The Quest for Energy Security in Argentina

Many Latin American and other countries carried out energy-sector reforms that aimed to liberate public financial resources meant for energy-sector investment, and redirect them toward other goals, such as larger social expenses. It was thought that the introduction of market mechanisms and the attraction of private capital would be adequate means to secure supply expansion and to implement an efficient resource allocation.

The analysis of the Argentine case on energy security—carried out by Fundación Bariloche for CINDES-TKN—shows that, far from producing the desired results, such mechanisms brought about an energy matrix highly dependent on non-renewable natural resources and led to their rapid depletion. The strategies implemented by the main private investors were not at all appropriate to achieve a larger diversification of the energy matrix or to expand the necessary supply in order to secure its reliable continuity in the gas, oil and electricity sectors.

Argentina is, then, highly dependent on natural gas, lacking private investment and with increasing subsidies and public investment expenses meant to achieve a long-overdue diversification of the energy matrix. Although actions have been taken to increase investment in renewable fuels, hydroelectric and nuclear power, financial obstacles and the necessary adjustments on price policies seem to be the main difficulties to overcome in the short, mid and long term.

From the point of view of the impact that such policies have on greenhouse gas emissions, it should be noted that Argentina, which had achieved a relatively clean matrix thanks to the hydro-thermal mix with gas, is now undergoing a reversal of this trend as a consequence of the larger use of liquid fuels. This trend will surely be channelled towards a lower level of emission if the supply of renewable fuels, hydroelectric and nuclear power can be increased, and if a larger gas supply can be achieved. Brazil may have a key role in attracting investment in hydroelectricity and carrying out agreements between Argentina and Bolivia that could improve the supply situation in the mid and long term.

Key points:

• Reforms meant to secure private investment mechanisms in order to expand energy supply must include local reinvestment clauses or else guarantee such expansion by means of contracts.

• The supply of different fuels must not be regarded as if they were homogeneous products, likely to be substituted. That is why it is necessary for the public sector to have an active role in the design and enforcement of energy policies, establishing quotas for fuels and, if possible, to have companies with prevailing public capital.

• The Argentine case is paradigmatic of the problems caused by relying completely on private sources and foreign capital for strategic investment decisions and by not having public companies to regulate the market and energy supply.

Key recommendations:

• Argentina must currently recover its decision capacity to reorient and increase energy supply in a sustainable way. Renewable and hydroelectric fuel tenders—however appropriate—are only a limited part of that solution.

• Given the high dependence on natural gas—an irreversible fact—Argentina must obtain foreign supply in better conditions than simply the future contribution of LNG. The potential supply of Bolivian gas must then be reactivated, since it may be convenient not only for Argentina and Bolivia, but also for Brazil.

• Larger hydroelectric potential also depends on agreements with Brazil.

• Since the current price policy is not appropriate, it must be reformulated to make supply expansion feasible, but ensure that new, higher prices are devoted to investment.

• A gradual readjustment of prices and tariffs is needed in order to ensure governability and to prevent further disturbances that might affect public and private actors alike.