Why has Bolivia registered an energy trade deficit in 2023?

For many years, Bolivia's economic model had been based on natural gas exports. However, in 2023, Bolivia recorded its worst gas production levels since 2009, and foreign-exchange reserves are almost empty... Has Bolivia's “sea of gas[1]” already run out? 

Let's take a look at the figures:

On the one hand, natural gas was Bolivia's second most exported product in 2023 representing US$2,046 million and 19% of all its exports. Its main customers are Argentina and Brazil.

If at the beginning of the 21st century Bolivian natural gas exports were increasing, in 2014, that trend reversed. According to the National Institute of Statistics (INE), in 2013, natural gas exports represented US$6,113 million when in 2023 they represented only US$2,046 million, which corresponds to a drop of 67%. Likewise, according to other INE figures, natural gas exports in volume registered a 20% drop only between March 2022 and 2023 (932 million cubic meters exported in 2022 versus 748 million cubic meters exported in 2023).

On the other hand, Bolivia imports diesel from Chile (42%), Argentina (23%), Peru (12%) and gasoline from Switzerland (17%), Argentina (14%) and Belgium (13%). Diesel and gasoline are the products most imported by Bolivia, together representing US$2,843 million at the end of 2023, representing a value higher than the value of natural gas exports.

So, in 2023 Bolivia's energy trade deficit reached $797 million. Indeed, the country produces less and less gas:

As of April 2024, the General Hydrocarbon Production Volume Index shows a negative variation of 3.57% compared to March 2024 and a negative cumulative variation of 12.05% compared to April 2023.

In August 2023, the president of Bolivia, Luis Arce, stated that “there has been a decline in production since 2014 or so, which unfortunately since then has continued to fall until hitting rock bottom.” Indeed, the peak of natural gas production occurred in 2014, with 22,187 million cubic meters produced. As of 2015, production began to slow down and in 2023, 13,390 million cubic meters of natural gas were produced, corresponding to a 40% drop in production levels in 9 years.

But why is Bolivia producing less gas?

Bolivia is supposed to benefit from the current international context, with the war in Ukraine, the price of energy raw materials has risen, but it turns out that the country imports more than it exports. On top of that, the country has maintained fuel subsidies, leaving the country’s dollar reserves almost empty. Therefore, the two principal customers of Bolivian gas which are Argentina and Brazil are now looking for alternatives which means that Bolivia could lose its market shares. But we need some context to understand better what happened: 

In 2006, Evo Morales assumed the presidency and in 2007 he decided to nationalize the gas production. Shortly after the nationalization, the commodity super cycle began, during which the price of raw materials rosed. Bolivia, wanting to take full advantage of the rise in hydrocarbon prices, overly exploited its reserves without investing in exploration projects to alleviate a future lack of resources.

Álvaro Ríos Roca, former Oil Minister of Bolivia stated that “the gas business requires investment in exploration to have alternative fields available when those currently in exploitation will be exhausted, and in Bolivia almost no investment has been made in exploration, so the fields have been depleting”.

In addition, he admitted that since 2013 the Bolivian government already knew that gas production would start to decline but did nothing about it. However, increasing production requires significant investments in infrastructure, particularly in deposits and pipelines, which involves years of planning and pretty long construction activities.

The general illusion that the country had unlimited natural gas reserves was fed by the Morales government, which regularly announced new industrialization initiatives, new export projects, new contracts with investors. In result, the necessary investments in the sector were never made. The Morales government was overly optimist about the available amount of gas.

Although Morales declared in 2019 to have discovered the most important deposit in the last 20 years, it can be considered that this statement served him to silence the opposition and the numerous criticisms he was facing at that time because in the end, the investments for exploration were never made and in 2024 Bolivia is encountering serious economic difficulties.

What now?

Álvaro Ríos Roca stated that “the average gas production capacity in 2024 will stand at 34 MMMCD of which we must keep 14 MMMCD for the domestic market. In other words, we will have 10 MMMCD left for exporting. And so, if we project to 2029/2030 when our production reaches 14 MMMCD, we will have no export capacity and will start importing natural gas.”

If in the future Bolivia does not reverse the trend and maintains the oil import subsidies, it will have serious economic consequences. In addition, the country's different municipalities depend on gas production and its royalty called the IDH (direct tax on hydrocarbons), which is a tax levied by the State every time a molecule of gas is extracted either for domestic consumption or for export activities. With the drop in production, municipalities have been benefiting from less income to invest in infrastructure and develop their territory.

Does Bolivia have the economic capacity to invest in exploration projects?

On July 16, 2024, Luis Arce announced that the state oil company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), had found a field in the north of the La Paz region. Potential reserves of 1.7 trillion cubic feet have been discovered in the mega field. It would be the most important discovery since 2005 according to the president's own words.

But again, large investments are needed to carry out exploration. However, Bolivia is facing a currency crisis, and the country needs foreign companies’ investments to produce more gas. However, Bolivia is struggling to attract them due to the lack of liberal policies and heavy bureaucracy. In addition, the nationalization of the sector in 2006 led to the implementation of a regulatory framework that mainly favors the State, ensuring that it has the highest possible revenues with a tax regime that has discouraged companies from investing, leaving the issue of the sector's sustainability on the sidelines.

However, it is worth noting that the difficulties caused by, among other things, the nationalization of the sector do not mean that the State's control over this strategic sector should come to an end. The law could be reformed to attract new foreign investors and to implement venture capital[2] tax incentives.

Be that as it may, in 2024, the Bolivian energy sector has reached a deadlock. The government of Luis Arce has stressed the need to make the laws more flexible, but no changes have been made yet as the president does not enjoy a parliamentary majority.

[1] Expression used by then Bolivian President Evo Morales (2006-2019) in March 2019 to announce the discovery of a new gas field in the Subandino Sur in the regions of Tarija and Santa Cruz. Morales called this energy find the “most important” in 20 years.

[2] The venture capital refers to the capital invested in a pretty risky project which also presents strong growth potential, typically a new or expanding business.

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