(S&P Global Platts, 18.Feb.2020) — Argentina plans to lift controls on power and natural gas tariffs as soon as June, a senior government official said, in a move seen as key for reviving investment in gas production.
“It is not a permanent freeze,” Production Minister Matías Kulfas, who oversees energy affairs, said late Monday in a press conference.
He said a review of the tariffs will be made to make sure that they are “reasonable” in terms of production costs and “accessible” for consumers, adding that June is the target date for starting to increase tariffs.
Argentina froze tariffs last year as the economy fell deeper into a crisis that is pushing the country closer to default on more than $100 billion in debts.
The freeze has driven the weighted average price of gas to around $2.40/MMBtu from $3.50/MMBtu in early 2018, according to Energy Secretariat data. Some gas producers have said they are getting as low as $1.50/MMBtu at the wellhead.
With the cap on gas and power tariffs, producers have shifted their investments to oil fields, in particular the rich oil window of Vaca Muerta, the country’s largest shale play.
This has raised concerns that a slowdown in gas production could force the country to increase imports after years of reducing them.
While gas production rose 5% to an average of 135.2 million cubic meters/day in 2019 from an average of 128.8 million cu m/d in 2018, it fell 1.4% to 126.9 million cu m/d in December from 128.7 million cu m/d in December 2018 — and was in line with November 2019 output, Energy Secretariat data showed.
Companies like France’s Total, the country’s biggest gas producer, have said that the low price of gas is a main reason why it is turning its focus to oil instead.
This is boosting oil production, which rose 3.7% to 516,989 b/d in December from 498,713 b/d a year earlier. That took the full-year increase to 3.9%, with production averaging 508,642 b/d in 2019, up from the average of 489,499 b/d in 2018, the data show.
Kulfas didn’t speak about the impact on production in the press conference, but said that it is important to create a mechanism to revise the tariffs and then increase them as long as the impact on inflation is contained.
The government of President Alberto Fernández, who took office in December, is trying to rein in inflation from 54%, among the highest rates in the world, in 2019.
To do that, Kulfas said the price freeze is “an instrument that can contribute to reducing inflation.”
By Charles Newbery