Venezuela gas pipeline: irresponsible madness
By Gustavo Coronel
January 26, 2005 | There are few oil or gas pipelines longer than 4,000 kilometers, either in existence or in the project stage. The current Russia to Europe line is shorter than 2,000 kilometers. A projected line from Russia to northern Germany will be, if built, 1,300 kilometers long, to transport some 30 billion cubic meters of gas per year. A planned gas line from the Caspian Sea region to Italy would be 3,400 kilometers long, not a single line but a grid of several regional lines. A line projected by PetroChina from the gas producing areas to the East would run for about 6,000 kilometers and cost over US$24 billion. Most of the projects will probably never be built due to cost, technical problems and environmental and political obstacles. These pipelines projected in China or in the Russia to Europe region are needed to serve the immediate demands of millions of people. In the case of China, this need is especially great, as the country is one of the worst examples of deforestation in the world, the wood being used for heating purposes in large areas of the country. In the case of Europe, industrial and domestic energy needs are ever greater.
Now, a new gas line project has appeared that dwarfs all existing or planned lines: an 8,000 kilometer long gas line from Venezuela to Argentina, through the central portions of our continent, the Amazonia, the biggest remaining environmental sanctuary of the world. This project has been proposed to the presidents of Brazil and Argentina by Hugo Chávez and has apparently met with the approval, in principle, of these important political leaders. The idea has so far received very little attention in the specialized press or, even, in the local or regional media.
Well, I think this idea is irresponsible madness and should be denounced as an example of the ineptness and empty rhetoric of the Hugo Chávez regime. The presidents of Brazil and Argentina would do well in refraining from showing approval, no matter how mild, in connection with this idea. In trying to comment on this idea by Chávez I feel like the mosquito flying over the elephant: I know what has to be done but where should I start? priorities, costs, environment, technical obstacles, demand, supply, financing, cost of delivered product, maintenance, political complications, legitimate ownership of Amazonia? There are so many aspects related to this idea!
Let me start with priorities in Venezuela, where the originator of this idea is currently president. Is a $20 to $30 dollar billion project what Venezuela needs to embark upon, in the foreseeable future? A country where 80% of the population is poor to miserable? A country where the infrastructure is rotting away due to lack of maintenance and where not one single new kilometer of roads or hospital or port or airport has been built in the last 7 years? A country where 80% of the food is imported and distributed under state control? A country where national debt has doubled in the last 7 years and some US$130 billion of oil income has been pilfered? A country where the electricity distribution system is in urgent need of at least a $5 billion in new investment in order to function reliably? A country where important segments of the population lack sanitary infrastructure (running water and sewage) and where housing is tragically inadequate for 70% of the population? In short, how can a political leader be thinking of sinking an immense amount of money into a transnational project of this magnitude, when the country under his responsibility is in such a dismal condition?
Whenever a cost is estimated experience has shown that, after the project is completed, real costs are anywhere between 25% and 30% greater. In this case, where extreme-building conditions would be encountered, it would not be surprising that the cost over run would take total costs to US$30 billion or so. Who would pay for this? Argentina? Brazil? No! Venezuela. Chávez feels a compulsive need to offer to pay for everything. He is already known for this. All that the presidents of Brazil and Argentina would need to do would be to hesitate a few seconds about their share of the financing, for Chávez to jump and say that he would put up all of the money. This is so because Chávez has no checks and balances. No one dares to object to what he says, no matter how ridiculous his order could be. The recent decision to change the Venezuelan flag and the coat of arms due to an order by Chávez to the current National Assembly, inspired in a request by his little daughter, illustrates this tragic reality. The criticism of this farce by the media has resulted in a judicial restraint order to Tal Cual, a newspaper critical of such measure, not to mention the name of Chávez's daughter in this connection, although Chávez himself originally mentioned the request by the little girl!
Amazonia is the largest remaining ecological sanctuary left in the world. It is under grave threats of environmental damage. Every year, says Lester Brown from the Earth Institute, a significant portion of its territory is lost to encroaching agriculture and cattle rising or to mineral exploitation. To lay a gas line through it, with a road that will have to be maintained on a continuous basis and would serve as another path of penetration for "civilization," will do irreparable damage to this region. By putting forward such an idea Chávez has shown that all his claims of being on the side of the poor and the indigenous and the green environmentalists is just verbal trash. He will subordinate all the legitimate needs of humanity to his short term and ridiculous urges to keep in the political limelight. Many of the areas that will have to be crossed are swampy and part of a highly complex hydrographic system. Frankly, I doubt that any thought has been given to this matter. Another issue is: Who owns Amazonia? Can Chávez, Lula and Kirchner decide on the fate of what is, really, a world patrimony? This is an issue that will rapidly come to the surface in international meetings.
How many hundreds of booster stations will be needed, located in a basically uninhabited region, requiring maintenance? What will be the cost of maintenance of this 8,000-kilometer line? Who will build the pipe? 8,000 kilometers of pipe is not something that can be bought in the corner's store. Someone has estimated that about 535,000 tubes would be needed. Is that amount available or can it be built in the short-term? I doubt it. I could predict that the biding process for this project would be a very lively affair, as Brazilian, Argentine, Venezuelan and first world construction companies engage in a gigantic battle for the award and political considerations play a major role.
Demand and Supply
Has anyone considered the real need to build such a line? What are the current and expected demand volumes? Where is this information? The line will have to travel thousands of kilometers before finding its first customer. Where? In Paraguay? Northern Argentina? I doubt that there will be much demand in Brazil, unless regional lines are built to distribute the gas away from the main line, adding to the cost and to the environmental disaster. In parallel, where is the gas going to come from? Venezuela produces most of its gas as associated gas, not free gas. 90% of Venezuelan gas reserves are associated with oil and subject to production quotas. Producing above these OPEC quotas would force Venezuela to abandon the organization. The domestic gas supply picture in Venezuela is so tight that, not long ago, there was talk of importing gas from Colombia into western Venezuela due to insufficient Venezuelan gas reaching that region. The gas line proposed by Chávez would require supplying an amount of gas said to be some 70 billion cubic meters per year! Just for comparison, the new gas line being planned from Russia to Eastern Europe would carry about 30 billion cubic meters per year and the PetroChina project, above mentioned, is for only 12 billion cubic meters per year. Where could this volume for the Chávez gas duct be obtained? Not in Venezuela, especially considering that the supply should be guaranteed for 30 or more years if the line can be economically justified. A side issue, also very important, is: Can Chávez, according to Venezuelan law (if it applied to him) commit Venezuelan hydrocarbons reserves to a transnational project for many more years than he will be in power? Or is this the product of his intentions of being in power for the next 30 years or so? What madness!
Sales Price and Political Complications
What would have to be the sales price of the gas delivered in Argentina to make this project economically viable? I have no idea. Some estimates I have received, for which accuracy I cannot vouch, put the price of the gas at the final customer at some $22 per million BTU, this is, the equivalent of some $110 per barrel of oil. This could be about right for the time in which the gas is finally, if ever, delivered, provided we were dealing with first world customers. Third world customers will never pay this amount. The political rhetoric used by Chávez so far runs against these prices. Chávez is giving oil away to Cuba and is supplying it, the customer, at reduced prices to the Caribbean countries. How can he now say that this will be the price to be paid by gas? How can Argentina trust a person, the supplier, who is much more unbalanced than Putin, who just cut the gas to Ukraine for political reasons? I would not like to place a bet in a fight over who is more arrogant and more "sovereign" between Kirchner and Chávez.
Chávez has outdone himself this time. This idea is an act of madness. He is endangering the lives and welfare of the whole planet. He is totally out of control. Like Hitler in Chaplin's movie, The Dictator, Chávez can be pictured trying to play with a balloon resembling our planet. Frankly, I think that the potential for damage Chávez represents today for our world is already as great as the one the Nazi madman had in the mid 20th-century.
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