The Hugo Pipe: The Challenging Route Ahead

The Venezuelan, Brazilian, and Argentine governments have agreed to continue with conceptual engineering, technological, and environmental studies for an 8,000 kilometer gas pipeline stretching from Venezuela to Argentina. If built, such an undertaking will constitute one of the largest pipelines ever built and, by far, the largest Latin American energy project yet.

* The pipeline is likely to distort southern gas markets negatively as it will commit the region to higher priced delivered gas relative to alternative supply sources. Additionally, it is likely to impose a large opportunity cost to companies developing nonassociated offshore reserves in Venezuela.
* Southern markets are unlikely to grow quickly enough to need supplemental supplies beyond those provided by domestic sources and cheaper import alternatives, which will render the pipeline economically unattractive. This lack of sufficient demand combined with the significant investment required means the pipeline is unlikely to yield the economic return similar projects require to go forward.
* Because of the political capital behind the pipeline, however, the project is likely to be actively discussed and debated over for some time. Its main proponent, the Venezuelan government, sees it as a strong instrument for promoting integration and increasing its influence in the region.

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