Global Policy Forum

A Latin American Pipeline Dream


Regional Leaders Put Weight behind Gas Plan

By Monte Reel

Washington Post
February 12, 2006

South American leaders from Venezuela to Argentina are proposing to build the world's largest fuel pipeline across Latin America, and they hope it will deliver much more than natural gas: They portray the plan as the first blueprint for a new era of regional cooperation, greater independence from international markets and a more prominent voice on the world stage.

President Hugo Chavez of Venezuela has labeled the proposal a 5,000-mile symbol of diminishing U.S. influence in Latin America. Enthusiastic support for the project from regional heavyweights, including Brazil and Argentina, has prompted others to describe the project as the first true joint venture of a political coalition determined to forge a new South American identity.

"This is the end of the Washington consensus," Chavez told reporters in Caracas last month, using the term for the market-driven economic policies that many Latin American countries adopted in the 1990s with U.S. encouragement. "It's the beginning of a South American consensus."

But the pipeline is a long way from being built, and many potential obstacles -- finding the estimated $20 billion to pay for it, resolving the environmental concerns of burrowing through the Amazon rainforest, dealing with competing interests of individual nations -- have caused some analysts to wonder whether the public pledges of unity can withstand a concrete test.

Instead of illustrating the ideological solidarity of the region, some analysts say that the pipeline proposal could expose the political fault lines that divide participating countries. "This is a region that is moving toward more disintegration and political fragmentation -- not the other way around," said Michael Shifter, vice president for policy at the Inter-American Dialogue, a Washington-based group concerned with Latin American issues.

According to preliminary proposals, the pipeline would begin in Puerto Ordaz, southeast of Caracas, stretch south the length of Brazil and end in Argentina, with possible branches serving Uruguay and Bolivia. In the past four years, the five countries have elected presidents who seek to promote more regional teamwork and less dependence on international financial markets.

Energy-related issues have been instrumental in determining the outcomes of several of those elections, in some cases serving as a lightning rod for public discontent. Energy is increasingly seen as a tool to achieve greater economic independence in the region.

Chavez, thanks to record profits in Venezuela's the oil and gas industries, has become the continent's most prominent voice and most active alliance-builder, using fuel to barter trade deals with Latin American neighbors and to secure goodwill. In Bolivia, disputes over how to manage natural gas reserves toppled two presidents in the past two years and helped propel the rise of Evo Morales, a socialist who has vowed to increase state control of the sector, to the presidency.

The countries with the region's largest economies, Brazil and Argentina, are struggling to keep up with rising domestic demand for natural gas and are eager to make deals with ideological allies to preserve flows. The three principal authors of the pipeline plan -- Chavez, and presidents Luiz Inacio Lula da Silva of Brazil and Nestor Kirchner of Argentina -- promise more details next month, when they meet for discussions in Argentina. Each has good reasons for wanting the project to progress quickly.

Venezuela would benefit from greatly expanded markets for its natural gas. Argentina, a longtime gas producer, recently has had to reduce exports to meet rapidly increasing domestic demand. Brazil already depends on gas imports, largely from Bolivia, and is predicted to triple its consumption by the end of the decade.

"The energy sector has been growing in prominence for the Brazilian government over the past year, and it has been looking for ways to get more control of its supply," said Sophie Aldebert, an associate director in Rio de Janeiro of Cambridge Energy Research Associates, a consulting firm. "Gas from Venezuela could be of great interest for a country trying to diversify its sources of energy."

Energy experts said designing and building the pipeline would be an enormously challenging task, but could be done within seven years with adequate financing. After meeting with Lula and Kirchner in Brazil last month, Chavez told reporters there would be more than enough money, with billions contributed by each government and possible investment from unspecified Asian partners.

Some experts suggested that private financing would help insulate the long-term project from political and financial turmoil in a region historically marked by instability. But even if the project makes economic sense, others said the greatest challenge would be environmental. To cross Brazil, the pipeline would have to traverse the Amazon, a vast river system and forest that is home to 25 percent of the world's plant species and numerous indigenous communities. Development projects in the region often become mired in disputes over their environmental impact; experts have been assessing the effects of paving the cross-Amazon highway for almost five years, and environmental activists said they expect approval for a pipeline to be at least as complicated.

"This pipeline project caught everyone in the environmental community by surprise. There was absolutely no discussion about this before the presidents sat down together and announced it," Paulo Adario, Amazon program coordinator for the environmental group Greenpeace, said in Manaus, Brazil. "It would have enormous consequences not only to the environment, but to the many indigenous groups."

Because presidential elections are slated for Brazil, Venezuela and Argentina before the end of next year, some critics have questioned whether the current presidents really believe the pipeline has a future beyond the planning of summits and staging photo opportunities. "The realities of this project -- for example, whether it's even feasible -- have not yet come into play, because right now this is just a political tool," said Luis Pacheco, a former chief of planning for Venezuela's state oil company who opposes Chavez's administration.

Russia's state-controlled energy company, Gazprom, cut off gas supplies to Ukraine on Jan. 1 in a fight over pricing that also had political overtones. Reductions in gas entering a pipeline network were felt across Europe before the dispute was settled three days later. The incident illustrated how political tensions can turn a pipeline into a source of pressure.

Nowhere in South America is the potential for such tensions greater than in Bolivia, which has the continent's second-largest gas reserves after Venezuela. Bolivia, which borders Brazil and Argentina, could become the most convenient source of gas for both, although the proposed pipeline would carry Venezuelan gas into direct competition with Bolivia, South America's poorest nation.

But Morales calls Chavez a friend and political hero, and Chavez has said that Morales's election in December sealed the pipeline deal, which some analysts said a president without strong ties to Chavez would likely oppose. "Why would Bolivia be happy in any possible way to give up a big share of its natural markets?" said Carlos Alberto Lopez, a former vice minister of energy for Bolivia. The issue is being viewed from "an ideological perspective and not an economic or commercially based one," he said.

Recent events in other parts of Latin America suggest that the current atmosphere of unity could dissolve into a conflict over national interests. Argentina's Kirchner and President Tabare Vazquez of Uruguay have been feuding over Uruguay's plan to build two paper mills near the Argentine border. Tensions between Argentina and Chile flared last year when Argentina reduced natural gas exports to its neighbor to address greater domestic demand.

"Economically, you do see some room for pragmatic deals," Shifter said. "But there are lots of splits, divisions and jealousies in the region now." Chavez is the motor driving the pipeline, he said, "and clearly he has some constituency in Latin America, but I don't think a lot of people in other countries are looking to copy his style."

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