Regional Energy Integration in Latin America: lessons from Chile's experience with natural gas

Abstract

In the 1990s regional economic integration regained popularity as a means for promoting sustainable economic development in the developing world. Latin America, where market liberalisation and pro-market presidents proliferated in that decade, emblemised this belief. Even today, when pro-state intervention governments are on the upswing, the rhetoric of economic integration continues. Yet integration schemes are faltering. This article presents a case study to demonstrate that neither markets nor political will of leaders can produce successful economic integration unless the politics of integration have been favourably resolved. Chile best exemplifies this situation. Chile's lessons learned through their natural gas and energy development model serve as an excellent prism for analysing the political economy of regional economic integration and speculating on what types of regional energy integration schemes can work best.

Notes

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11 DR Mares, ‘Natural gas pipelines in the southern cone’, in David G Victor, Amy M Jaffe & Mark H Hayes (eds), Natural Gas and Geopolitics (Cambridge: Cambridge University Press, 2006), pp 169–201.

12 ‘Brasil rechaza recorte de gas natural propuesto por Bolivia’, La Prensa (La Paz), 14 February 2008.

13 ‘Bolivia bans Argentina from reselling gas to Chile’, People's Daily Online, 25 October 2006, at http://english.peopledaily.com.cn/200610/25/eng20061025_315049.html.

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15 T Azzopardi, ‘Argentina increases tax on gas exports to Chile’, Platts.com, 15 July 2008, http://www.petroleumworld.com/story08071507.htm.

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17 J Schneyer, ‘Petrobras to be fined for shortfall of gas; failed to provide sufficient supply to power plants in July’, Platts Oilgram News, 85(156), 2007, p 8.

18 G Duffy, ‘“Huge” gas field found off Brazil’, BBC News, 22 January 2008, at http://news.bbc.co.uk/2/hi/americas/7201744.stm.

19 ‘Brazilian energy company to resume investments in Bolivia’, BBC Monitoring Latin America – Political, 8 November 2007, at http://www.redorbit.com/news/business/1135912/brazilian_energy_ company_to_resume_investments_in_bolivia/index.html.

20 Bruce McMullen & Trevor Morgan, Regulatory Reform in Argentina's Natural Gas Sector, Paris: OECD, 1999, p 48.

21 E Figueroa B, and B Smith, Natural Gas Across the Andes: A Case Study of an International Pipeline Venture, Alberta: Western Centre for Economic Research, School of Business, University of Alberta, 2002.

22 Argentina and Chile sent their maritime boundary dispute to arbitration in 1971. In 1977 the British monarch awarded three disputed islands in the Beagle Channel to Chile. Argentina rejected the decision and attempted to militarily coerce Chile into negotiating a division of the islands that would produce a maritime boundary consistent with Argentine claims.

23 For a discussion of Bolivia's relationship with Brazil in the oil and gas sector, see Mares, ‘Natural gas pipelines in the southern cone’ (note 12).

24 The commission concluded that natural gas imports would not be profitable if electricity were imported. While lowering electricity prices was a goal of the commission, they wanted to decrease energy prices for industry, domestic consumption and transport first. (FLACSO-Chile, 1996) There may have been some discussion about the potential use of electricity as a bargaining tool by Bolivia, since at an off-the-record meeting in 2007 an important former Chilean policymaker was quite vehement in his comments that it was better to have been cut off from Argentine gas than Bolivian electricity.

25 J Corrales, ‘The politics of Argentina's meltdown’, World Policy Journal, XIX(3), 2002, pp 29–42.

26 Most favoured nation (MFN) clauses in trade agreements speed the process of decreasing trade barriers by making the benefits provided by one country to another automatically applicable to all countries. But because it is automatic, countries lose the ability to negotiate adjustments with those third parties. ALADI has 12 members; any lowering of trade barriers between Chile and Argentina would have to have been extended to the other 10 members if the MFN clause had not been circumvented. ALADI adopted this treaty circumventing MFN because it believed that progress on lowering trade barriers could proceed faster among subsets of its membership than if all members had to be included.

27 Mares, ‘Natural gas pipelines in the southern cone’ (note 12).

28 M Gallardo, ‘Gasoducto Chile–Argentina: La Hora Decisiva’, El Mercurio (Santiago), 4 September 1995.

29 C Bastos, secretary of energy, Government of Argentina, 1991–1996, interview by E Dubín, Buenos Aires, August 2003, as cited in Mares, ‘Natural gas pipelines in the southern cone’, p 1999 (note 12).

30 McMullen & Morgan, Regulatory Reform, p. 46 (note 21).

31 AK Izaguirre, ‘Private participation in the transmission and distribution of natural gas—recent trends’, Public Policy for the Private Sector, note no. 176, April 1999.

32 Argentina Country Analysis Brief, Energy Information Administration, Washington DC, February 2008.

33 IEA, South American Gas, Paris: OECD/IEA, 2003.

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36 IndexMundi, at http://indexmundi.com/g/g.aspx?c=ar&v=66.

37 Fernando de la Rua, elected president 1999, resigned 21 December 2001; Ramon Puerta appointed acting head of the executive branch for two days; Adolfo Rodríquez Saa appointed president December 23, resigned December 30; Eduardo Camaño appointed acting head of the executive branch 31 December–2 January, 2002 and Eduardo Duhalde, appointed president on 2 January 2002 and replaced by popularly elected Nestor Kirchner on 25 May 2003.

38 Rodrigo Orihuela, ‘Argentina rations gas to industrial consumers amid shortage’, Bloomberg, 28 June 2011, at http://www.bloomberg.com/news/2011-06-28/argentina-rations-gas-to-industrial-consumers-amid-shortage-1–.html.

39 The debate over increased taxes on agricultural products, particularly soybeans, came to an abrupt ending in mid-July when the Argentine senate rejected Kirchner's proposal enacted in March; Kirchner promptly canceled the sliding scale concept after the defeat in Congress.

40 J Webber & R Lapper, ‘It won't be easy…No tears for the IMF as a feisty Argentina awaits its next Evita’, Financial Times, 26 October 2007, at http://www.ft.com/cms/s/0/10c30666-8327-11dc-b042-0000779fd2ac.html#axzz1dsUo5Dyj.

41 ‘Argentina to pay hefty sum for LNG imports –source’, Reuters, 16 March 2011, at http://uk. reuters.com/article/2011/03/16/lng-argentina-idUKN1615138720110316.

42 Comisión Nacional de Energía, government of Chile, ‘Protocolo Adicional Al ACE No 16, Sobre Información de los Mercados de Petróleo y Gas, y Decisiones de la Autoridad con Relación al Intercambio Energético entre las Repúblicas de Chile y Argentina’, 29 October 2002, at http://www. cne.cl/archivos_bajar/protocolo_info_h_cancilleria23–10–02.pdf.

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44 The Wall Street Journal, ‘Peru Agency Says Camisea Natural Gas Export Talks To Restart’, The Wall Street Journal, 10 May 2011, at http://online.wsj.com/article/BT-CO-20110510-720059.html.