March 28, 2004
La Paz, Bolivia

Much to my surprise I awoke to the following headlines today: 

"Gas Crisis Forces Chile to Search For Other Sources of Energy:  Argentina has complications with its neighbor, Bolivia has the solution, but there is no agreement to export the resource."

Though translated from the spanish, this headline could have easily been written by a brit it is so completely understated.  Effectively, South America is facing an enormous energy crisis--one that has caught nearly all parties completely by surprise, or so it would seem.  This may be the first true example of a major energy breakdown as a result of peak oil forces.  I seem to have driven right into the middle of it.

This seems to be an early precursor to recent rumblings I have begun hearing about what some fear might hit the US within the next several years.  Mistakenly, i had assumed that we might be the first affected because of major mistakes we made in our dependence on natural gas for electricity, and because of a major disconnect between our voracious appetite and the realities of what remains in supply worldwide.  It seems that South America may instead have the dubious distinction of being the first casualty.  I strongly urge you to read the following article which was the headline today in La Prensa, one of the major Bolivian newspapers.   Google and I sat down and translated this from the spanish, its a bit of a rough job in places, but i think you'll get the drift.  If you prefer it in Spanish, you can find it here.

La Prensa Article in English

With apologies to a few faithful readers that have been suffering under some of the more politically tilted scribblings from your resident canary, i must insist on this further incursion...  (and also of course point them to my disclaimer). 

Can I summarize the gist of this article?:

  • Argentina is in a major energy crisis, due to natural gas shortages and its dependence on NG for electricity generation.  Somehow this shortage was not made public or sufficiently anticipated prior to this last week.

  • Since supplies no longer exceed internal demand.  Argentina is no longer a net exporter of natural gas--or only marginally so (Chilean and Uruguayan exports less Bolivian imports).

  • Not only this, but it can no longer meet internal demand as well.

  • Rationing has begun.

  • All Argentine neighbors who depend on it for supply are by direct implication in crisis as well.  This includes Chile, Uruguay, and perhaps Paraguay.

  • Resources are tapped.  This is not a temporary situation, but a permanent one, unless alternative sources of energy are developed--something which will at the least take many years to develop and build, if possible at all. 

  • Bolivia has excess natural gas supply, and has been selling that to Argentina with the stipulation it not be made available to Chile, with whom it has an ancient squabble over access to the Pacific Coast.  Bolivian opposition to the sale of gas to Chile and the related reclamation of title to a corridor to the Pacific are the cornerstone of the current president's platform, and one of the key reasons he came to power after the bloody Red October uprising last fall.

  • Chile has been even quite recently ridiculing Bolivian maritime demands, but perhaps in light of this surprising news, may need to rethink its position somewhat--though I think the Bolivians a little optimistic there... after all, any Argentinian imports may always be declared to be for internal consumption... notwithstanding that remaining exports to Chile happen to be for approximately the same volume.  Its a question of semantics... one that the Bolivians may have to push harder than neighbors be willing to tolerate to get anywhere.

A few of my inferences from these events:

  • The US isn't the only country facing a serious and immediate natural gas crisis.

  • We might be well advised to look at what is happening down here with respect to how an energy crisis unfolds, and what its ramifications are.

  • Governments seem quite willing to let supply problems escalate under the surface until they erupt into serious and immediate issues requiring public rationing and immediate restriction of energy exports to neighboring countries previously depending on those exports.  In fact, what is surprising to me is that both situations can actually happen simultaneously.  I assume this has a lot to do with pre-existing contracts and corporate interests in competition with local needs.

  • Argentina and Chile seem to generate a large percentage of their electricity from natural gas (as much as 40% or more), a situation which we have unfortunately duplicated in the United States.

  • In any country with domestic energy reserves, internal energy requirements come first.  This simply makes sense.  When internal demand cannot be met, exports are reduced or severed.  We face a similar situation right now in the US with respect to Canada.  NAFTA guaranteed us a portion of Canadian natural gas (15% of our demand is met by Canada currently), but when internal Canadian demand meets or exceeds Canadian supply, we might well expect NAFTA to disappear in a puff of smoke.

  • When energy supplies reach critical levels, there will be rationing.  Rationing here seems to favor residential hours over business hours (6am to 6pm), presumably only because there is less demand during the night.  I would imagine that the rationing is probably only for homes and residences and not businesses/industry, but i need to do more research there.

  • It is probably easiest to ration when there is direct national control over energy sources and electrical utilities.  What will rationing look like in the US where most infrastructure has been privatized?

  • Energy crises ripple throughout the geographic / political boundaries of neighbors and partners.  No one is exempt, even if they have pre-existing relationships or contracts.

  • The possibility of corruption increases as supplies tighten (potential worry of resale of Bolivian gas to Chile through Argentina), a situation which would also be a more inefficient means of delivery of gas to the end customer.  i.e. as supplies tighten, are remaining supplies utilized more or less efficiently?

  • Energy crises necessarily seem to escalate tensions between friends and neighbors, old axes are brought to grind.  (Bolivian movement to regain portion of Chilean territory connecting it to the sea.  I cannot stress enough how important a point of pride, and of national sovereignty this is to the Bolivians.  It has been in the paper constantly since I arrived, and there was even a "Day of the Sea" with marches by the Bolivian Navy (I had to laugh, the only navigable body of water is Lake Titicaca) the day i arrived in la paz... )

  • As the smaller countries whose energy reserves still exceed internal demand realize their position, they will use it to attempt to regain somewhat equal socioeconomic footing with their bigger, richer neighbors and customers.  i.e. they have a keen mind to conserve their remaining resources and extract the highest possible price for what they have, including political objectives.

Other covergage of the Chile/Argentina Situation: