Milei's measures producing green shoots of energy sector optimism

Argentine hydrocarbons and electric power industry stakeholders and observers voiced cautious optimism over the outlook for the sectors.

President Javier Milei is working to deregulate the economy and spur private investment in the country, which has been floundering since around early 2018.

The libertarian has begun implementing measures to help balance the books and reduce state intervention, including trimming subsidies and, so far at least, voter support appears resilient despite the impact on household finances. A major pillar of his plans is his economic reform bill, which has been reworked after facing stiff opposition in congress, where garnering sufficient support will be critical to his plans.

Private sector officials, during the 7th Latin America Energy Summit, being held this week in Chilean capital Santiago, indicated that the business outlook in Argentina appeared to be improving.

State-controlled oil and gas company YPF is leading the charge on the hydrocarbons front, this week confirming a push to increase oil exports and enter the LNG arena.

Argentina pipes gas to Chile and Uruguay and occasionally Brazil when drought hits. Argentina, where upstream investment is chiefly targeting the largely untapped Vaca Muerta shale play, also exports oil by pipeline to Chile and by tanker to other markets.

While acknowledging the regulatory and macroeconomic challenges facing the country, Álvaro Ríos, event panelist and director of regional consultancy Gas Energy Latin America, told BNamericas: “I also see things with a degree of optimism, especially in terms of the Vaca Muerta energy equation.”

On the gas front, Argentine producers are eyeing higher exports to help support growth in output, given the limits of domestic demand. In the region, Chile, and particularly powerhouse Brazil, are blinking on the radar.

“These companies that are there, YPF, Pluspetrol, Pan American Energy, Tecpetrol, Shell, Total, they’re looking for new markets. Despite the macroeconomic problems, despite the environment, I see them seeking regional gas markets, I see them expanding oil pipelines.”

Ríos added that macroeconomic stabilization in the cash-strapped country, gripped by triple-digit inflation, would generate tailwinds.

“If the management of President Milei manages to sort out the macroeconomics too, this is going to be a large boom, that I think we could possibly see it in around 2026-27, where Argentina becomes a very important regional provider of gas, oil, LPG and electric power.”

In terms of gas, Argentina is working to rebuild confidence as a reliable regional supplier after switching off the taps to Chile back in 2007, leaving the country in the lurch. 

Exports to Chile resumed in 2018 and firm volumes have been trending up. For the Southern Cone’s winter, when domestic demand spikes in Argentina, the government has authorized firm exports of up to 5Mm3/d.  

Continued rebuilding of trust and long-term contracts would help spur upstream and midstream outlay, delegates were told.

Santiago Romero, CEO of cross-border gas pipeline operator GasAndes, said closer energy coordination was needed between Argentina and Chile, which is currently the main offtaker of Argentine gas.

“The markets are connected but not necessarily integrated,” Romero said, citing the multiple hydrocarbons pipelines between the two countries.

Victoria Sabbioni, commercial director of gas and power at Argentine upstream player CGC, said the industry was “on the right path” and urged a prudent, step-by-step approach.

Another delegate urged the importance of not losing sight of the energy transition, alluding to the climate crisis.

Chile is working to eventually phase out fossil fuel-fired generation and ease reliance on imported hydrocarbons. 

RENEWABLES

Argentina also has abundant, relatively untapped, renewable energy resources. 

The country’s buildout of wind and solar parks under the RenovAr regulated auction scheme lost steam around 2018 and has been mostly driven since by projects built under the framework of the Mater private power-purchase agreement market – which may strengthen under the current administration. 

However, transmission congestion, especially at nodes with the best resources, has whipped up headwinds.

One developer, which put a 1GW portfolio of Argentine renewables projects on ice in 2019, is refocusing on the country and has the transmission issue in its crosshairs.

Horacio Vásquez, founding partner of Chile-headquartered regional player Lader Energy, told BNamericas that the company was participating in the federal energy department’s 2023 call for expressions of interest, putting forward 390MW of five-hour injection duration capacity across various provinces.    

“The road ahead, as I see it, involves storage in the short-term,” Vásquez said. “That’s going to bring more renewables, since transmission takes longer: around 3-4 years during which you can develop the capacity needed.”

Upbeat on the prospects for the electric power sector, citing the outlook for greater industrial demand, Vásquez said the government was sending out the right signals to rebuild confidence and that interest was being observed among multinationals and the banking sector.

In 2016 and 2017, Lader was awarded two projects in the RenovAr auctions for a combined 180MW: Solar Guañizuil I and Guañizuil II-A.

Argentina’s industrial sector is key renewables demand driver, given corporate pushes to reduce carbon footprints, bolster supply and manage expenses. 

This week, Netherlands-based automaker group Stellantis confirmed a US$100mn investment in Argentine renewables company 360Energy, obtaining a 49.5% stake in the firm, which has solar parks in San Juan, La Rioja and Catamarca. 

Other ways of financing transmission should be explored, the conference was told, including a mechanism like that in Chile where a charge is incorporated into end-user bills.

Regulatory tweaks, along with macroeconomic stability and increased legal certainty, would help unlock the large amounts of capital needed, delegates heard.