Argentina energy policy: The elephant in the room

Argentina must remove its energy policy blinkers, and quickly.

The country is focusing on boosting hydrocarbons output to help spur the sputtering economy, but climate events, the energy transition and emissions-reduction pressure on oil firms demonstrate that a wider vision is critical.

And this vision must encompass renewables, green hydrogen and biofuels, complemented by measures that help restore investor confidence and establish favorable business conditions.

Argentina cannot navigate today’s brave new world without a strong helping hand from the private sector. There are simply not enough coins in the coffers to meet the huge investments needed to mitigate the impacts of climate change – already being seen in the region’s power sector – and fully reap the business opportunities that are coming. And that’s not to mention the country’s ambition of becoming a global gas-exporting heavyweight, which would require wheelbarrows of cash which, today, only the private sector has.

On the renewables front, the economic crisis gripping the country since 2018, along with policy uncertainty and prioritization of other areas, has taken wind from the sails. 

Argentina has abundant solar and wind resources, but the sector is underdeveloped. Installed grid wind capacity currently stands at around 3.17GW and solar PV at 761MW, of total capacity of 42.5GW. Now and again new plants come online, but the pace, number and size needs to be increased, given forecast growth in power demand.

The country’s grid is nevertheless relatively clean, with gas and hydroelectric generation accounting for the bulk. But below-average precipitation is impacting hydroelectric output, as river flow rates and reservoir levels continue to drop. This, in turn, is placing greater stress on thermoelectric generators, with the government this month authorizing an increase in diesel imports for the power sector. Argentina’s hydroelectricity production in June was 1,777GWh, down 34% year-on-year, according to wholesale power market administrator Cammesa. Generation from diesel-fueled units was 264GWh, up 81.1%. Consumption of diesel for generation has been trending up since February.

If I were a gambler, I would place a few dollars on the hydrological situation either holding steady or worsening over the medium term, given the climate havoc the rest of the world is experiencing, from asphalt-melting temperatures in Italy to deadly flooding in Germany. It's not an optimistic view – and hopefully one that proves unfounded – but everything seems to be pointing in that direction. 

Water stress concerns are already fueling social tensions in Argentina’s hydrocarbons golden goose, fracking hub Vaca Muerta. The water situation is also pressuring Argentina’s neighbors. Chile has brought a previously retired coal-fired plant back online to help meet demand, while Brazil has also restarted thermoelectric plants to help keep the lights on.

For Argentina, as elsewhere, building out renewables capacity would not only help support development of a green hydrogen industry, but also prepare the country for a likely future of border carbon taxes. Indeed, it seems those nations whose productive sectors emit the least carbon will have more competitive exports. Neighbor Uruguay has already said that establishing an associated clean energy certification scheme was among its plans.

On the hydrogen front, Argentina is a Latin American pioneer. The country introduced the region’s first hydrogen law in 2006 and an opposition lawmaker has introduced a bill that extends the legislation’s validity by 20 years and sharpens the focus on green hydrogen and tax incentives.

Local companies have already stepped up to the plate. Y-Tec, the technological research arm of state oil company YPF, and national research council Conicet have launched the H2ar consortium. For around the next two years, the entity will study hydrogen production, transport and export scenarios and potential applications in the mobility, industry, natural gas transport and electricity sectors. The sense, however, is that a stronger, more urgent push is needed.

With solar and wind resources strong enough to potentially make Argentine green hydrogen among the most competitive on the planet, the country is a production trailblazer. It operates a small plant to produce, ironically, green hydrogen to power crude oil-extraction equipment in the country’s wind-rich south.

As two big pieces of the jigsaw puzzle, supply and demand, slowly come together globally, Argentina cannot miss this train. Chile, Uruguay, Brazil and Colombia are already boarding it.

Argentina, sitting on huge gas reserves, could produce hydrogen from natural gas, a process that would, in turn, generate carbon emissions unless carbon-capture technology is deployed – a potentially costly solution.

Latin America could meet around 35% of global green hydrogen demand, which, if materialized, would mean investment and revenue for the region. Properly administered, such resources could help power Latin America along the road of development. 

Biofuels are also part of the solution for Argentina, with its huge grain industry. But a question mark hangs over the sector’s trajectory following the approval of a government bill reducing the minimum amount of biodiesel in the finished diesel mix and opening the door for cuts.

Getting the balance right is critical, to avoid removal of areas of arable land from food production and to optimize environmental benefits via use of the fuels in the production chain, steps that have already been taken. On a similar line, grain province Santa Fe is exploring the feasibility of producing, locally, solid oxide fuel cells. These units – which can use biofuels – generate electricity through an electrochemical reaction rather than combustion. 

Elsewhere on the energy chessboard, sits key battery component lithium. Argentina has bountiful supplies in its northwestern salt flats, but, once again, it must offer the right incentives to fully tap its potential and ride the green wave. 

European and Asian countries with little resources but high energy consumption must look at Argentina with a degree of envy. Overall, Argentina has masses of potential. Unlocking it has always been, and is, the challenge. And that requires the right policy and conditions.