Paraguay imported 100 percent of its oil in the late 1980s. Oil was imported primarily from Algeria because Paraguay's only petroleum refinery was designed for "Saharan blend" oil. The refinery, located at Villa Elisa, had a 7,500-barrels-per- day capacity, very small by Latin American standards. Paraguay's refinery capability was limited in terms of products, causing the country to import high-priced derivatives such as aviation fuel, premium gasoline, and asphalt. The price of oil was high because of the complex transportation required through Argentina on the Río Paraná and Río Paraguay. Paraguayan Petroleum (Petróleos Paraguayos--Petropar)--owned 60 percent by the government and 40 percent by the private firm Paraguayan Refinery (Refinería Paraguaya)--imported all of the country's petroleum. Petropar was generally viewed as a profitable and well-managed enterprise. Esso Standard (Exxon), Paraguay Shell, and the Paraguayan company Copetrol marketed all petroleum products to the public with the exception of diesel and fuel oil, which were sold by Petropar.
Paraguay became increasingly concerned with its oil dependence following the quadrupling of world oil prices in the autumn of 1973. Although there was enough growth in other sectors of the economy to offset the negative consequences, the crisis nonetheless rekindled the interest of policy makers in oil exploration. As a result, the legislature passed sweeping new regulations to promote oil exploration by multinational companies. Despite having some of the most liberal petroleum legislation in the world, Paraguay's limited prospects and severe lack of infrastructure in the Chaco dissuaded most companies from drilling, however. Indeed, from 1944 to 1986 only forty-three wells had been drilled in Paraguay.
Foreign firms conducted petroleum exploration under the supervision of the Ministry of Public Works and Communications. Most oil exploration in the 1980s took place in Carandayty Basin on Paraguay's western border with Bolivia and in the Curupaity, Pirity, and Pilcomayo basins bordering Argentina. Active exploration in Bolivia near its border with Paraguay and oil discoveries in Argentina only fifteen kilometers from Paraguay's border heightened expectations of oil discoveries in Paraguay. Because of Paraguay's complicated geology, however, oil exploration was more difficult than originally anticipated and required sophisticated Brazilian technology. With or without oil discoveries, the government was contemplating the construction of an oil pipeline to Brazilian ports to import oil, or, in the case of a large oil discovery, to transport oil exports.
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