13 May Bolivia’s natural gas reserves and Schrödinger’s cat
Eager to see what a miniature version of myself would look like, I vividly remember the anxiety I felt while awaiting the results of my son’s first ultrasound. Everything was uncertain—from standard medical concerns to my most trivial personal worries, particularly whether my son would inherit the nose I carry around the world. Oh! And of course, I also wondered about the baby’s sex: if it were a boy, he would undoubtedly support my football team (the mighty Tigre), and if it were a girl… she would too.
Why start with such a personal anecdote when I am supposed to write about Bolivia’s natural gas reserves? Curiously, both events—determining hydrocarbon reserves and understanding a developing baby—share the same technology. This method allows us to analyze the structure of something we cannot directly observe using sound waves (ultrasound). Whether you are a tough reservoir engineer or a caring “mom doctor,” you send sound waves (into the earth or the mother—or, in a playful twist, to “Mother Earth”). By measuring the time, it takes for the waves to bounce back, and with the help of a computer, you can construct an image of the structure you are analyzing.
Now, imagine that you, as a “mom doctor,” have a young couple eagerly seeking to know their baby’s sex. They want to pick a name, start addressing the baby, accordingly, choose nursery colors, and inform the grandmothers about what color to knit. You explain to them that at just two months of pregnancy, predicting the baby’s sex is difficult, with only a 50% chance of accuracy. However, relying on your experience (and indulging in a bit of adventurous guesswork), you suspect it might be a boy. The mother immediately smiled, she had already conducted all the grandmother-approved old wives’ tests, especially the one with the hair and ring.
Time passes, and the couple undergoes another ultrasound. With more information available, you now realize that instead of “the heir,” it will be “the heiress.” Doctors and parents exchange looks, and you have no choice but to acknowledge the earlier misjudgment and accept that a sweet baby girl will now be the cause of many sleepless nights. Naturally, the parents are upset—they do not care about the high probability of error; they only focus on all the investments they have already made. For younger readers, this includes things like the crib color, which must now change from a “monotonous” blue to a “charming” pink—and, as with everything in life, that comes at a cost.
After many explanations, the parents inform you that they will change doctors and, furthermore, that you will not be getting any future referrals from them. Having dealt with first-time parents before, you remain calm, shake their hands firmly, wish them well, and, of course, still charge for the consultation. However, a thought lingers in your mind: “Shouldn’t someone regulate all this?” Tapping into your deepest regulatory instincts, you believe the State should intervene. Months later, after extensive debate in Congress (sorry, the Assembly… I still haven’t gotten used to the new term), and thanks to your efforts, a law is passed imposing stricter rules on when parents can be informed of their baby’s sex—thus avoiding unnecessary spending on cribs and clothing.
Satisfied with your work, you now wait for new patients, with whom, under the new law, you will be much more cautious in making predictions. Certainly, parents will now only learn their baby’s sex one or two months before birth (the law is quite strict in that regard).
Something very similar happened in Bolivia. Change the characters:
The doctor becomes the certifying company.
The parents become the Bolivian State.
The sweet baby becomes Bolivia’s natural gas reserves.
Changes in methodology (due to stricter regulations on certifying companies), greater knowledge of hydrocarbon fields, incredible high royalties and taxes, and geological challenges inherent to the sector now mean that certifiers (the “doctors” in this example) must be more cautious when predicting Bolivia’s natural gas reserves. Just as we only truly know a baby’s sex at birth, the exact quantity of Bolivia’s reserves (or any country’s) is only known when the field is fully exploited—a problem much like Schrödinger’s cat.
What’s my hypothesis? Despite being an economist, I have very good engineer friends (to whom I owe much of the baby analogy) who assure me of Bolivia’s wealth in natural gas. “Don’t worry about it,” they often say. So, where does the real problem lie? I believe that, more than knowing the exact reserves of natural gas, the key issue is securing new and attractive markets for it.
Find and consolidate an attractive market, and, with high probability, investments and new natural gas reserves will grow to supply it. Using the analogy, don’t worry so much about the baby’s sex—focus on providing a good education and healthcare. In fact, the baby might not even be biologically yours, but love will be the same, and so will your constant concern.
When Bolivia decided in the 1990s to sell natural gas to Brazil, it was betting on a project that seemed both good and profitable. Time proved it right. Today, Bolivia’s economy cannot be explained without that project. Once again, using the analogy, that baby from twenty years ago has now grown strong and continues to provide for us.
To conclude, the new question is: Can we think of a new “baby” that will sustain us in the future?
S. Mauricio Medinaceli Monrroy
Dubai
May 13, 2011
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