Argentine LNG export strategy boosted by EU-Mercosur deal

Analysts believe the hydrocarbons sector could see a significant boost if the EU-Mercosur free trade deal comes to fruition.

As different actors reflect on the potential consequences of the treaty, conversation tends to focus on the sectors that are directly mentioned in the draft proposal. However, the energy sector, and hydrocarbons in particular, were omitted.

Jimena Blanco, an analyst specializing in the Americas and research director at risk consultancy Verisk Maplecroft, told BNamericas that since the treaty does not contain a chapter specifically focused on energy, the impacts in the sector will be “indirect”.

“Once the treaty comes into effect, it will ease access to financing, capital goods and will bring shipping costs and times down, which will definitely have an impact on the sector,” Blanco says. But there will not be direct benefits for investment by European companies that would put them at an advantage against investors from other parts of the world.

ARGENTINA'S LNG EXPORT STRATEGY

As Argentina seeks buyers for the country’s growing oil and gas production, companies are considering building a US$4-5bn liquefaction plant to export LNG to Asian and European markets.

Under this scenario, Blanco says, a high level of integration between Argentine and European ports, which is a likely consequence of the free trade deal, would help push this export strategy forward.

“If the synergies and the necessary infrastructure are already developed, exports would be cheaper and easier than if that level of cooperation is not in place,” she says.

BIOFUELS

In the political agreement that was reached, only one fuel is mentioned directly: ethanol. 450,000t of ethanol could be sold duty-free for chemical use, while 200,000t for any use, including fuel, would receive other benefits. The biofuels industry has been a hotly contested aspect of the negotiations so far.

Direct mention of hydrocarbons, however, is not made in free-trade agreements. In the case of the North American Free Trade Agreement (Nafta), for example, the sector was left out of the deal both in the first and second version. “There are issues with energy sovereignty, with the ownership of a country’s natural resources, which make it very difficult to strike a deal in this area,” said Blanco.

This means that, if there were to be additions to the deal regarding fuels, they would more likely be about specific refined products than on the sector as a whole.

SKILLED LABOR

The treaty also encourages the exchange of skilled professionals and offshoring of financial services. This includes European companies offloading accounting services to Argentine or Brazilian companies, as well as Mercosur firms sending their engineers to work in Europe for between three months and one year.

“In a way, the treaty does make European participation in the region’s hydrocarbon plays easier, because these exchanges of people and knowledge are bound to make it easier to invest. If a European company, such as Total, BP, Equinor, Shell, already has a structure to employ professional, non-technical services in Argentina, and those services comply with international standards, this makes it more straightforward for the company to integrate its value chain between its European and Mercosur operations.”

Under the deal, Mercosur countries commit to bring their regulatory standards into line with international protocols such as International Organizational Standardization (ISO), International Electrotechnical Comission (IEC), International Telecommunication Union (ITU) and Codex Alimentarius.

But, so far, there has been no discussion of bringing up each country’s internal regulations to European standards. In any case, in order to export to the European Union, be that under a treaty or not, companies must comply with the bloc's regulations.

Read BNamericas' full interview with Jimena Blanco here.