Argentina ministry seeks to eliminate natural gas subsidies by 2022

Argentina's energy and mining ministry will propose a plan to incrementally phase out subsidies for residential natural gas consumption over the next six years.

The state currently subsidizes 81% of residential consumption, according to an outline of the proposed scheme submitted by the ministry to natural gas regulator Enargas.

As a result, Argentina's per capita gas consumption is 60% higher than that of neighboring countries, the ministry said.

By phasing out subsidies and incentivizing rational use of the fuel, energy and mining minister Juan José Aranguren (pictured) is hoping to spur investment in local E&P and shrink costly imports of LNG, diesel and gasoil, and to ensure gas supply for the power generation and industrial segments, which have faced chronic shortages in recent years.

Under Aranguren's plan, which the ministry will formally present to citizens at a public hearing in Buenos Aires on September 16, the percentage of gas consumption subsidized by the state would decrease each six months via consumer utility rate hikes until October 2022, when that percentage would reach zero.

President Mauricio Macri's government has already implemented rate increases for industrial and commercial clients, who account for 75% of gas consumed in the country, according to a Raymond James research note.

The ministry said it hopes "to generate consciousness about the importance [of] rational energy use in the family economy and climate change," and "to achieve a more fair energy supply that supports local production and Argentine jobs."

The update follows the ratification on Tuesday by the Supreme Court of related consumer electricity rate increases.

SHELL

In related news, Shell Argentina said it has no intention of reducing its upstream presence in the South American country.

The affirmation, cited by state news service Télam, follows a Reuters report quoting Shell CEO Ben van Beurden as saying that the Anglo-Dutch supermajor is considering offloading downstream assets in Argentina as part of a US$30bn divestment program.

The local subsidiary confirmed, however, that Shell's downstream assets in the country – which include the Dock Sud refinery in Buenos Aires and a network of some 600 service stations, along with petrochemicals and LPG divisions – are under strategic review as the company seeks to streamline operations following its US$70bn acquisition of BG Group.