Gazprom’s Emergence As A Player in Latin America

Via Energy Daily, a report noting that Russian President Dmitry Medvedev – while making his first visit to Brazil – made the first stop of his trip trip to the headquarters of state-run oil company Petrobras, reaffirming Gazprom’s emergence as a player in Latin America’s growing energy infrastructure. As the article states:

“…Medvedev announced that Russian natural gas state monopoly Gazprom would open a representative office in Rio in early 2009 and use the office as a base of operations to increase its presence and operations on the South American continent.

Washington can hardly be blindsided by Gazprom’s moves, as the Russian firm began planting its flag in Latin America’s most populous nation more than two years ago. On Feb. 8, 2006, Petrobras first confirmed it had begun exploratory talks with Gazprom about possible cooperation. Two weeks later, at the opening of a seminar in Rio, Russia’s Ambassador in Brazil Vladimir Tyurdenev announced the two countries were discussing creating a center for technology transfer in Brazil to increase scientific and technological exchange in the biotechnology, nanotechnology, information technology and electronics fields that could take advantage of the companies’ investment potential on executing large-scale industrial development projects. Tyurdenev added that Brazil and Russia were increasing their energy cooperation, as Russia had begun to supply equipment for Brazilian hydroelectric facilities, and that Petrobras and Gazprom were close to finalizing a cooperation agreement to operate in other countries.

Concrete Russian interest was not long in coming, as the following month Gazprom, along with Spanish-Argentine Repsol and other multinationals, contacted oil industry authorities in Venezuela and Brazil about participating in the construction of a proposed 4,970-mile Gran Gasoducto del Sur (Great Southern Gas Pipeline) that would transit natural gas from Venezuela’s southern Caribbean and Atlantic deposits across Brazil’s Amazon jungle to the Rio de la Plata estuary between Argentina and Uruguay. The Great Southern Gas Pipeline, first proposed in December 2005, would link up with gas lines in Bolivia, Chile, Paraguay, Peru and Uruguay, with a daily carrying capacity of 150 million cubic meters; it was projected to cost $20 billion. Venezuela would provide all the input for the pipeline, as Caracas put its gas reserves at 151 trillion cubic feet, nearly half the total reserves in the Western Hemisphere, exceeded only by those of the United States, which contains reserves totaling 189 trillion cubic feet.

The pipeline project had the backing of Argentinean President Nestor Kirchner, Brazilian President Luiz Inacio Lula da Silva and Venezuelan President Hugo Chavez. Chavez, the pipeline’s biggest proponent, stated it would be built between 2007 and 2017, adding that it would provide more than 1 million jobs and was intended to be the centerpiece of a network of pipelines eventually traversing the entire continent. In a prescient remark, Chavez said South American nations had to prepare for the worldwide energy crisis that he said was approaching, and the gas pipeline would be the best means to confront the threat.

After the initial spate of warm public relations releases announcing the project, the next year and a half would see its realization put under increasing stress due to rising strains in relations between Lula and Chavez, whose increasingly bellicose stance toward Washington exasperated his Brazilian counterpart. In November 2007 Petrobras announced it was abandoning a joint venture with Venezuela’s Petroleos de Venezuela SA to develop Venezuela’s Mariscal Sucre offshore natural gas field, which would have supplied the feedstock for the Great Southern Gas Pipeline. Before the joint venture foundered, Petrobras and PDVSA were planning to send half the field’s output of 34 million cubic meters a day to Brazil through the new pipeline. Ever the opportunist, Gazprom put in a bid for the rights to develop the Mariscal Sucre field.

While political rivalry and a lack of funding, combined with the low retail cost of natural gas for domestic users in the regulated Southern Cone market, meant that the project was never realized, it marked Gazprom’s emergence as a potential player in Latin America’s growing energy infrastructure.

…If one wonders why Brasilia is looking toward closer cooperation with Russia rather than eagerly embracing U.S. multinationals, it should be borne in mind that Brazil has concerns about Washington’s intentions toward its offshore Tupi, Carioca and Jupiter Atlantic fields, discovered last year and collectively the Western Hemisphere’s largest finds since 1976, with reserves estimated to contain up to 50 billion barrels of oil.

Brazilian legislators subsequently noted with alarm the Pentagon’s April announcement that it was re-establishing its 4th Fleet under the Pentagon’s Southern Command for operations in the Caribbean and southern Atlantic. Three months ago Sen. Pedro Simon of the Brazilian Democratic Movement Party commented that his colleagues noted the “coincidence” that following Brazil’s oil discoveries the 4th Fleet was revived after a 58-year hiatus and the Committee of Foreign Affairs and National Defense wrote to presidential candidates Barack Obama and John McCain stating the Legislature’s opposition to Washington’s new military deployment in South American waters.

If President-elect Obama wants U.S. companies to have a share of the Latin American energy market, then he might begin by sending tankers, not warships, as Latin Americans have a long memory of gringo “gunboat diplomacy” and, more recently, Vice President Dick Cheney’s secret energy task force and the subsequent U.S.-led invasion of Iraq. In such a context, Latin Americans view the visit of the Russian missile cruiser Pyotr Veliky (“Peter the Great”) and its attending destroyer, tanker and tugboat to the Caribbean as positively benign.”

This entry was posted on Tuesday, December 9th, 2008 at 5:26 am and is filed under Brazil, Gazprom, Russia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

Comments are closed.

Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.