Argentina watch: Diesel crisis, Vaca Muerta pipeline contract, energy subsidy segmentation

Amid a national shortage of diesel, Argentina’s government has taken steps to ease the situation.

A central pillar in the strategy is temporarily increasing, via a decree and a resolution, the proportion of biodiesel in the finished diesel mix to 12.5% from 5% currently. The move should boost national diesel supply by 90,000m3/month, federal energy chief Darío Martínez said in a statement.

Refiners were originally obliged to use 10% biodiesel before a 2021 law slashed it to 5%, a move designed to boost state revenue from the grain sector but criticized by some as a backwards step. Biodiesel is made from soy oil.

Argentine refineries produce about 11.5Mm3/y (million cubic meters per year) of diesel and use an estimated 520,000m3/y of biodiesel. With overall diesel demand – excluding the power generation sector – standing at about 14.0Mm3/y, a 2Mm3/y supply deficit exists, according to an analysis published by Claudio Molina, director of the Argentine association of biofuels and hydrogen.   

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A perfect storm of domestic and international factors, including the resumption in local demand growth, has resulted in diesel shortages across the country and elevated prices this fall, pressuring motorists and the country’s farmers, among others. 

In a related move to help increase the amount of diesel available, the government issued a decree establishing a domestic fuel supply tax incentive regime, known as RIAIC. The regime is applicable to standalone refiners and so-called integrated players – those with both oil production and refining operations – that are subject to liquid fuels and carbon taxes.

Eligible companies, for the purpose of importing diesel, can claim the sum they owe in these two taxes. Additional benefits are included.

Government officials are also working with upstream companies to ensure refiners have enough crude to process.

Argentina is an oil exporter but lacks sufficient refining capacity to meet domestic diesel demand, as 25-30% of demand is met by imports. Some grades of gasoline are also imported. 

Access the decree and resolution (in Spanish).

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State energy company Energía Argentina and manufacturer Siat signed an agreement for the provision of pipes for the first phase of the Vaca Muerta gas pipeline megaproject.

The contract is for 582km of 36-inch pipe and 74km of 30-inch pipe, which will be used for the main duct and ancillary projects such as the Mercedes-Cardales link.

The signing comes as a legal case over alleged irregularities in the tendering process was shelved by a court on Thursday.

Authorities are working to get the first phase built and commissioned by around this time next year, to support increased gas production that would, in turn, substitute expensive winter LNG imports.

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To help reduce spending on end-user energy subsidies, President Alberto Fernández issued a decree establishing a subsidy segmentation regime.

Officials in the cash-strapped country – which is trying to balance the books – are targeting residential users of electricity and piped gas.

Officials have established a method that will be used to identify the 10% of users with the greatest capacity to pay their bills, the economy ministry said in a statement. Authorities will gradually phase out subsidies for these users by the end of the year, resulting in bill increases of up to 250%, according to local press.

Ninety percent of residential users will see a real reduction in their bills, the ministry added.

Total energy subsidies in Argentina from January-April were 420bn pesos (US$3.46bn), up 174% year-on-year, energy think tank General Mosconi institute said in a report, citing data from the country’s budget and financial management association ASAP.

Transfers to wholesale power market administrator Cammesa accounted for 356bn pesos, up 243%. Power sector subsidies are distributed through Cammesa.

The government authorized end-user bill increases in March, which “had a very small effect on energy subsidies, which continue growing considerably,” Julián Rojo, economist and director of the technical department at General Mosconi institute, said in a tweet.

The decree is available here, in Spanish.