Natural gas integration in Latin America: Moving forward or backward?
By Edmilson Moutinho dos Santos, Victorio Enrique Oxilia Dávalos, Murilo Tadeu Werneck Fagá in Energy Politics Archives Spring 2007.
In this edition of the Energy Politics archives we revisit the promise and future challenges of MERCOSUR, and how intense regional geopolitical roadblocks will continue to frustrate negotiations moving forward.
Introduction
Throughout the 1990s and up to the year 2000, energy integration was seen as a major goal in the South Cone of South America. The regional perspective for energy was related to an even more challenging objective, i.e., the Latin American economic integration, which was quickly moving forward by the constitution MERCOSUR, the free trade zone built by Argentina, Brazil, Uruguay and Paraguay, and also having Bolivia and Chile as special partners. MERCOSUR was getting stronger and becoming a successful political project. Trade conflicts existed, but they were considered normal and nobody would disagree about the viability of MERCOSUR.
Energy companies were expected to play an important role on fostering this regional economic integration through more energy trading as well as pursuing bi-national energy investments, which should consolidate a common infrastructure. High complementarities between energy exporting countries such as Argentina, Bolivia and Paraguay, and energy importing nations such as Brazil, Chile and Uruguay were supposed to be strong enough to promote a large integrated energy market.
Argentina was believed to become the “energy-exporting axis” of the region, shipping oil, natural gas and electricity to the other countries. Paraguay should continue exporting hydroelectricity while Bolivia should increasingly focus on gas. Brazil, on the other hand, was believed to be the largest “energy-importing anchor”, as the country was abandoning old policies focused on energy self-sufficiency.
The natural gas was seen as the most important alternative for fostering energy integration in the South Cone region. In the past, the construction of bi-national hydroelectricity facilities had led the energy integration process. However, the idea of pushing forward such integration should now concentrate on gas. Expanding energy trade through natural gas should be easier and many national and multinational companies seemed interested in investing in gas infrastructure. In fact, important investments materialized in the 1990s leading to significant gas integrations between Argentina and Chile, Brazil and Uruguay as well as between Bolivia and Brazil. The Bolivia- Brazil gas pipeline, GASBOL, became the largest trans-boundary pipeline in the region starting operation in 1999. And much more was still to come promoting great opportunities upstream and downstream.
The expansion of the gas infrastructure also boosted investments on gas exploration and production, which led to substantial growth in gas reserves, allowing, particularly, Bolivia to hold the second largest gas reserves in the region, just behind Venezuela.
Nevertheless, this new momentum for MERCOSUR is also marked by growing risks, which can eventually and definitively kill any integration initiative. We have to learn how to identify and anticipate successful solutions to reduce or eliminate those risks. The most important foreseeable problem is that Venezuela and Brazil seem to diverge in the kind of development model the region should follow. The former proposes more populist, less democratic and more state-interventionist approaches. The later keep following more conservative and businessfriendly lines despite all the domestic pressures for President Lula to adopt more aggressive strategies. Rather than promoting a rich and more diversified political environment, in which creative solutions for the whole region will be able to flourish, Brazil and Venezuela may finish struggling a useless war to see who has the power and the strongest geopolitical influence over the region. Such differences can actually split the nations, creating a kind of “regional cold war”. Under such most negative scenario, wider economic and energy integration will become just a dream. South America will rather restart experiencing old models, by which insurmountable walls are raised separating the countries and the cultures for another decade or more.
Issues related to national security will tend to be maximized turning energy integration an impossible project. Eventually, even a new “military race” will consume scarce resources, which could be invested more productively elsewhere.
About the Autors
At the time of writing Edmilson Moutinho dos Santos was an Associate Professor - Instituto de Eletrotécnica e Energia - Universidade de São Paulo. Victorio Enrique Oxilia Dávalos was a PhD Candidate -Programa Interunidades de Pós-graduação em Energia - Universidade de São Paulo,and Murilo Tadeu Werneck Fagá was a Professor - Instituto de Eletrotécnica e Energia - Universidade de São Paulo.
Mercosur: A Regional Bloc Shaping South America's Future
Mercosur, short for the Southern Common Market, is a prominent economic and political alliance comprising Argentina, Brazil, Paraguay, and Uruguay. While Venezuela joined in 2012, it was suspended indefinitely in 2016. In contrast, 2024 marked a significant milestone for the bloc as Bolivia officially became its fifth full member.
Established in 1991, Mercosur was designed to foster a common market, accelerate regional development, and strengthen democracy. The early years of the alliance were marked by notable achievements, including a remarkable tenfold increase in intra-bloc trade during its first decade.
Fast forward to 2024, Mercosur achieved a breakthrough in its long-standing negotiations with the European Union, inching closer to a historic trade agreement. However, efforts to secure similar deals with global powerhouses like the United States and China continue to face challenges.
As Mercosur navigates these complexities, its role in regional integration and global trade remains crucial, shaping the economic and political landscape of South America.