Bolivia, another major South American exporter of natural gas, is not a possible source of fuel for Chile due to the longstanding territorial dispute between the two neighbours, dating back to when Bolivia lost its Pacific shoreline to Chile in the War of the Pacific (1879-1883). Since then, La Paz has continually demanded an outlet to the sea.

When it comes to energy supplies, solidarity with one’s neighbour apparently dries up when there are shortages at home. Although Brazil came to Argentina’s aid, providing it with gas between Mar. 30 and Apr. 2, it turned down a request to continue the flow of supplies within the framework of a bilateral accord for cooperation in emergency situations.

Under that agreement, energy is not sold, but must merely be returned at some point in the future. Brazil has set a 45-day deadline in this case.

”The priority of the Brazilian government is ensuring domestic supplies,” said the Ministry of Mines and Energy.

Southern Brazil is currently plagued by a drought that has drastically reduced the level of water in the dams, and thus the capacity to generate hydropower.

Nor can Brazil count on imports of gas from Argentina, which supplied several of its gas-fired thermal power plants.

If Argentina wishes to import electricity from Brazil this month, it will have to pay the higher prices of gas- or coal-fired thermal power, depending on the availability of surplus energy, as authorities in Brazil have made clear.

Argentina’s energy crisis, which is blamed on the privatised power companies’ failure to make the necessary investments in the infrastructure needed for internal distribution of gas, has revealed the risks of ”energy integration” between countries prone to a certain level of instability.

As the energy industry was privatised in much of the region, the 1990s gave rise to a broad network of cross-border pipelines distributing fuel from gas-rich Argentina and Bolivia to their neighbours in the Southern Cone region of South America.

The use of natural gas has boomed in Argentina, Chile and Uruguay, largely because they have much colder winters than the rest of South America, and the need for heating has created a market for the fuel along with broad distribution networks, Rosalino Fernandes, coordinator of the Brazilian Petroleum Institute’s (IBP) Gas Committee, told IPS.

Climatic differences explain the dissimilarity in the development of energy between Brazil and its neighbours to the south, he noted. In addition, Brazil has abundant sources of hydropower, a lower-cost form of energy which accounts for more than 80 percent of domestic consumption.

But what the Argentine crisis confirms is ”the need to diversify energy sources,” to ensure stability of supplies, said Fernandes, who is also a technology consultant at White Martins, an industrial gas company.

In 2001, Brazil was forced to adopt energy rationing measures when scant rainfall in the country reduced the capacity to generate hydropower.

The drought heightened the role of natural gas in the generation of thermoelectricity and underscored the need to meet the official goal of increasing the proportion of electricity provided by gas-fired plants from two to 10 percent of total energy production by 2010.

Brazil has been importing gas from Bolivia since 1999. However, this country of nearly 180 million still consumes just 22 million cubic metres a day of natural gas, compared to the more than 70 million cubic metres consumed in Argentina, a country of 37 million, Fernandes pointed out.

Last year’s discovery of large gas deposits that will at the very least triple Brazil’s reserves has reduced the country’s dependence on imports.

However, if the Brazilian economy once again attains steady growth and investment in the energy industry remains low, this country will need to increase imports of gas from Argentina and Bolivia, in order to ward off another energy crisis, which could hit in 2012, said Leonardo Campos, an expert with the Brazilian Infrastructure Centre (CBIE), a local consultancy.

If that scenario plays out, Brazil will become a growing importer and the network of gas pipelines in the Southern Cone region will continue to expand, despite the risks posed by interdependence, as demonstrated by Argentina’s current crisis.