The impasse with Chile led Bolivia look for alternatives, such as in Peru. In 1992, La Paz signed an agreement to use the Peruvian port of Ilo; however, this initiative started to gain traction only this year. An additional problem for Bolivia is the size of that port, which is smaller than the northern Chilean port of Arica, restricting its usefulness. Besides, exporting from Ilo doesn't replace the need to use ports in Chile, which continue to be the main ones used by Bolivians. Bolivia's lack of direct access to the Pacific Ocean increases its cost of doing business because Bolivia has to pay to use Chilean ports. The arrangement also leaves Bolivia vulnerable to events in Chile. For example, last month, Bolivia reported an economic loss of more than $100 million because of a 10-day strike by Chilean customs officers. The strike stranded about 1,000 Bolivian vehicles at the border.
There were hints in January 2015 that the port negotiations could be resurrected. The Chilean newspaper La Tercera reported then that Bolivian and Chilean sources had confirmed that Bolivia would be willing to drop its territorial claim against Chile at The Hague in exchange for an enclave in the Chilean city of Pisagua, located in the northern part of the country. Bolivia would have sovereign access to this port and some land to build a plant for its natural gas and port facilities there. But Bolivia insisted on owning the road that connects the Bolivian city of Oruro with Pisagua. Because that would bisect its territory, Chile has rejected the proposal.
Beyond Argentina and Brazil
After four years of stalled negotiations, La Paz is again open to talks
with Chile. Bolivia's dependence on Argentina and Brazil as its main natural gas markets has driven its willingness to negotiate. Brazil is Bolivia's main natural gas customer, accounting for more than 60 percent of Bolivia's gas exports. However, the Brazilian government has signaled that the contract between state-owned oil company Petrobras and Bolivia, which expires in 2019, will not be renewed. Brazil is also preparing a regulatory change that would remove Petrobras' monopoly over natural gas imports. This will pave the way for private energy distributors in Brazil to negotiate gas purchases directly with Bolivia.
In a way, this could be good news for Bolivia because it could get better prices for its gas. However, Brazilian demand for Bolivian natural gas has dropped as its production has increased and as it has struggled with a two-year economic recession. As a result, Petrobras reported that its natural gas imports from Bolivia this year had decreased by about 45 percent, from around 30 million cubic meters per day to about 16 million. This decline has also been reflected in Brazil's overall trade with Bolivia. In the first half of the year, Brazil reported a trade surplus with Bolivia, its first in 15 years. Much of that resulted from a drop in Bolivian imports, which have fallen from $4.5 billion in 2013 to just $1.3 billion in 2016. Natural gas accounts for more than 90 percent of Bolivian exports to Brazil.
But Bolivia, which had been anticipating this trend, has focused on attracting investments and partnerships with Argentina and Brazil to beef up its electricity sector. La Paz wants to become a major electricity exporter to its South American neighbors and may sign an agreement with Brazil by the end of this year to build two hydroelectric dams with a total generation capacity of 3,600 megawatts near the Bolivian-Brazilian border. Most of their output would be exported to Brazil. Bolivia has a similar electricity export agreement with Buenos Aires and expects to conclude the construction of transmission lines to Argentina by June 2018. These investments in the electricity sector, however, are long-term projects and will not be able to make up, in the short term, for the revenue loss from its declining natural gas exports.
Another threat to Bolivia's natural gas sector
comes from Argentina, a market for 30 percent of Bolivia's natural gas exports. Over the last year and a half, some delivery shortfalls during the winter months led Argentina to question Bolivian natural gas reliability. Those concerns led Buenos Aires to open talks last year with Chile to evaluate the possibility of natural gas swaps between the two countries. In addition, the current Argentine administration is focused on developing its own production with the hopes that the country could once again become a natural gas exporter.
A Rocky Road Ahead
One of the main obstacles to the Bolivia-Chile negotiations may be the Chilean presidential election in November. According to the latest opinion poll, former President Sebastian Pinera leads the race with 39.8 percent support with center-left candidate Alejandro Guillier garnering 36.9 percent. During his previous term, the relationship between Pinera and Morales was tense, reaching a low point in 2013 when both countries decided to drop the negotiations.
The main point of contention at the time was Bolivia's decision to take its territorial dispute with Chile to the international court. While Chile may be open to granting some access to Bolivia for its natural gas industry, it will not agree to cede a large amount of its territory. That topic will be especially touchy for whoever comes to Chile to negotiate. Even if a deal can be reached, Bolivia still would have to build the costly infrastructure connecting its reserves to a Chilean port, a project that will take years to complete.
The bottom line is that Bolivia and Chile still have a long way to go before they can reach an agreement, but Bolivia's reduced trade with Brazil and Argentina will eventually push La Paz to the negotiating table. Bolivia is under pressure to start looking for other markets, but that search will be in vain if it can't get its natural gas to port.