Pressure Mounts on Milei as Execs, Provinces Ask for Key Pipeline Works to Continue

Oil & gas companies and provincial governments in Argentina are asking the federal government to keep spending on works for the reversal of a northern gas pipeline, as imports from Bolivian decline

Chile retoma las importaciones en firme de gas natural argentino en el norte del país
December 18, 2023 | 08:17 AM

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Buenos Aires — Due declining natural gas production in Bolivia, the Alberto Fernández administration in Argentina had sought to expedite works for the reversal of the “Norte” pipeline. This aimed to supply the northern region of the country with domestically produced gas, in the face of potential shortages during the winter of 2024. With the Central Bank’s (BCRA) net reserves deep in the red, now the final decision of whether or not to proceed with the works will be down to the country’s new president, Javier Milei.

With Massa at the helm of the Economy Ministry under Fernández, financing had been set up through the state-owned company Cammesa, as well as loans from the Development Bank of Latin America and the Caribbean. Pipes were tendered and awarded to Tenaris, which had already delivered part of the required materials, while the construction was also tendered.

According to an Economy Ministry source who spoke to Bloomberg Línea, Milei’s is currently leaning towards not moving forward with the project, due to ongoing cuts in public spending. Officials overseeing the pipeline reversal are also interpreting as much, the source, who asked not to be named as the conversations are private, said.

Pressure from key industry stakeholders and northern provincial governments is rising, nonetheless, prompting the Milei administration to reassess this particular case.

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The new Energy Secretariat, for its part, has been echoing the signal put forward by Economy Minister Luis Caputo last week: “The National Government will no longer bid for new public works and will cancel approved tenders that have not commenced development. Infrastructure projects in Argentina will be carried out by the private sector since the government lacks both funds and financing to undertake them.”

The directive of “there is no money” is the initial response to inquiries about the northern reversal. However, within the sector, there’s confidence that there’s still room for reconsideration.

Negotiations in the energy sector

Last Wednesday, a luncheon brought together executives from Argentina’s major oil and energy companies, along with officials from the new Energy Secretariat, which is led by Eduardo Rodríguez Chirillo. The latter did not attend the event, organized by the Argentine Institute of Oil and Gas on the occasion of National Oil Day.

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This occurred following the government’s steep devaluation of the peso, which, among other measures, included increased levies for all exporting sectors except agriculture. This was a topic of discussion among the oil industry, as was the gasoline price hike.

Another issue that dominated conversation was the future of the northern gas pipeline reversal project. Representatives from the companies responsible for the construction, pipe supply, gas production, and resource transportation were present at the luncheon.

“Starting from July 31, there’s no more gas from Bolivia. Either the contract is renegotiated, or the reversal must be ready for this winter,” said Ricardo Markous, CEO of Tecpetrol, to Bloomberg Línea. “The northern industry has no alternative to obtain diesel. In northern Argentina, we produce three million cubic meters, but during winter, an additional 10 to 12 million are necessary,” he added.

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According to Markous, the problem isn’t solely about “cost,” when asked if meeting the demand with imports is feasible. “It’s not just about cost. The alternative is Brazilian LNG or through Chile via northern pipelines. The problem is the electricity shortage in the north; you can’t address that with diesel.”

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The executive from one of the country’s major oil companies remained optimistic: “We’ll have to wait. It’s still early.”

A governor’s complaint

Gustavo Sáenz, governor of Salta, included this complaint upon assuming his second term: “It must be clear that the northern region of the country needs the gas pipeline. It’s a priority project. Don’t be surprised if in June, when the agreement signed with Bolivia (which currently supplies us) ends, the north is left without gas”.

Can it be done with private financing?

Former Deputy Secretary of Hydrocarbons and head of the Paspartú consultancy, Juan José Carbajales, outlined the steps required to advance in securing private financing for the project.

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Among these steps are the formation of a consortium among the main gas producers in Vaca Muerta, reaching partnership agreements between companies, adjusting regulations to a purely private scheme, and an investment ranging from US$2.5 billion to US$3 billion.

Additionally, the agreement on a freely negotiated transport tariff with the industry, CAMMESA, and distributors, and a new bidding round for gas supply within the framework of the Gas Plan are necessary.

“Will the Government manage to coordinate with private entities to enable the investment? Will costs increase for the industry and residential users? Will they meet the deadline for the winter of 2024?” Carbajales questioned.

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