Who loses the most from Argentina's natural gas bill ruling?

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Friday, August 19, 2016

The suspension of natural gas residential rate hike increases by Argentina's supreme court on Thursday will have different effects on different actors throughout the gas supply chain.

Hardest hit will be the transportation and distribution segments, a Raymond James research note said Friday.

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The ruling "will prevent [transporters TGS and TGN] from collecting the cash coming from residential customers under the new scheme, which granted a 200% increase [in Argentine pesos] for TGS' transportation tariff," the note said.

That the ruling only applies to residential rates should help mitigate the impact, though, as homes only account for around 25% of gas consumed in the country, Raymond James said.

The other 75% is consumed by commercial and industrial clients, who will continue to pay the new, higher prices implemented in April by President Mauricio Macri's government.

The effects on upstream oil and gas producers will be mixed, the note said, citing that the government's US$7.50/MMBtu subsidized wellhead price for new shale and tight gas output will be unaffected.

Gas production not covered under the incentivized price and destined for the residential market will be less profitable under the suspension, the note said.

BACKGROUND

Macri's energy ministry authorized utility rate hikes for gas and power through a series of resolutions earlier this year, as part of an effort to normalize the energy sector and untangle a complex web of subsidies that expanded under previous president Cristina Fernández de Kirchner.

However, the reforms sparked a national outcry and a flurry of judicial rulings challenging their validity, on the grounds that the government failed to hold public hearings before abruptly and drastically raising rates.

Currently, the new pricing schemes for gas and power are both suspended across the entire country, although only the gas dispute has made it to the supreme court.

In the case of gas, the supreme court ruled that the government must hold public hearings before allowing rates to increase. The government announced Friday that these hearings will be held September 12.

Power distributors' association Adeera said earlier this month that if the suspension of power rate increases is maintained, electricity supply will be compromised, "directly harming those whom [the judicial ruling] is supposed to protect."

Macri's subsidy reforms translated in rate increases ranging from 100-700% for power, and 200-1,200% for gas, according to Raymond James.