Colombia-Venezuela natural gas pipeline may be back-burnered

Dec 28, 2004 01:00 AM

Colombian Energy Minister Luis Ernesto Mejia says construction of a natural gas pipeline scheduled to begin in the first half of 2005, could be back-burnered for six months because of route-changes suggested by Venezuelan President Hugo Chavez Frias, who requires the pipeline to run from northern Colombia and then under the sea to a Petroleos de Venezuela (PdVSA) refinery complex in western Venezuela.
Venezuela wants to boost oil and petrochemical production in western Zulia State despite a current shortage of natural gas. Although it has Latin America's largest gas reserves (a capacity of 6.3 bn cfpd) it must be piped from eastern region and a national gas grid is still under construction, thus the need for natural gas from Colombia.

The pipeline was originally scheduled for completion in 2006 and is designed to stock-feed a shortfall of natural gas in the west of Venezuela under a seven-year agreement where after the flow will be reversed as Venezuela begins to selling gas from its offshore reserves into Colombian and Central American markets.
A preliminary agreement stipulates prices and volumes based on an original pipeline route but Colombia's Mejia says he has no idea why Venezuela decided to re-route at the last minute ... "it is probably a good decision, but we need to have symmetric and clear commercial rules and an agreement to sell gas in both directions."

The Colombians say that while it would add significant capacity to an originally projected 150 mm cfpd of natural gas, the new pipeline would take a longer route than the original 117 km (106 miles).
Mejia says "we are starting from scratch again... we have to work out the numbers again... it will be longer and more expensive than the projected $ 170 mm... an underwater pipeline costs much more than overland... it may now cost an additional $ 80 mm because undersea geological studies and specialized machinery will be required for underwater construction."

Construction should begin in the second half of 2005 rather than in June as contemplated in bi-national agreements signed last July, under which Colombia and Venezuela had agreed to a 50:50 split on costings with 50 % coming from private investors in Colombia and the remainder from the Venezuelan State.
Venezuela said that it requires 60 % ownership since Colombia planned to award concessions to private companies as part of its shareholding. PdVSA says it has no quarrel with ownership although there is some hesitancy because of a Colombian government decision not to invest in the project. The Colombians have balled the discussion back to Caracas saying that Venezuela can foot the total bill (and ownership) if it absolutely must have strategic control of the project.

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