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Argentina's natural gas challenges

Gerardo Rabinovich

Technical director and board member/Argentine Energy Institute - General Mosconi

Published  Thursday, October 1, 2009

Argentina's problems in meeting domestic demand for both natural gas and electric power are well known. While no one doubts the country's reserves or production potential, strict government price controls and heavy subsidies continue to artificially inflate demand and discourage private investment.

The country has attempted to reduce subsidies and has met severe political opposition while doing so. New programs, such as Gas Plus, have also been created to boost production.

Argentina, however, continues to import gas from Bolivia and LNG to meet peak demand in winter. The country has racked up large debts, as well, and sometimes pays as much as US$20/MBTU on imports only to sell the gas at the regulated price of around US$1/MBTU.

BNamericas spoke with Gerardo Rabinovich, the technical director and board member of Argentina's General Moscón Energy Institute, about the current situation in Argentina and the challenges the country is facing.

BNamericas: Starting off with the government's recent effort to reduce natural gas subsidies, is this something they will be able to continue? Or is there too much political pressure?

Rabinovich: The government approved the first increase because it simply can't keep providing the subsidies. The subsidies are not sustainable. And with the current economy, they couldn't keep up with supporting them.

BNamericas: Are we going to see further subsidy reductions?

Rabinovich: Well, they had to suspend some of the subsidy reductions for political reasons, and we'll have to see what happens.

BNamericas: What about the Gas Plus program? What companies are best positioned to take advantage of the program? Is it enough to attract new companies that are not currently operating in Argentina?

Rabinovich: No, there are no opportunities for companies not already operating in Argentina. A company could come here and begin to explore, but it seems a little unlikely that the Gas Plus program would be able to do enough to attract new companies. It's a very limited program.

BNamericas: It's complicated?

Rabinovich: The process first requires that a company present the project to the secretary of energy. They have to justify it, and then the government decides whether to approve it or not. It's a long process.

BNamericas: Production has continued to fall and fewer wells are being drilled. Have things changed this year?

Rabinovich: No, there has been no uptick in the number of wells being drilled, and production is continuing to fall.

BNamericas: There has been a lot of talk, though, about new projects in the south of the country. Could this lead to new production?

Rabinovich: Well, there are currently plans to construct a new gas pipeline that would alleviate some of the bottlenecks in the area. It will principally be able to transport gas from fields operated by [French oil major] Total in San Sebastián. There is currently gas available that they can't transport. There's about 10Mm3/d that could be brought online. It's not necessarily going to lead to new exploration, but it will allow for fields to reach full production. Companies will be able to transport gas from the island to the Argentine mainland.

BNamericas: What about the recent announcements that several companies are going to undertake new offshore exploration?

Rabinovich: We think the announcements are a little premature. The current fiscal conditions are not sufficient for this kind of exploration. There are no incentives. Of course we hope that they will have a discovery, but the companies are not getting a lot of help. It's very honorable that companies like [Argentina's second largest oil producer Pan American Energy] PAE, [Spain's] Repsol and [Brazilian federal energy company] Petrobras are planning these kinds of projects, but the conditions just aren't right yet.

BNamericas: Getting back to that new gas pipeline, is this going to reduce Argentina's need to import gas from Bolivia or LNG?

Rabinovich: No. The gas from the south is going to make up for falling production in the rest of the country. Argentine production is currently around 120Mm3/d, and liquid fuels are meeting demand for another 30Mm3/d at peak demand in winter. The country is going to keep having to import gas from Bolivia. And it will need to import more and more. I don't think they'll be able to stop importing LNG either. The deficit is very large. The country needs both the gas from the south and imports.

BNamericas: And what about the plans for the GNEA pipeline that is supposed to bring in more gas for Bolivia? Why have there been so many delays?

Rabinovich: There's currently no additional gas that can be brought in from Bolivia. And no one is going to build a pipeline if there is no gas.

BNamericas: But could they just reduce the capacity of the pipeline?

Rabinovich: It doesn't make sense to build a smaller pipeline. Argentina needs an additional 30Mm3/d.

BNamericas: And what about the plans to build a bi-national LNG facility in Montevideo that would be shared between Argentina and Uruguay? Has there been any advancement there?

Rabinovich: No. It was kind of funny that Argentina became the first country in South America to buy LNG. The boat would arrive in Bahía Blanca from time to time. Chile, for example, has been developing the Quintero terminal for five years. So it's going to take more time if Argentina wants to develop a permanent facility, at least another six or seven years.

BNamericas: How do you think 2010 is going to pan out? What are going to be the biggest themes of the year in terms of energy?

Rabinovich: You're going to see problems with the natural gas deficit, problems with price and subsidies. It's going to be difficult to meet demand during the winter months. If economic activity increases, as it has before, there are going to be very significant bottlenecks. This year, during the winter, they had to cut gas to companies, and we imported gas and power from Brazil. We imported liquid fuels from [Venezuela's state oil company] PDVSA and now have a debt of over US$1bn with them. It's a difficult situation.

BNamericas: And what about Argentina's suspended exports to Chile. Will the country ever be able to export again?

Rabinovich: No.

BNamericas: And in the medium or long terms?

Rabinovich: I don't know. They would have to find new reserves, and that's a complicated task.

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