ARGENTINA-BOLIVIA NATURAL GAS NEGOTIATIONS UPDATE

UNCLAS BUENOS AIRES 001352 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ENRG ECON AR SUBJECT: ARGENTINA-BOLIVIA NATURAL GAS NEGOTIATIONS UPDATE ¶1. Minister of Planning Julio De Vido and Bolivian Vice President Alvaro Garcia Linera ended their 7-hour negotiating session on June 12 without reaching an agreement on the price that Argentina would pay for Bolivian natural gas. De Vido entered the session against the backdrop of public statements by Argentina's President Kirchner that "USD 4.50 (per million BTUs) seems a reasonable price," which represents a 40-percent increase above the price of USD 3.20 per million BTUs Argentina currently pays. Argentina's negotiating interest is rooted in expected shortfalls of natural gas in the intermediate-term and is focused on expanding deliveries of natural gas from approximately 4.5 million cubic meters per day to as many as 20 million cubic meters per day. (Comment: A senior business executive with close ties to President Kirchner told the DCM that Kirchner and Morales had several phone conversations the previous week but had been unable to reach an agreement on the price. End Comment.) ¶2. The GOA has incorporated into its discussions consideration for the investments that will be required to achieve this expanded capacity. Construction of the Northeastern Pipeline connecting Bolivia and Buenos Aires remains pending. The project, which De Vido announced in October 2003, carries an estimated cost of USD 2 billion. A price agreement on natural gas is, therefore, a key condition to have in place before this pipeline project begins. The GOA, reportedly, offered USD 5 per million BTUs, but Bolivian authorities reportedly asked for USD 6, an 88-percent increase above what Argentina currently pays. Presidents Kirchner and Morales are scheduled to meet in Buenos Aires on June 29 to resume discussions on the issue. -------------- Comment -------------- ¶3. Argentina's ability to reach an agreement with Chile has regional implications. Argentina supplies 15 million cubic meters of natural gas to Chile daily. However, as Argentina's economy continues to grow, its natural gas consumption will rise with it. Consequently, GOA officials will suspend natural gas deliveries to Chile if doing so will prevent shortfalls domestically. The Northeastern Pipeline construction project will take at least two years once started. Argentina's negotiations with Bolivia will also affect the price of deliveries to Brazil under Bolivia's nationalization decree. ¶4. To see more Buenos Aires reporting, visit our classified website at: http://www.state.sgov.gov/p/wha/buenosaires.< /a> GUTIERREZ