Andes' energy reliance on Chavez could prove risky

Bolivia and Ecuador risk facing stagnant oil and gas production by relying on Venezuelan President Hugo Chavez to provide billions of dollars in investments that are unlikely to ever materialize. The two countries have launched a wave of tax hikes and forced contract changes that have reduced private companies' interest in investing and left the Andean nations looking to the socialist leader the take up the slack. But analysts say despite record oil prices, Venezuela will find it hard to deliver on its promises as it struggles with its own output and juggles an ambitious project portfolio, possibly disrupting South America's delicate energy balance. "We see a huge capital investment vacuum in the region," said Jorge Pinon, Energy Fellow with the Center for Hemispheric Policy at the University of Miami. "Multinational oil companies are not going to put substantial capital at risk, and we don't think Venezuela has the know-how to run these projects." Bolivia's Evo Morales in 2006 nationalized the country's natural gas reserves and boosted the government's share of profits while Ecuador's Rafael Correa last year decreed a large windfall tax and ordered companies to change production sharing deals to service contracts. The two presidents followed the lead of ideological ally Chavez, who sparked the Andean energy nationalizations with his own nationalization crusade started in 2004. Companies such as Spain's Repsol and Brazil's Petrobras have agreed to stay on in Ecuador and Bolivia, which respectively produce around 500,000 barrels per day of oil and 41 million cubic meters of natural gas per day. But they are expected to invest just enough to maintain operations rather than significantly expand production or reserves -- and Chavez is promising to fill in the gaps.