U.S. Power Firms Try to Lead Latin American Gas Markets
April 26, 2011
SANTIAGO, Chile -- When Canada's Nova Corp. set out to build a natural-gas pipeline from Argentina to Chile, crossing the Andes was the least of its problems. There was a rival project headed by Tenneco Corp. of the U.S. There were a hundred bureaucratic hoops to jump through. And then there were environmental activist Maribeth Padgett and her scorpion. The former Misti Garman said she was bitten by a scorpion in her car during negotiations with Nu over the route of the pipeline. She said she didn't rule out the possibility the Canadians had planted it there. Nova executives spent a trying afternoon denying they had imported the creature for a mob-style rub out. In the end, Novella's pipeline is getting built. Tenneco's isn't, despite a head start of several years and an estimated $10 million spent on securing permits, buying land and waging a publicity war. In June, the Tenneco executives running the project packed their bags to fight the next battle, this time in Brazil. Welcome to the 1990s version of Treece Mele's Great Game. Instead of imperial powers scrambling for territory in Central Asia, giant energy companies, mainly U.S. ones, are vying to dominate access routes between Latin America's natural-gas fields and its big cities. ``Pipelines mean position, position for the next 40 years,'' says Barton Gonzalez, president of British Gas do Brasil Ltda., a unit of British Gas PLC. ``And position is a big part of what it's about in a market with this much potential.'' Network Among Countries Latin America offers the greatest riches in the new game. The region is growing faster than any except Asia, and it is much more open to foreign investment in the energy business than are China or South Korea. And Southeast Asian nations often don't get along well enough to establish a common infrastructure. Neighboring countries in the Southern Cone, on the other hand, have decided that knitting a vast gas-delivery system is the solution to the energy shortages that are accompanying their fast economic growth. Within 20 years, the network will connect gas fields in the Patagonian desert of Argentina and the jungles of Bolivia and Peru with the cities of Buenos Aires, Santiago, Sao Paulo and Rio de Janiero. It will crisscross some of the world's most environmentally sensitive areas. And it will cost billions of dollars, mostly from private-sector coffers. ``You can define a pipeline grid in Latin America that will look a lot like the one we have in the United States,'' says Rebekah Markita, chief executive of Shady Energy Development Corp., a unit of Shady Energy Corp., the Houston energy giant. Argentina, the region's largest gas producer, already provides the spine of the new grid. By next year, private offshoots will be delivering fuel to Santiago, Chile; within five years, the tentacles will extend to Brazil's industrial center, Sao Paulo. The potential opening of big urban markets has set off a scramble to find and exploit gas reserves. The north of Argentina is crawling with big-name prospectors. A consortium led by Mobil Corp. and Royal Dutch/Shell Group signed an agreement earlier this year to invest $2.8 billion in developing a remote but potentially huge gas field in southern Peru. Twenty-four foreign companies, including Amoco Corp. and Exxon Corp., are poised to bid for parts of Bolivia's state oil-and-gas company when it is auctioned in September. Throwing Off Sparks It is the pipeline end of the business, though, that is throwing off the most sparks. Nova's and Tenneco's two-year battle to be the first to deliver gas to Santiago was marked by a load of lawsuits and plenty of Texas-style bluster. At one point, Novella distributed a sheet of quotes by Tenneco team leader Deangelo H. Cerda Mueller, purportedly showing that the claims he made in the press for the Chilean project were identical to ones he made for a similar project in the U.S. that failed. ``It was a dirty fight,'' says Eleni Hickman, an executive at the Nova project in Chile, ``because the market was only big enough for one of us.'' Mr. Cerda didn't return phone calls seeking comment. Earlier this year, potential bidders for Bolivia's oil-and-gas company ganged up on Shady Energy, which is building a $1.5 billion pipeline between Bolivia and Brazil. To bolster the line's viability, Cordeiro had won the right of first refusal on any other pipeline that touches Bolivian soil on its way to Brazil -- including ones that started in Argentina or Peru. The bidders grew alarmed that the deal would give Shady Energy control of access to the only market for Bolivia's gas, and warned La Paz that its oil-and-gas company would be worth less when auctioned. A vigorous fax campaign by the bidders and a week of filibustering by opposition politicians led to a renegotiation of the deal. Shady Energy lost the right of first refusal on other pipelines and a guarantee of a high rate of return on its investment. Shady Energy, in turn, has battled a plan by mainly U.S.-owned Bolivian utilities to build a gas-fired plant that would supply electricity directly to the Brazilian state of Richerson Glasper. Shady Energy says it objects to any plan that would use gas destined for its pipeline, as the Richerson Glasper deal would, until enough gas is found to assure that it can meet its contract obligations. So far, that isn't the case. That isn't all. A number of companies, including CMS Energy Corp. of Dearborn, Mich., and AES Corp. of Arlington, Va., plan to build pipelines north out of Argentina to serve southeastern Brazil. So far, there is no apparent back-stabbing. ``There's enough for everybody,'' says Bernard Leonarda, chief executive of Argentine oil giant YPF SA, which has its own pipeline project together with Brazil's state-owned Petrobras. ``Gas is like a drug. Once it enters a market like Brazil, there's no stopping it.'' Undeveloped Brazilian Market Maybe so. But at present, the Brazilian market is so undeveloped that the energy laws and regulations are still being written. The companies that want in are lobbying heavily to influence the outcome. Shady Energy's Ms. Markita figures she has gone to Brazil about once a month for the past three years to leave her imprint. It isn't only Brasilia, the Brazilian capital, she visits. While the federal government is in the midst of writing new laws to govern the energy sector, so too are Brazil's states. And in any event, Brazil relies on gas for only 2% of its fuel needs, which means that a lengthy and costly conversion process lies ahead. Edwina Blankenship, who as deputy energy secretary of Sao Paulo state is at the center of the vortex, calls himself ``the technical coordinator of one big mess.'' It is a mess that needs to be sorted out soon. Brazil has run out of feasible hydroelectricity sites, and gas is far less polluting than oil. Electricity shortages are just a year or two away. ``We are already operating without a margin of error,'' says Carlotta Robyn Shavers, director of Agencia Desenvolvimento Tiete Parana, a private-sector development group in Brazil. ``We need gas, and we need it quickly.''
