Brazil and Venezuela pledge to accelerate energy integration

Mar 28, 2008 01:00 AM

The presidents of Venezuela and Brazil pledged to accelerate energy integration between the two countries in an effort to heighten the region's autonomy.
Although energy integration in Latin America is not a new movement and some feel it can help limit regional energy crises, closer energy interdependence between Brazil, Bolivia, Argentina and Chile over the last decade has worsened the region's current energy crisis.

Brazil's President Luiz Inacio Lula da Silva and his Venezuelan counterpart, Hugo Chavez, want to advance talks on building a joint gas pipeline from Venezuela to Argentina by June. Venezuela has Latin America's largest gas reserves.
Analysts say the task of laying pipeline across the heart of Amazon region, over thousands of miles of Brazil's interior and possibly other countries will face serious logistic and bureaucratic challenges. They also want to seal a joint-venture in the Carabobo heavy crude oil field in Venezuela's Orinoco belt, Lula said.

Both leaders said they were making history by joining countries that ignored each other for decades and depended on the United States and Europe.
"We are creating a South American country," Lula said in Recife. It is still unclear what stake Brazil's state oil giant Petrobras was looking to take in the project.
"We showed our political will and now the representatives from (Brazil's) Petrobras and (Venezuela's) PdVSA will discuss what is possible technically," Lula said.

Petrobras said that it wanted only a 10 % stake in the project. Petrobras officials had previously said that high costs of developing the heavy crude field were the biggest concern in taking a larger stake.
While Chavez frequently intervenes in PdVSA decisions, Petrobras, although it is also a state-run company, is less at the whim of the government and managed more as a corporation, analysts said. Both companies failed to agree on a joint $ 4 bn oil refinery in Recife for several years. They signed an agreement under which PdVSA would take a 40% stake and Petrobras the remaining interest.

Lula thanked Chavez for making both companies think not only of profits but also of their social and economic responsibilities. Both leaders said their integration would help reduce dependence on foreign firms.
"Over 100 years all the oil went north. Never a Venezuelan oil tanker went south," said Chavez.

Integration problems
Brazil, Bolivia, Argentina and Chile had integrated their electric energy and natural gas supplies since the 1990s, but unorthodox policy in Argentina and Bolivia's nationalization of gas reserves has deepened an energy crisis in the region.
Argentina has cut off around 6,000 MW of power going to Brazil and ended natural gas supplies to Chile because of its own energy rationing problems caused by government energy policies that have turned off foreign investment. This has pushed Brazil closer to energy rationing and sent Chile scrambling for new natural gas supplies.

Meanwhile, Bolivia lacks the foreign investment in new gas exploration after its nationalization of the sector to meet its gas supply contracts with Brazil and Argentina.
Now both countries are likely to import liquefied natural gas from the Middle East or some other supplier outside Latin America.

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