Latin America’s Natural Gas Disaster

Populist and nationalist regulations on natural gas have created a crisis in Latin America. The problem began in 2002, when Argentina imposed price controls on natural gas, according to Alvaro Vargas Llosa, director of the Independent Institute’s Center on Global Prosperity. As a result of the price controls, foreign investment dried up and supply fell drastically short of demand, creating a shortage that prompted Argentina to cut its natural gas exports to Chile to one tenth of previous levels. Chileans, of course, feel shafted by their neighbor and official ally.

Meanwhile, Bolivian President Evo Morales nationalized his country’s natural gas industry. He later backtracked, but not before he scared away private investment. Consequently, Bolivia significantly curtailed its natural gas exports to Argentina—a move that has created tensions between the two left-wing governments. But wait, there’s more! Peru has plans to export liquefied natural gas to Mexico—but not to neighboring Chile, owing to resentments from the War of the Pacific in the 19^th century. Venezuela has the largest natural gas reserves in Latin America, but that won’t really help solve the shortage. Venezuela has subsidized its oil industry at the expense of developing its natural gas. Under the leadership of Hugo Chavez, the country has exported lots of subsidized oil throughout Latin America and the Caribbean, but it won’t be able to sustain those levels, owing to government-induced inefficiencies and corruption.

“This absurd situation—a continent awash in natural gas and yet trapped in a chronic energy crisis—is the result of policies that promised to protect national treasures from predatory foreign capitalism,” writes Vargas Llosa in his latest syndicated column. “The region is poorer than it would have been if the political and institutional framework under which natural gas is exploited were conducive to competitive private investment and free domestic and international trade. And it is also less integrated and stable than it would have been if a market free from demagoguery had been allowed to blossom. Populism and nationalism have had the exact effect on Latin Americans that nationalizations, price controls and predatory taxation were supposed to avert.”

“A Natural Gas Disaster,” by Alvaro Vargas Llosa (3/12/08) Spanish Translation

Liberty for Latin America: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa

The Che Guevara Myth, by Alvaro Vargas Llosa