(S&P Global Platts, 8.Apr.2019) — The incumbent political party in Rio Negro, an oil province in Argentina, won the re-election on Sunday; a result that could favor President Mauricio Macri’s chance for a second term in October, allowing him to press ahead with measures and policies driving a recovery in oil and natural gas production.
Arabela Carreras of the left-of-center Juntos Somos Rio Negro coalition had 52% of the votes for governor of the southern province, with 82% counted by 10:30 pm local time (0230GMT) Sunday, according to official data.
That put her ahead of Martin Soria, who got 35% for Frente para la Victoria, a populist-left party of former Argentinian President Cristina Fernandez de Kirchner, the tally shows. In third place, with 5.7% of the votes, was Lorena Matzen of Macri’s right-of-center Cambiemos coalition.
While Argentina’s ruling national coalition fared poorly in the election, the result may nevertheless help Macri in the run-up to the October 27 presidential election. It is built on a similarly beneficial outcome for Macri in March, when incumbent Governor Omar Gutierrez won a second term in Neuquen, home to the giant Vaca Muerta shale play.
The governments of Neuquen and Rio Negro have been working with Macri on improving energy policy and investment conditions, helping to attract billions of dollars of investment from global majors like Chevron, ExxonMobil and Shell. Most of the investment is focused on the oil window of Vaca Muerta, one of the world’s largest shale plays, and it is starting to turn around more than a decade of sagging oil and natural gas production.
The election results — the first of 22 for the provinces and city of Buenos Aires this year — are also an indication that the majority of voters in Neuquen and Rio Negro do not want to return to the populism that dominated national politics from 2003 to 2015 under Fernandez de Kirchner and her late husband Nestor Kirchner.
Even so, a lot could happen in the meantime to change this.
Ahead of the vote in Rio Negro, Manuel Solanet, a director of Fundacion Libertad y Progreso, an economic and policy think-tank in Buenos Aires, told S&P Global Platts that he expects a tight race for the presidency.
He said Macri is struggling to rebuild his approval rating, which declined over the past year as a financial crisis pushed his administration to seek a $57 billion bailout credit line from the International Monetary Fund. The economy has fallen into recession, with inflation running above 50% and interest rates touching 70%, the highest in the world.
A poll by Poliarquia Consultores, a political consultancy in Buenos Aires, found Macri’s approval slump to an all-time low of 30% in March, down from 39% in December.
If Macri fails to turn the economy around and control inflation, that could bolster Fernandez de Kirchner’s chances to win a third term, which could put a damper on oil investment. As president from 2007 to 2015, her capital, currency, price and trade controls, as well as a disregard for contracts and regulatory stability, depressed energy investment and pushed Argentina into an economic crisis. Oil and gas production dwindled, leading to a sharp decline in exports as shortages brought a surge in imports.
Macri has managed to turn around the decline. In February, oil production rose 3.5% year on year, led by a 67% surge in output from Vaca Muerta, while gas output rose 7.9%, and shale production surged 169%, according to the latest Energy Secretariat data.
If investment continues to flow in, the Macri administration has said oil and gas production could double to 1 million b/d and 260 million cu m/d in 2023 from 2018, allowing exports to surge to 500,000 b/d and 80 million cu m/d.
Solanet said the potential of Vaca Muerta is so large that any government should be able to attract companies, but legal insecurity remains an impediment, as does the financial crisis. Macri recently changed a subsidies program for unconventional gas, which has irked investors on concerns that other policies and contracts could also be changed.
If it was not for this concern, “the government would be able to blow the whistle and everybody would come in because today it is possible to produce at international prices, and it is also possible to export oil and gas,” Solanet said. “The money would come in even if the Argentine political situation was not good, but not if contracts are not respected. The key is to respect contracts.”
Solanet said he does not expect Fernandez de Kirchner to stand in the October presidential election, leaving room for a more moderate faction within the Peronist alliance to face off against Macri.
This faction could have better chances of beating Macri, he said, adding that the frontrunners for the spot are former Economy Minister Roberto Lavagna, Salta Governor Juan Manuel Urtubey and Congressman Sergio Massa.