The duality of the energy sector

It is clear that other winds are blowing in the energy sector, especially in hydrocarbon production. The mortgage that the decline in oil and gas production represented for the Argentine economy starting in 2010 shows a strong turn at the hands of Vaca Muerta.

There is no longer any doubt about the productivity of Vaca Muerta, which finds in the production and export of oil the “driver” to invest. Unconventional oil already represents 53% of the country’s total production and just in the last 12 months it has seen a growth of 35% compared to the previous year.

In the oil window there is no doubt who will finance the investments necessary to increase production: the private sector. Progress is being made in building oil pipelines that will be free of transport bottlenecks; for example, the Vaca Muerta Sur oil pipeline, a project led by YPF that will allow exports to multiply in the coming years, work that is progressing even without RIGI.

According to the Central Bank’s trade balance projections, crude oil and fuel exports will perform well in the coming years, reaching US$ 36.7 billion in 2030, which means a growth of 3.5 times the compared to the expected export for the year 2024.

In gas the dynamics are different. Unconventional gas, which already represents more than 60% of the total, increased its production by 12% in the last 12 months and although the first section of the Vaca Muerta gas pipeline and Northern gas pipeline conversion eases transportation restrictions, these jobs work. that they will not be able to clear strong and large export opportunities in the future.

Uncertainty is embedded in the financing of investments related to the LNG export project. With or without RIGI, the failure of Petronas put the search for an “off taker” at the heart of the gas agenda that would allow the project to be financially mobilized through a strong, long-term contract. Along the way, modular, scalable liquid and barge projects are being added for the spot market.

In the electricity sector, the news is not the best. The warnings were raised by the government itself first through CAMMESA and then through statements from the chief officials of the area.

In addition to the historical distribution and transportation problems associated with summer periods or recurring heat waves, generation inadequacies will be added this year.

The installed power of the system, that is, the ability to generate electrical energy, reaches 43,800 MW, while CAMMESA statistics show us that the system could only provide 29,600 MW, at the peak of demand last February. That is, more than 30% of the system power was unavailable either due to maintenance or lack of fuel.

The generation system is at its peak and the Government is proposing to mitigate the problem with a contingency plan which includes an additional and complementary payment scheme for generators with the aim of returning thermal generating equipment to “access” in peak months and hours .. more subsidies?

In transport and distribution, tariff reviews are announced for the end of this year, which should normalize the income of companies and allow an investment plan that improves the quality of services.

However, it seems inevitable that a hot and dry summer will stress a system in crisis due to decades of disinvestment, regulatory approval, non-compliance with contracts and prices that do not cover the technical costs of operation and maintenance. The solution is not simple, or short-term. It requires planning, financing and technical equipment.

The idea of ​​returning the system to its original operation in the 90’s goes against the history of the last 25 years where CAMMESA became not only a “recipient” of the energy of the system (signing and guaranteeing PPA contracts), but also a buyer of fuel and a payer of last resort of a deficit system where users, at the end of 2024, will pay, according to the 2025 budget project, 65% of the average cost of the system.

Normalization of the electrical system must be the first step to rebuild the payment chain. And this means that subsidies are targeted at vulnerable demand through a simple, feasible and federal social tariff mechanism, that distributors normalize payments to CAMMESA for energy sold and that CAMMESA is the then paying generators on time.

Therefore, the energy sector shows a double reality: production, investment and export in Vaca Muerta, while the electricity sector is preparing to go through the stress of the summer, but without a plan to planning for the future and especially for funding transport and generation jobs which look urgent.

Alejandro Einstoss is professor and researcher IIEP UBA Conicet, economist IAE Mosconi.