Fernandez Eyes the Energy Industry

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Argentina heads into 2020 with the hopes of rekindling its battered economy and the energy sector will be a central component for recovery. Left-leaning President Alberto Fernandez and Vice President Cristina Fernandez de Kirchner took office in December just as those in the energy sector feared a return of the protectionist policies that some blamed for the downturn. Nevertheless, Argentina’s economic crisis is forcing the government to look for pragmatic policies to alleviate substandard living conditions, while maintaining a steady inflow of foreign currency and investments.

Energy companies have so far remained attentive to the government’s actions, while Fernandez has been cautious about scaring away oil sector investments, particularly in Vaca Muerta, one of the world’s largest shale reservoirs. Giving the government access to revenues is an obvious way to address mounting debt, and the administration took the initiative by increasing the tax on exports from the agricultural sector. The energy industry, however, was spared by Fernandez, who reduced the sector’s export tax from 12% to 8%.

Despite the political and economic uncertainty, Argentina closed the year with the fastest annual export pace on our records at 60,000 barrels per day. The country’s flagship Escalante grade accounted for roughly 80% of the exports. Argentina has a bright future ahead as the new spec change for marine fuels from the International Maritime Organization will benefit heavy-sweet crudes like Escalante, thereby increasing the demand from international refiners and possibly the revenues for the South American country. Considerable progress was also made in the Argentine gas sector in 2019 as the country exported its first cargoes of LNG.

Not everything is positive news for the Argentine energy sector, however. The new government still has to deal with the effects of the economic crisis. To reduce the economic burden on civilians, the Fernandez government has frozen prices for electricity and domestic natural gas until June. But more importantly, Fernandez also asked energy company YPF, as reported by Argentine newspapers, to freeze the price of gasoline, a decision that will impact the fuel market as local refiners will not be able to benefit from any rise in the price of gasoline.

The new president will have to carefully navigate between keeping foreign investors happy and reducing the burden created by the economic crisis on civilians. The energy industry will be a pillar in the new president’s plan to revive the country’s economy.