24 May Natural Gas, Diesel Oil, and school retakes (desquites in Bolivia)
Back in my school days, we used to talk about “school retakes” when students had the chance to pass the academic year by taking an additional exam. During those times, students would endure “marathon all-nighters” to cram in a couple of weeks what they hadn’t learned throughout the year. If their stamina and luck held out, they passed the exam and moved on to the next grade. It was a time marked by tears and often a few angry eyes from parents.
Two recent developments in Bolivia’s hydrocarbon sector reminded me of those “school retakes”: the diesel oil supply and natural gas shipments to Brazil. From my perspective, both issues stem from Bolivia’s long-standing structural problem—declining production capacity. Just like in school, when students rush to cram at the last minute, authorities are now scrambling to provide last-minute fixes for problems that should have been addressed long ago. Wouldn’t it make more sense to prepare throughout the year rather than rely on last-minute solutions?
Diesel Oil
Let’s start with diesel oil. I have several trusted friends who are geologists, and they tell me that Bolivia still has oil reserves. So, the issue isn’t technical, it’s not about how to extract this oil. From my perspective, the problem lies in the rules of the game: a tax system incompatible with high production costs, domestic market subsidies, unclear regulations for allocating exploration areas, delays in approving exploration and production contracts, among other issues. As long as these systemic issues persist, it will be very challenging to revitalize exploration activities in the country.
I’ve spilled much ink in this column discussing subsidies, but they remain a significant problem. Low prices encourage excessive consumption and, on the other hand, disincentivize production. I’ll share my thoughts on biofuels in another post.
Natural Gas
Now, about natural gas. Once again, insufficient production capacity means we can’t sell all the gas that Brazil and Argentina need. Put simply, to supply one country, we must cut back on another. If we had done our exploration homework, we wouldn’t be struggling in this era of last-minute fixes. It would be fantastic to meet the gas demands of both countries at today’s high prices while also supplying our domestic market. But reality is different.
In this context, perhaps we need to ease tensions with both partners. It’s not worth jeopardizing a 40-plus-year energy partnership with Brazil for a short-term economic advantage. The relationship between Bolivia and Brazil should transcend short-term political considerations.
As they say, and rightly so, the most expensive energy is the energy you don’t have. This is why most countries worldwide—if not all—strive for energy autonomy, meaning the ability to produce the energy they consume. The recent events in Russia and Ukraine make this clearer than ever.
Looking Ahead
I am confident that the diesel oil supply issue will gradually be resolved. Relations with Brazil and Argentina will also improve over time. However, I doubt we will avoid similar problems in the future. More frequently, we will need to rely on ingenuity to address our limited production capacity. That’s why it’s essential to recognize that we have a structural problem. The solution doesn’t lie in “passing the retake” but rather in understanding the structural issues, proposing structural solutions, and convincing the political class to become a central part of those solutions.
After all, it’s much more satisfying to pass the year with a solid 100 than to scrape by with a retake.
S. Mauricio Medinaceli Monrroy
La Paz
May 24th 2022
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