For
Cledis CandelariYo
Special for clarion
Nicolás Arceo, director of the consultancy firm Economía y Energía, with a good reputation among companies in the energy sector. He was Vice President of Administration and Finance of the YPF and former Undersecretary for Economic Planning of the Nation when the governor of Buenos Aires, Axel Kicillof, headed the Finance Palace.
– Are we closer to a crash due to a lack of foreign exchange to import gas next year or a boom in oil exports?
– Argentina will certainly export more if there are no restrictions on transport capacity. Production is growing and we have exported 100,000 barrels a day, which hasn’t happened since 2009. On the other hand, there will be important gas imports, which could slow down if the Néstor Kirchner gas pipeline is activated. I don’t see a collapse situation.
– What is the main demand from companies in the sector to continue increasing the production of Vaca Muerta and transform the country into an eventual export powerhouse?
– Investments in Vaca Muerta are growing even in this adverse macroeconomic context. But for a leap in investment and substantial production, a new regulatory framework is needed that lays down basic conditions, especially for foreign investment: free entry into the single market by trade, the possibility of remittance of profits and dividends, and comprehensive pricing mechanisms.
– Total freedom of access and availability of dollars?
– It is necessary to ensure the repayment of the investment, the remittance of profits and a credible price trend. Vaca Muerta won’t stop if that doesn’t happen. But it will grow at a much slower pace.
– What is the price of gas and oil that meets investors’ expectations and, at the same time, can be economically and politically feasible?
– The Gas Plan has shown that Argentina can expand production at $3.50 per MBTU. But with the massive development of hydrocarbon exports, it will be more feasible to lower the local price.
– The barrel of local crude is $23 cheaper than the international one. What would be the point of aligning prices, as the oil companies are asking for?
– These prices must be coupled so that Argentina can attract investments that would otherwise go to other basins. Oil companies must be guaranteed an income to attract capital. This does not mean that in the face of such significant increases as the one experienced by oil in the world in the last year and a half, prices will not partially release themselves to guarantee other conditions for the economy. But that divorce cannot be permanent.
– Producers say refiners have very high margins. They complain when oil goes up and they can’t replicate that pump surge… –
There is no single truth. Margins vary across refiners and their mix of imports and crude oil basket. And since the price is limited in the supplier, it is logical that the dispute is exacerbated. More if imported fuels are expensive. When domestic prices are significantly decoupled from world prices, what happened with diesel months ago happens: the refineries stop importing and a crisis of scarcity is generated. The country’s refining capacity has been stagnant for a decade. If the economy grows, Argentina will have to import more and more gasoline and diesel.
– Despite the expected path of increases, the local price of Argentine fuels seems cheap in relative terms…
– Argentine fuels are cheap in international comparison and in historical terms. We have the cheapest fuels in recent years, especially since 2019. They have been adjusted below inflation and petrol and diesel are below the last 4 or 5 years.
-But what additional increase can consumers tolerate in the current environment?
– Local crude is traded in dollars and there is a monthly depreciation of 6 or 7%. Monthly inflation is high. A significant freeze is impossible: this reduces the refining margin, the price of crude oil and, ultimately, investment in the sector.
– With the exception of companies in the regulated segment (transport and distribution), energy companies have financial statements with good profitability. Is it feasible to think of an extraordinary income tax as the countries of the developed world intend to apply?
– Absolute profitability is one thing, and another is relative on an international scale. It’s true that companies have good balance sheets, including YPF. But those positive results are not so significant compared to those of other countries. Argentina needs investment and a new tax reduces competitiveness when it comes to attracting it.
– Are there the conditions to build liquefaction plants and turn Argentina into a major gas exporter in the world?
– For this we need a new regulatory framework that provides conditions for investments above 15 billion dollars. And we don’t have 40 years to set that framework and develop the industry. The energy transition poses a limited window for hydrocarbon development in the country.
– Is it feasible for companies to contribute money for the second section of the NK pipeline?
– I do not know. What I do know is that this work pays for itself in two or three years if its cost is compared with the import savings it would allow.
– What tariff increases additional to those deriving from segmentation are to be expected for the next year?
– Every segmentation scheme is perfectible and surely this one could be done better. However, this is an important step forward, which implies removing the subsidy from the 30 or 35 percent of users with the greatest contributory power. But the government set a full tariff to cover the cost of inputs in January, which is $3.4 per million Btu for gas and $75 per megabyte for electricity. These values will rise and the exchange rate will change in 2023. In fact, the average wholesale gas for next year is $5.2 per MBTU.
– So how much would that increase be for users who will pay the full rate?
– According to the official exchange forecast, we can calculate a 170 percent increase in gas and 90 percent electricity for Tier 1 utilities. This does not include increases that will be available for the transmission and distribution margin. And with 100% annual inflation, it’s hard to think there won’t be increases for carriers and distributors. 2023 poses a very aggressive scenario in terms of tariffs. And in an election year it will be very difficult to maintain level 1 without subsidies.
– It will be equally difficult to make progress on the abolition of subsidies for other consumer groups.
– It is one thing to think of a general recomposition of rates in a context of recovery in real wages and another thing when it drops. Clearly subsidies are unfair in terms of distribution and any reduction is progressive because more money is available for education, health care and transfers to low-income sectors. But it won’t happen instantly. Removing benefits is a process that will take at least a couple of years.
– Can the change of government affect any bet on investments?
– There are investments started that will continue to advance, such as the expansion of gas and oil pipelines. But a new law is needed with a consensus between the ruling party and the opposition on long-term rules: another thing would be an extra piece of paper. We have had a pendulum policy that conditions investments in energy, with laws and decrees that have not always been respected.
Source: Clarin
