INSIGHT: Brazil’s new gas deals with Bolivia ‘historic step’ for chemicals – Abiquim

SAO PAULO (ICIS)–Earlier this week, the head of Brazil’s chemical producers’ trade group Abiquim accompanied President Luiz Inacio Lula da Silva during his official visit to Bolivia and returned with deals which could potentially increase and liberalize natural gas supplies to Brazil.

The chemicals industry in Brazil consumes around a third of all-natural gas available, according to Abiquim. Prices in the largest Latin American economy, however, are considerably higher than in the US, the other large economy in the Americas.

Therefore, natural gas supplies – how to increase them and how to make them more affordable – has been on Abiquim lobbying agenda for some time now.

Nearly a year ago, Brazil’s minister for energy and mines, Alexandre Silveira, was the star guest at an Abiquim event presenting a study on how to increase supplies. At the time, Silveira thanked them for the kind invitation but he came to basically say the government had little to do and it should be the private sector leading the effort.

Truth be told, Brazil’s cabinet has much to say and much it could do about energy. The rather overwhelming and dominant position of Petrobras – a ministry in all effects, with its CEO always handpicked by whoever is the president – gives the energy major a key role in what Brazil’s energy landscape looks like.

Its interest in natural gas has always been very limited, injecting the supplies it gets from crude oil production back into the system.

However, Abiquim and Petrobras earlier this year signed an agreement to explore joint projects on natural gas supplies. In June, Abiquim said in an interview with ICIS there would be news on that front within weeks, but nothing has been announced yet.

One year on since Silveira attend that event in Sao Paulo, it seems industrial trade groups come and go in Brasilia’s corridors of power as they please.

The current left-leaning administration and manufacturing companies have a common goal, expressed in different wishes: the former, more and better paid manufacturing jobs to please Lula’s Workers Party (PT) core constituency; the latter, higher sales and profits, and improving their competitiveness can be an important part of that.

Thus, this week Lula invited to go to Bolivia with him trade groups or associations representing sectors directly affected by Brazil’s high natural gas prices.

Among them, Abiquim’s head, Andre Passos, with whom ICIS will publish an interview next week.

Never shy in using strong words, Abiquim said the week’s agreements in Bolivia represented a “historic step” for Brazilian chemicals which could come to partly fix its competitiveness problem.

“The visit to Bolivia is in line with the objectives of the Gas Para Empregar [Gas for Jobs] program and could represent an immense short-, medium- and long-term opportunity for the natural gas market, with the possibility of even using gas from Argentina through Gasbol [pipeline connecting Bolivia’s fields with Brazil’s south and most industrialized states],” said Abiquim.

“Based on the conversations held, it will now be possible to start rounds of negotiations for the contracting of Bolivian and Argentine gas without the participation of Petrobras, which will be essential to increase competition in the gas market, enabling greater liquidity, and even helping to make natural gas from the pre-salt viable.”

Abiquim added that Brazil’s Ministry of Mines and Energy was “essential in making this moment a reality” and in helping private players to make progress on being able to directly contract gas in Bolivia.

In Brazil, the Ministry for Energy and Petrobras are the two decisive voices in energy policy. Abiquim’s diplomatic words thanking the ministry is just another way of saying they are pleased to see Petrobras losing the nearly full control it has had in issues related to the natural gas supply from Bolivia.

This, of course, occurs as Abiquim’s largest member and commanding voice is Brazilian polymers major Braskem, of which Petrobras owns 36.1%.

A GIANT SEEKING GAS
Brazil has for several years been importing natural gas from Bolivia, via the pipeline Gasbol, which links the producer’s fields with Brazil’s southern and more industrialized states. Gasbol is the longest natural gas pipeline in South America with 3,150 kilometers (1,960 miles).

According to Brazil’s Ministry of Energy and Mines, Bolivia is Brazil’s main supplier of natural gas supplying two thirds of its imports. Meanwhile, natural gas represents 86% of Bolivia’s exports to Brazil.

Regarding natural gas, the trip this week aimed at easing access to that gas for Brazilian private sector players, until now quite constrained in what they could purchase given that natural gas bilateral trade has practically been a state-controlled affair via Petrobras.

That was one of Brazil’s delegation legs, led by trade groups such Abiquim, Abrace Energia representing energy consumers, trade group for industrialists in Sao Paulo state FIESP, Abvidro representing the glass sector, and Aspacer and Anfacer, both representing the ceramics industry.

Brazil’s minister for energy and mines, Alexandre Silveira, and Petrobras’ new CEO, Magda Chambriad, were also part of the delegation.

While the company she now presides over may lose the upper hand in natural gas trade with Bolivia, Chambriad said – according to the Ministry of Energy and Mines’ press office – that the new natural gas production areas in Bolivia are going through the environmental licensing phase and could start up as soon as 2025.

“The increase in gas supply to Brazil translates into lower prices in the country,” concluded the ministry.

As it normally happens, many of the deals signed this week will be worth only the paper they are written in in some years’ time.

However, they could be meaningful if just a few of them were to be implemented: the Bolivian Ministry for Hydrocarbons and Energy, in charge of all areas mentioned so far, published this week as many as 12 press releases on as many agreements.

For example, and again related to Brazil’s thirst for natural gas, private companies had conversations about potential imports from Argentina but via the Bolivian Gasbol.

MERCOSUR – AND MILEI
Lula went to Bolivia after having visited Paraguay for a summit of Mercosur, the trade bloc formed by Argentina, Brazil, Paraguay, and Uruguay and which this year welcomed Bolivia as a member.

However, Argentina’s Javier Milei refused to participate in the summit, perhaps for the best. He has insulted Lula so many times and in so colorful manners that it may be hard to try and establish any personal relationship – the two have never met face to face.

To make his preferences clear, instead of attending the Mercosur summit, Milei went to Brazil’s state of Santa Catarina for an international event of right-wing and far-right figures.

“No political rift will prevent dialogue with our Argentine brothers and sisters,” said Silveira before travelling to the summit, quoted by the public news agency Agencia Brasil.

But increasingly more people are wondering what Mercosur’s future will look like. Despite Lula and his Spanish counterpart Pedro Sanchez good intentions when Spain was the holder of the EU’s rotatory presidency in 2023, both leaders were unable to push their sides to conclude the free trade deal between the two blocs, which has been in the making more than 20 years.

The financial weekly The Economist also wondered this week about the bloc’s importance, highlighting Milei’s absence. In an opinion-ed article – those without byline which would represent the publication’s view – it said that the host’s rebuffs to Mile for not attending may well fall in deaf ears.

“It was an especially pointed snub. Skipping the twice-yearly get-together of the presidents of Mercosur, Milei chose instead to speak to the hard right at a Conservative Political Action Conference in Brazil … The reality is that Mercosur is no longer so important. Even the host, Santiago Peña of Paraguay, admitted that ‘Mercosur is clearly not going through its best moment’,” said the article.

“Milei has never formally met Luiz Inácio Lula da Silva, Brazil’s president, whom he slags off as ‘corrupt’ and a ‘communist’ (Brazil’s supreme court quashed Lula’s conviction – and he is a socialist). But political incompatibilities go back further: Jair Bolsonaro, Brazil’s former leader, and Alberto Fernández, Milei’s Peronist predecessor, similarly shunned each other.”

THE FIGURES
In 2023, trade flows between Brazil and Bolivia totaled $3.31 billion, with a surplus of $278 million for Brazil, according to official figures.

Bolivia was the 35th main destination for exports and the 30th country of origin for Brazilian imports. Brazil was the main destination for Bolivian exports and the second country of origin for its imports.

The main products exported by Brazil to Bolivia were those from the steel sector (iron and steel, bars, angles, and profiles, 6.1% of the total), and passenger cars (3.8%).

The main products imported by Brazil from Bolivia were natural gas (86%) and chemical fertilizers (4.8%).

Insight by Jonathan Lopez