Politics, Business & Culture in the Americas

The Promise of Oil in Paraguay



Paraguay has just 6.5 million inhabitants who consume 27,000 barrels per day of refined petroleum products. To put that into perspective, Argentina consumes 698,000 barrels per day, Chile 347,000 and Bolivia 62,000. This makes Paraguay’s needs for hydrocarbons very small when compared to its neighbors.

Yet Paraguay is currently importing all of its oil, as it does not have any domestic production. In recent years, the country depended on Venezuela for a good portion of its energy needs, importing close to 8,500 barrels per day in 2011, through a preferential payment program called the Acuerdo de Cooperación Energética de Caracas (Caracas Energy Agreement—ACEC). The program was interrupted by Venezuelan President Hugo Chávez in 2012 after Paraguayan President Fernando Lugo was deposed, leaving Paraguay reeling and awash in $260 million in debt.

Oil in Paraguay has a complex history. The Chaco region is believed to have massive oil reserves, with estimates of some 4 billion barrels—just less than half of the estimated reserves of Brazil’s famed Libra pre-salt field. Because of these resources, Paraguay and Bolivia went to war in 1928 over claims to part of the region, where oil had been discovered by Standard Oil of New Jersey. The Chaco War, which raged until 1935, resulted in 100,000 casualties and, despite winning the war, Paraguay was never able to develop the region’s potential, while Bolivia went on to become a major producer.

Subsequent to the end of the war, numerous exploration and production companies came to Paraguay, but there were never any significant finds. Between 1947 and 2005, 49 wells were drilled without major production. A hydrocarbons law attractive to foreign investors was passed after the end of the Alfred Stroessner dictatorship (1954-1989), which provided favorable terms for companies wishing to develop projects in the country. Yet nothing to date has yielded tangible results.Despite this record of futility, the administration of President Federico Franco has been very bullish on Paraguay’s potential for hydrocarbon development, with declarations of potential reserves that border on hyperbole. Quoting the Paraguayan government, one newspaper article claims that Paraguay has 14 trillion cubic meters of petroleum and gas reserves, which—when  considering natural gas alone—would place it fifth in the world—above the United States, Saudi Arabia and Venezuela. According to the minister of technical planning, Richard Kent, this would represent one of the “largest reserves of oil and natural gas that humanity has ever known.” Furthermore, in terms of shale potential, Paraguay is estimated to have the fifth largest resource base in Latin America.

The question remains, why hasn’t Paraguay capitalized on this potential? One of the issues is the size of the Chaco basin and the risk involved. Because so few companies have managed to exploit the area and seismic studies have been limited, it has proved to be extremely risky for prospective companies to get involved. With the cost of drilling a well approximately $10 million, and limited credit available, the smaller oil companies that are present in Paraguay have been skittish about making large investments. These companies do not have the financial backing of the majors.

Some observers have compared Paraguay to Colombia of a decade ago. During the past seven years, Colombia has managed to double its oil production in part due to shrewd investment and managing of the state oil company Ecopetrol. For Paraguay to become the next Colombia and to take advantage of the promise of its oil reserves, seismic studies, favorable investment terms and availability of credit must be present. 

ABOUT THE AUTHOR

Christian Gómez, Jr. is a contributing blogger to AQ Online. He is director of energy at the Council of the Americas. Follow him on Twitter at @cgomezenergy.

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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.