Amid drought, Tenaris chief outlines win-win gas solution for Argentina, Brazil

Argentina could help Brazil mitigate the impact of a lengthy drought that is curbing hydroelectric production and, at the same time, develop an outlet for domestic gas, an upstream supplier said.

Over the winter months, Argentine gas production feeds the local market, but when the weather turns warmer and demand falls – around October – gas is typically available for export.

Some of this excess could be piped to Brazil or used to generate power in Argentina for export, said Javier Martínez, chairman of steel tube maker Tenaris’ Southern Cone region. In this way, Brazil could ease pressure on stressed reservoir levels and let them recover, he added.

In Brazil, hydroelectric plants account for around 60% of the generation mix. Water levels in the country's southeast/center-west subsystem are at 22.5% of capacity, while in the South subsystem they are at 29.8%, Luciano Codeseira, director of consultancy Gas Energy Latin America for Argentina, told BNamericas.

Brazil has been boosting thermoelectric output, including from fuel oil plants, to help keep the lights on and is launching voluntary power rationing programs for regulated and free power market consumers. 

“One could consider that Brazilian dams could be a way of storing Argentine gas,” Martínez said during a suppliers-focused conference hosted by local media outlet EconoJournal. 

Martínez said exporting to Brazil constituted a huge opportunity for Argentina. Another factor playing to Argentina’s advantage in the regional exporting stakes is falling production in current vendor Bolivia, generating market space.

Codeseira said: “The drought in Brazil presents an opportunity for Argentina, which needs demand.”

He added, “this is about an immediate opportunity – it implies demand for gas for generation in the coming months, just when the high-demand winter season comes to an end – and future opportunity, via a reassessment of the importance of firm gas for the coming years.”

In terms of imports of Argentine electricity, Brazil may require up to 2GW of associated capacity, which represents consumption of around 10Mm3/d (million cubic meters per day) of gas, Codeseira said.

Codeseira, also CEO of US-Argentine research advisory firm Ceibo Growth Strategies, said the current situation could sharpen Brazil’s focus on Argentina as a long-term supplier.

“This situation also reassesses the role of Argentine gas in Brazil. Recall that [President Jair] Bolsonaro said his country was in talks with Argentina over the construction of a pipeline to transport Vaca Muerta gas. This isn’t new but it could prioritize the [planned Argentine] pipeline to the coast – now called the Néstor Kirchner – if Brazil accelerates infrastructure work it must carry out in its own territory.”

Work in Brazil involves building a pipeline from Uruguaiana, on the Brazil-Argentine border, to the coastal city of Porto Alegre. 

Together, the Argentine and Brazilian projects would require billions of dollars in outlay. Work would help boost export and transport capacity, the latter a key issue that needs addressing to support continued growth in output from shale play Vaca Muerta.

Argentina is considering using revenue generated by a wealth tax to help pay for the Néstor Kirchner duct, EconoJournal reported this week. Talks are also underway with potential Chinese backers. The government has other pipeline infrastructure projects on the drawing board, which may be executed under the public works model. 

Meanwhile, a hurdle in terms of firm exports of Argentine gas to its regional neighbors is regaining their confidence, Martínez said. Argentina halted exports to Chile in the mid-2000s when its own supplies ran low.

An associated risk factor is the increased demand being placed on thermoelectric plants in Argentina – also suffering from lower-than-normal precipitation – and how that may impact availability of energy exports. Argentina’s hydroelectricity production in June was 1,818GWh, down 48.7% year-on-year, according to wholesale power market administrator Cammesa. Thermoelectric generation in July was 8,431GWh, up 21.0%.

Argentina exported 161GWh of electricity to Brazil in July, up from 0GWh in the same month of 2020. 

In February, Argentina resumed gas exports to Brazil after a six-year hiatus, offering up to 2.4Mm3/d to feed the 640MW Uruguaiana gas-fired power station. In a statement issued at the time, the Argentine government said gas would be exported when not needed to meet domestic demand. The deal would generate foreign currency inflows of up to US$500,000/d for Argentina, the government said. 

Argentina sits on a wealth of natural gas reserves, chiefly those in the Vaca Muerta shale formation. Tapping them fully would require developing stable export markets, which, in turn, would encourage E&P investment.

During the winter months, Argentina currently relies on Bolivian gas and costly LNG imports to cover demand. Output is growing, however, following the implementation of gas incentives program Plan Gas.