MercoPress. South Atlantic News Agency

South American mega-pipeline might be pipe dream

Pipeline or pipe dream? The Pharaonic trans-Amazon natural gas conduit whose concept was approved amid much fanfare by the leaders of Venezuela, Brazil and Argentina this month makes little economic or technical sense, could cause great ecological damage and may end up being a figment of overly ambitious political imaginations, analysts told EFE.

The three governments must make a decision in the next few months on the viability of the plan, which calls for a pipeline some 8,000 kilometers (nearly 5,000 miles) long with a capacity to carry 100 million cubic meters (3.5 billion cubic feet) of natural gas per day, mostly from north to south. Venezuela's energy minister said construction of the conduit could require an investment of as much as $20 billion. "Energy integration cannot be at any cost. It has to be domestically and internationally competitive," said Wagner Victer, energy secretary in Rio de Janeiro state. "It would end up being a Pharaonic work," he said of the proposed pipeline, likening the idea to the project of Brazil's 1964-1985 military government for a trans-Amazon highway to link the sprawling country's northern and southern regions. The road remains unfinished.

Victer suggests the pipeline initiative may not go much beyond the dramatic announcement that emerged from last week's talks in Brasilia among President Luiz Inacio Lula da Silva and counterparts Nestor Kirchner of Argentina and Hugo Chavez of Venezuela.

"The political decision is important, but without a technical and commercial foundation, it becomes folly or ends in nothing," the state official said.

Venezuela's Chavez, a fierce critic of Washington's foreign policy, wants to diversify his country's petroleum exports beyond the United States, which is the Andean nation's biggest customer by far. The proposed pipeline would enable Caracas to export a quantity of natural gas equivalent to an extra 628,930 barrels per day of crude, but at great cost.

"The project has been characterized as Pharaonic for its magnitude in physical and financial terms," said one energy expert who preferred to remain anonymous. "No one understands why they don't prefer a cheaper option, such as transporting liquefied natural gas in ships and taking it where it's needed." Many in the sector say that the huge financial and environmental costs make the pipeline difficult to justify. The conduit would have to traverse environmentally sensitive regions of Venezuela and Brazil. Engineers would also face the task of burying the line beneath the basins of great rivers including the Amazon, which is known as the River Sea for its vast breadth.

The pipeline's likely route would take it across thousands of kilometers of virgin rainforest in northern Brazil, opening up areas that have until now been protected by their remoteness.

From Manaus, capital of the Brazilian state of Amazonas, the conduit would split into two branches: one running south to Rio de Janeiro; the other eastward to Brazil's impoverished northeast.

The southern spur would continue from Rio into the Brazilian industrial heartland - linking up in Sao Paulo with the existing Gasbol pipeline that delivers 30 million cubic meters of Bolivian natural gas to Brazil - and extend from there to Argentina.

The big question is whether the pipeline operators can offer the gas at a competitive price and still recoup their hefty costs.

EFE obtained a copy of estimates from independent consultants who said that the pipeline operators could not afford to sell their gas for anything less than $8 per million British thermal units.

Bolivia currently sells natural gas to Brazil for $3.23 per million BTU, and charges $3.18 per million BTU for gas delivered to the Argentine border. Brazilian prices for domestically produced natural gas are significantly lower.

Another factor to be considered is demand, given that 100 million cubic meters a day - the proposed quantity to be transported eventually by the line - is a lot of gas. Right now, Brazil consumes 70 million cubic meters per day, 35 percent of which comes from Bolivia. Argentina, which is far more dependent on natural gas, uses about twice as much as its giant neighbor.

Looking ahead to the time when the prospective pipeline would likely be completed, Brazil is expected to be producing more than 3 million barrels per day of crude oil within its borders along with 100 million cubic meters of natural gas.

Brazilian state-owned oil company Petrobras vows the country will become self-sufficient in crude sometime this year and expects the same will happen with regard to natural gas within a decade.

Petrobras' richest oil and gas fields are located in Atlantic waters off the coasts of Sao Paulo and Rio de Janeiro states, the very places Venezuela hopes to sell its gas.

As for Argentina, its demand for Venezuelan fuel might be smaller than expected if Buenos Aires achieves its aim of reviving the country's troubled oil and gas industry and restoring depleted reserves, though the success of that effort is by no means assured.

Edmar Fagundes de Almeida, an economics professor at the Federal University of Rio de Janeiro, says the pipeline initiative is rooted in the political needs of Argentina - now short of natural gas - and of Chavez's Venezuela, "which seeks a high-profile political role in the region." "As an idea, it's appealing, and there is nothing wrong with it," the academic said, but noted that to make the project attractive to the private investors it will need means providing long-term contracts and guarantees.

The professor said that creating the necessary incentives will not be easy for Argentina, Brazil and Venezuela, each of which has its own distinctive legal regime governing the energy sector