Argentina, Bolivia renegotiate gas supply: Update

Argentina and Bolivia amended a longstanding natural gas supply contract to adjust the way prices are calculated and set new volume floors in recognition of increased gas production in Argentina.

The contract amendment covers 2019-20 and will be worth some $1.2bn this year, according to Argentina's energy secretariat.

Both countries say they benefited from the renegotiation. Argentina said it will be able to save $460mn over the two-year period. Bolivia said it obtained a better gas price during the winter months of peak demand.

The agreement signed by Argentina's state-owned energy firm Ieasa, formerly known as Enarsa, and its Bolivian counterpart YPFB sets out three months—June-August—as the period of peak demand in which Bolivia will deliver 18mn m3/d of gas.

In May and September, Bolivia will deliver 16mn m3/d, while in the rest of the year—January-April and October-December—Bolivia will export 11mn m3/d.

The amendment applies the same formula that has been used in the life of the contract that takes into account a basket of fuel oil and diesel prices, but now considers this a "base price" and adds seasonal surcharges.

The new base price in the current summer period is $6.2/mn Btu for the first 10mn m3/d. Volumes in excess of that amount in the summer months will involve a 15pc surcharge, according to Bolivia's hydrocarbons minister Luis Alberto Sanchez.

In the winter months the price of the additional gas beyond 10mn m3/d will be calculated using the price Argentina pays to import LNG at its terminal in Escobar, Buenos Aires province with an additional regasification cost of $0.8/mn Btu, which would currently be around $10.3/mn Btu, said Sanchez.

"If we exported a volume of 0.19 trillion cf annually at the price of the previous contract, Bolivia would have received $1.199bn, while with this addendum the country will receive $1.379bn for the same volume, representing additional revenue of $180mn," Sanchez said.

As part of the agreement, Argentina said it would deliver a locally produced Pampa 3 military plane if Bolivia delivers an additional 45mn m3 of gas during May-September.

Argentina has long relied on Bolivian pipeline gas to supplement its own production, particularly in the southern hemisphere's winter months because the fuel is used for heating.

In addition to the changes in volume and price, the addendum to the gas export contract lays out new goals for cooperation, including YPFB investment in Argentinian oil fields and the potential to participate in LNG exports from Argentina. It also outlines a goal to exchange information and technology on biofuels and promote the exchange of electricity.

This marks the fourth amendment to the contract that was first signed in October 2006 and runs through 2026.

"Over the last few years Argentina was fortunate to discover and develop important resources and reserves of natural gas, particularly in the Vaca Muerta formation, which has led to a very significant increase in local production. We currently have excess gas in the summer but we still require imports in winter," Argentina's energy secretary Gustavo Lopetegui said.

Argentina's gas production increased by 5pc last year to 128.825 mn m3/d (4.5bn cf/d), according to government data.

Either country can request an extension of the new two-year amendment at least 60 days before 31 December 2020 and the other country will have 20 days to accept the offer. If it is rejected, then the contract will revert to its previous form on 1 January 2021.

YPFB is currently vying to supply gas distributors in Brazil that are effectively stepping into the procurement role that Brazilian state-controlled Petrobras plays under a supply contract that expires this year.