The deal calls for $1 billion in investment to increase the flow of Bolivian gas into Argentina to 27.7 million cubic meters a day by 2010. The price, subject to adjustments, begins at $5 per British thermal unit on Jan. 1, 2007.

Argentine President Nestor Kirchner and his Bolivian counterpart Evo Morales signed the deal in the Bolivian city of Santa Cruz.

Argentina currently holds contracts to import up to 7.7 million cubic meters of gas a day, although current shipments only reach around 4.5 million cubic meters a day, according to a statement from Bolivia's state-run oil company YPFB. [ 19-10-06 1653GMT ]

The new contract comes amid the nationalization of Bolivia's hydrocarbons industry, which was announced May 1 and faces an Oct. 28 deadline for YPFB to hold a 51% stake in all operations. Following the nationalization decree, Bolivia raised the price Argentina pays for gas.

Although Argentine officials quickly agreed on the $5/million BTU price, negotiations with officials from Brazil, which buys the majority of Bolivia's gas, have not gone so smoothly. Brazil's state-run oil company Petroleo Brasileiro SA (PBR), or Petrobras, has invested heavily in Bolivia to help develop the nation's natural gas industry.

YPFB said the flow of gas into Argentina will reach 7.7 million cubic meters a day by the end of this year. The volume will then rise to 16 million cubic meters per day by the end of 2008 before reaching the full 27.7 million cubic meters a day on Jan. 1, 2010. The contract is between YPFB and Argentina's state oil interest, Enarsa.

Argentina is counting on Bolivian gas to help the nation overcome domestic shortages that have forced government planners here to sporadically restrict supplies to industrial consumers and switch power plants over to more costly fuel oil. Analysts warn that increasingly acute energy shortages could undermine Argentina's rebounding economy.

It is unclear how Bolivia will increase the flow by 20 million cubic meters per day since such an increase would require a new pipeline. Bolivia's decision to nationalize its hydrocarbons industry this year has alienated private oil companies, and the Bolivian and Argentine state-run oil firms lack the infrastructure to take on the project alone.

YPFB's Thursday statement was thin on details regarding the new pipeline, noting that investment will come "as soon as possible" to meet timelines.

Neither YPFB nor Enarsa has a track record in actually managing oil and gas exploration or production.

The Kirchner administration launched Enarsa last year as a so-called "witness company" to work as a passive partner with private producers. It has only a handful of employees and no functioning operations of its own. YPFB is older, but it too has been a sideline player since Bolivian gas fields were handed over to private operators in the 1980s.

Kirchner and Morales also agreed to install a previously announced gas liquid separation plant near the Argentine border in Bolivia. The plant aims to generate an additional $5.4 billion in LPG and natural gasoline revenues and $4 billion in ethane revenues, the YPFB statement said.

"The liquids separation plant will be built in the Bolivian Chaco following a feasibility study," the YPFB statement said.