March 2022 – @AlvaRiosRoca – After the privatization of the energy and natural gas system in Argentina, including the sale of YPF to Repsol (1999), several gas pipelines were built to Chile, Uruguay and Brazil. There was even speculation that Argentina’s gas reserves (current and future) would be used to back up the Bolivia-Brazil gas contract. Many Argentines called this the emptying (read rapid monetization) of Argentine gas reserves by private actors and Repsol in particular.
Late 2001 came the corralito, one of Argentina’s worst economic times, requiring heavy subsidies for natural gas, electricity and other utilities. Little exploration was halted and little by little the tango country ran out of natural gas reserves and production. First they resorted to cutting exports and in 2003 they started looking for gas in Bolivia, which had discovered a good amount of reserves. In 2008 Argentina began importing LNG to alleviate demand and decreasing production.
The original gas contract was signed in 2006 for 20 years with an initial volume of 7.7 MMmcd for 2007, increasing to 16 MMmcd for the years 2008-2009 and finally 27.7 MMmcd for the period 2010-2026. This contract defined a price formula linked to fuel oil and diesel oil markers, but did not have the forcefulness of a normal natural gas contract.
In 2010 the first addendum was signed, where seasonality was established for the different months of the year, winter and summer, with incremental volumes from 2010 of 7.7 Mmmcd to 27.7 MMmcd. Penalties and other criteria typical of a serious contract for the purchase and sale of natural gas were agreed upon. The second addendum (2014) modifies one of the components of the price formula due to the discontinuity of a marker. The third addendum (2015), adds payment guarantees for YPFB, because they were not being fulfilled by Argentina.
In view of the new gas supply in Vaca Muerta and lower supply expectations by Bolivia, reflected in some defaults in 2018, the fourth addendum was signed (2019). Adjustments in delivery volumes are established. For summer 11 MMmcd and winter 16 MMmcd and a peak volume of 18 MMmcd. This addendum includes modifications to the price structure, establishing a 15% price increase during the summer and includes LNG-linked prices for volumes above 10 MMmcd.
The fifth addendum was signed on December 31, 2021 for a period of one year. Delivery volumes and prices were again adjusted and include the Henry Hub marker and an additional regasification counter (US$2.25/MMbtu), emulating gas with gas competition. The volumes were adjusted again to deliver in summer between 11-10 MMmcd and in winter 14-13 MMmcd. It was established to negotiate the new volumes of the sixth addendum until June 2021, a situation that of course did not occur.
In December 2021, with the noose around their necks, they decided to give themselves one more month to negotiate and then two more months until the end of March 2022. Shipments of up to 7.5 MMmcd were agreed between February and March 2022, with the expectation of reaching 10 MMmcd by winter in view of the lack of delivery capacity in Bolivia, which meant that Argentina would have to seek more LNG and liquids to alleviate its demand. With LNG and oil prices skyrocketing due to the conflict in Ukraine, Argentina will be even more drained of the dollars it needs so much and for not having closed all its purchases in time.
There is nothing to do, Bolivia’s production is in sharp decline and there will be less and less gas to export to Argentina. Given this panorama and the structural deficit of infrastructure to take production to other areas in Argentina, the only thing left to do is to accelerate the construction of the gas pipeline system and modifications planned in this country. Argentina must get the US$3.5 billion from wherever it can, in order to alleviate its heavy future imports of LNG and liquids. If this pipeline system were already built, by 2022 all the investment would be paid for with what will be imported in LNG and liquids. There is nowhere to lose.
In our opinion, these new gas pipelines and their extensions in Argentina will not only alleviate billions of dollars in imports of LNG, fuel oil and other energy products in Argentina in the years to come, but there may also be regional benefits. If integration and intelligence are used as a criterion. The reversion of TGN could be used to move gas from Vaca Muerta to northern Chile and also to Brazil (which is in a kind of supply crisis) through pipelines that are becoming idle in Bolivia and Brazil.
The fact that Argentina wants to resort to the original contract and ask for maximum volumes does not lead anywhere because there is nowhere to go. For Bolivia to pay the 15% penalty and stop supplying Argentina completely (which contractually it has every right to do so) and take the volumes to Brazil, which could yield prices up to twice as high, does not lead anywhere either.
Negotiating seriously with the future capacity that Bolivia has until 2026 is what remains to be done. We recommend both parties not to take this contract from month to month, or from six months to six months or year to year, which is not serious and deteriorates relations.
- Former Minister of Hydrocarbons of Bolivia and current Managing Partner of Gas Energy Latin America.