Bolivia Oil and Gas Report Q3 2012

BMI View: We have an optimistic view of Bolivia’s Oil & Gas sector in the short term, as robust investment inflows allow the country to raise gas export volumes. However, the longer-term outlook is less rosy. A 2010 assessment of Bolivia’s gas reserves has called into question the country’s ability to continue acting as a major regional supplier. Moreover, despite government efforts to boost oil production, we believe it will begin to decline starting in 2014. There are several main trends and developments worth highlighting:

In spite of a number of challenges, we expect Bolivia’s gas sector to expand over the short term. We forecast gas production will rise from an estimated 15.1bn cubic metres (bcm) in 2011 to 19.5bcm in 2016, largely on the back of Repsol YPF and BG Group’s Margarita gas project. Indeed, gas production could reach 20.5bcm by 2021.

Over the same period, we forecast Bolivia’s domestic gas consumption will expand at an average of 4.0% per year, ending 2021 at 4.2bcm. While this represents healthy growth, we believe it will still allow the country to meet the requirements of its 2010 gas supply deal with Argentina as well as its earlier supply agreement with Brazil. As such, we forecast gas exports will rise from an estimated 12.3bcm in 2011 to about 16.1bcm in 2016, peaking at 17.1bcm in 2019.

In 2010, an independent assessment indicated that Bolivia had only half of the reserves previously thought, calling into question the country’s reliability as a long-term regional gas supplier. The government has taken a number of steps to address the issue, including granting state-owned oil company Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) an additional 42 areas for exploration, effectively doubling the total area from 11mn hectares to 22mn. That said, we remain unconvinced that this will be sufficient to substantially bolster the country’s longer-term prospects as a major regional gas supplier.

We forecast oil production will climb from about 57,000 barrels per day (b/d) in 2011 to 61,000b/d in 2013. However, despite government efforts, including increasing companies potential earnings per barrel, we expect production will start to decline in 2014, falling to about 52,000b/d by 2021. Demand is expected to rise by 2% per year over the period, with consumption nearing 79,000b/d by 2021. As a result, Bolivia will retain a modest oil import requirement. At the time of writing we assume an OPEC basket oil price for 2012 of US$111.47/bbl, falling to US$107bbl in 2013. Global GDP in 2012 is forecast at 2.6%, down from an estimated 3.1% in 2011, reflecting slower growth in China and uncertainty with regard to the eurozone debt situation. For 2013, growth is estimated at 3.3%.