Argentina is at a crucial moment in the global energy transition, and the truth is that it has everything to win: our natural resources could be the key to changing the country’s economy and improving our position in the world. In the sense that a new large export complex can ensure the stabilization of the balance of payments. However, while we dream of being protagonists in this story of energy exports, reality hits us incredibly hard with power outages scheduled for next summer and high rates that affect us all. These measures announced by Javier Milei’s government make clear the great contradiction we are experiencing: a country with outstanding energy potential that, at the same time, suffers from a lack of investment and planning in its infrastructure.
What is there? Argentina has one of the largest shale gas reserves in the world, especially in Vaca Muerta, the second shale gas reserve in the world. At their peak, these reserves could generate 140 million cubic meters of gas per day, far above what we currently consume. If we also add conventional lithium, it is no small feat, because if used well, this could translate into more than 20 billion dollars a year by 2030. In addition, we have 19.3 million tons of lithium in resources identified within of the “lithium triangle”, which places us as one of the world leaders in this fundamental raw material for the energy transition. Thus, we have the potential to be like Norway or Australia when it comes to natural resources, but there is a crucial difference: while they knew how to capitalize and develop their resources, we have not yet managed to convert them into proven or usable reserves, the projects must mature quite a bit. . And the traction on the added value of these minerals also has no horizon in sight.
In this context, the Chief of Staff, Guillermo Francos, announced that this summer we will have scheduled power outages due to “high demand” and “lack of investments.” It is a hard blow for Argentines who have already been suffering high rates since last November. We are talking about increases that, in some cases, reach up to 600% in the Buenos Aires Metropolitan Area (AMBA), due to the elimination of subsidies for high-consumption residential and commercial consumers. Furthermore, these increases are expected to continue in 2024, in line with the government’s plan to reduce energy subsidies. What does this mean? That, despite the strong liberalization of rates and lower subsidies, the lack of investment continues to make our system vulnerable and inefficient. Without the State there will be no more and better investments.
Regarding energy subsidies, in 2023 they ended at almost USD 10,000 million (1.5 points of GDP) and, the reduction of that item to 1 point of GDP is equal to USD 6,744 million, which implies a cut of almost USD 3,000 million in 2024. On this path, the government plans to reach 0.5 points of GDP by 2025 and close the cycle in 2026. We do not know if it will be possible. But it does mean that in the immediate term it means that we users will end up covering 80%-85% of the cost of energy supply, an enormous change considering that today families pay around 48% of these costs. The big question is how we can face this adjustment with the salaries and inflation we still have.
The lack of investments is a reality that we cannot ignore. There are key projects that have been left in limbo. For example, the second stage of the Néstor Kirchner Gasduct (today the first stage injects the same amount as a ship into Escobar at full capacity per day), which is essential to take the gas from Vaca Muerta to the main consumption centers and convert it into electricity, has not advanced, limiting our supply and export capacity. In addition to this, the TerCONF tender, aimed at improving gas-fired electricity generation, was cancelled, which means that we stopped incorporating the 1,000 MW of capacity needed for the coming years. Today our energy matrix is still far from the 20% provided by renewable energies by 2025 (Law 26,190) and remains with a use of more than 60% of hydrocarbons.
The high rates, obviously, directly affect the pockets of Argentines. In a context where the projected inflation for 2024 is still 150%, families have to allocate more of their income to pay for public services, and that reduces their ability to consume other goods and services. Precisely for this reason, subsidies existed: to improve the purchasing power and consumption of the population, which in turn boosted the economy (to the extent that dollars existed to cover production). But today, household electricity and gas consumption is falling to 2014 levels, showing how access to these basic (and inelastic) services is nevertheless becoming a luxury for many.
The outlook for the industry is not encouraging either. Rising costs and uncertainty about energy supply limit the productive capacity and competitiveness of companies. Without reliable energy at reasonable prices, it is very difficult for Argentine companies to compete internationally.
President Javier Milei has made clear his objective of achieving a “zero deficit” as the basis of the 2025 Budget. This means significant cuts in energy subsidies and a 155.4% increase in the tax on Liquid Fuels and Carbon Dioxide, which will obviously have a direct impact on the final price of gasoline (inflation is estimated at 18% between peaks). With this adjustment, the contribution of this tax to tax revenue is expected to double.
The Argentine State has already begun to reduce energy subsidies: in the first half of 2024, they were cut by 47%, which meant a saving of about 3,035 million dollars, equivalent to 0.5 percentage points of GDP compared to the previous year. By 2024, it is estimated that there will be 30% fewer subsidies compared to 2023. This might sound like a big saving, but the question is whether that cut is going to translate into real investments that improve our infrastructure or if it is just going to be a adjustment that ends up hitting users, as has been the case until now, and confirmed by scheduled power outages.
Argentina has enormous potential to be a key player in the global energy transition and, in the process, stabilize its economy. But for this to happen, the State has to take a much more active role (as in all countries in the developed world) and not let the market decide everything. The energy crisis we are experiencing is not simply “bad luck” or inevitable; It is the result of political decisions that prioritize adjustment over the sustainable and equitable development of the sector, the economy and society. If we want to take advantage of our wealth and give the country’s economy a break, we have to put aside adjustment policies and focus on investing in infrastructure, with public works, and in an energy plan that guarantees security and access for all.
If we continue along this catastrophic line, the energy transition in Argentina will continue to be a distant dream and, in the best of cases, we will end up turning off the lights to save a little energy, while other countries take advantage of the opportunities that we let pass.
UBA and Flacso teacher. IG @hernanpherrera
Source: Ambito
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