OREANDA-NEWS. The Bolivian and Brazilian governments began talks in Brasilia yesterday to renegotiate a natural gas supply contract that expires in 2019.

Under the current fuel oil-indexed contract signed in 2006, Brazil imports a minimum of 24mn ft3/d (847mn ft3/d) and a maximum of 30.08mn ft3/d from Bolivia through a cross-border pipeline. The current price is around $4/mn Btu.

The Bolivian delegation is headed by energy minister Luis Alberto Sanchez and includes the chief executives of state-run oil company YPFB, and state-owned utility ENDE. Brazilian energy minister Luis Barata leads his country's team.

The negotiations will be expanded to include the possibility of electricity exports and collaboration in the construction of large hydroelectric plants along the Madeira river on the border, Bolivian official say.

Sanchez said the meeting would allow Bolivia to broaden the agreement. "We are preparing feasibility studies for a (gas-fired) thermal generating plant that would be used exclusively to supply Brazil, as well as four hydroelectric plants. Brazil no longer sees us only as a gas supplier, but as energy partners," he said.

Bolivia has offered to sell Brazil LPG and LNG, and could offer Brazilian state-controlled oil company Petrobras a stake in its planned Tres Lagunas petrochemical plant. The next round of talks will be held in January in Santa Cruz, Bolivia.

The negotiations come at a time of economic hardship and political uncertainty in Brazil, which uses Bolivian gas to complement domestic production and rising LNG imports.

Petrobras, which signed the take-or-pay agreement with YPFB, is looking to scale back investments and shed assets in non-core segments.

The heavily indebted firm has already finalized a R1.9bn ($504mn) deal to sell a 49pc interest in its gas distribution subsidiary Gaspetro to Japanese trading house Mitsui.

Gaspetro holds an 11pc stake in GTB, a YPFB-controlled subsidiary responsible for the 557km (346mi) Bolivian leg of the pipeline, and 51pc in TBG which owns the 2,593km Brazilian leg.

Petrobras also plans to sell thermal power plants supplied by Bolivian gas.

The entry of new investors in the Brazilian company's gas and energy assets, which account for around 40pc of the $15.1bn in asset sales planned through 2016, could alter the dynamics of the new gas supply agreement, a Petrobras executive in Bolivia tells Argus.

In the long term, the planned ramp up in production of associated gas from massive sub-salt fields off Brazil will also diminish demand for Bolivian gas, despite a current lag in subsea pipeline projects.

For their part, Bolivian officials dismiss doubts as to whether it is able to renew the gas supply contract with Brazil at its current level, because of a shortage of gas reserves. The energy ministry says preliminary data indicate a 3 trillion ft3 increase in proven gas reserves to 13.45 trillion ft3 compared with previous reports. La Paz is implementing new fiscal incentives to encourage exploration.

Bolivia also exports about 15mn m3/d of pipeline gas to Argentina under a 21-year agreement signed in 2006.