Gas Market Integration in the Southern Cone
By Paulina Beato, Juan Benavides (01/05, En, Es) See also Infrastructure and Financial Markets
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This book is part of a larger effort by the Inter-American Development Bank (IDB) to promote integration of energy markets in South America?s Southern Cone region. The main goal of the IDB agenda for regional integration is capturing the larger gains from trade and fairly distributing them.
In South America?s Southern Cone, natural gas is the most promising energy industry for regional market integration. Natural-gas reserves are abundant and unevenly distributed. In addition, the infrastructure for regional transport is fairly well developed. Moreover, the region has significant potential for market growth, especially in light of Brazil?s enormous energy market. Gas-power plants in particular are expected to grow and play a key supply role in both Brazil and Chile. Furthermore, market integration ?such as increased convergence of gas and electricity markets-could reduce energy-supply costs within the region. Finally, business strategies of the region?s natural-gas companies focus on exploiting cross-border synergies.
Chapter 1-4 analyzes specific features of the natural-gas sector in four Southern Cone countries with significant gas consumption or reserves: Argentina, Bolivia, Brazil, and Chile. Each of the chapter authors brings a wealth of experience and knowledge to bear on the respective country sectors.
Chapter 5 analyzes Peru?s natural-gas sector to identify forces pushing for integration. Although this country?s gas market is far from being part of the Southern Cone market the 2004 crisis, associated export restrictions, and results of 2004 Bolivian referendum have pushed integration of the Peruvian gas sector to the forefront of discussions.
Chapter 6 presents a proposal for advancing and managing the integration process. The proposal structures a set of recommendations for promoting gas-market integration in Latin America. It relies on European experience, while also recognizing the Southern Cone?s distinguishing features.
Chapter 7 discusses the relevant forces pushing for and against regional integration. Specifically, it discusses how the proposal set forth for advancing and managing the integration process deals with these issues. An analysis of the forces for integration is structured around three topics: regional market features, industry structure, and regulatory frameworks. The chapter also discusses the necessary conditions that a proposal promoting gas integration should meet to enhance favorable forces and minimize unfavorable ones.
Chapter 8 then analyzes the effects of the Argentina-Bolivia-Chile crisis on prospects for integration. As the chapter shows, natural-gas integration in the Southern Cone remains a question mark, at least for now. The region?s main gas exporters are experiencing significant political and economic crises that have significant implications for the natural-gas industry, affecting the outlook for cross-border gas trade.
Chapter 9 presents industry views on regional gas-market integration. Although the concerns of sector companies differ with regard to the process of integration, three main areas are of common concern. First, companies agree that larger market integration would benefit both the industry and consumers. Second, integration of gas industries across distinct countries poses key challenges concerning the setup of a competitive regulatory framework and harmonization among national legislations. Third, the current situation demands political negotiation between relevant countries to avoid anti-integration solutions to the region?s economic and political crises. Lacking political negotiation, the Southern Cone gas market could be driven toward further disintegration as each country seeks domestic solutions to current instability.
In summary, this book?s contributions aim to provide a framework for discussing and negotiating a set of basic principles to underpin the regulatory framework and energy policy to permit market integration and price convergence. To advance gas-market integration, Southern Cone countries should also work toward increasing economic and political integration. Indeed, political and macroeconomic convergence is essential to reduce political and regulatory risks associated with gas trade and infrastructure and to promote long-term investment.
From the Foreword and Editors? Introduction
Last updated: 05/08/07
