Gas shortage plunges Argentina into a new political crisis

RIO DE JANEIRO, BRAZIL – Argentina is entangled, once again. The obstacles to building a gas pipeline have ejected the Minister of Productive Development, Matías Kulfas, from the Cabinet over the weekend and stirred up tensions between the president, Alberto Fernández, and his vice president, Cristina Kirchner.

The background is a serious shortage of gas and diesel, which forces Argentina to import and dries up the Central Bank’s meager reserves of dollars. The energy crisis, which is not new, finally became a political crisis, the umpteenth that the South American country is facing.

When the winter cold arrives in Argentina, the problems multiply. Since mid-2007, the South American country, once an exporter of hydrocarbons, must buy bottled liquefied gas, or LNG.

According to the consulting firm Ecoviews, in June, July and August the monthly energy bill jumps from less than US$100 million to nearly US$1.2 billion, as a result of gas purchases from Bolivia and, above all, LNG. In September it drops to US$800 million and only in October when Argentines turn off their heaters, does it go back to less than US$100 million.

Read also: Check out our coverage on Argentina

The problem would not be so serious if it were not for two issues. One: more than a third of the Central Bank’s reserves today go to importing gas, in a context of chronic foreign exchange deficit and loss of value of the peso.

If there is no economic catastrophe, 2022 inflation will be around 70%. Two: the country has the second-largest gas reserves in the world, but cannot transport it from the Vaca Muerta field, where it is produced in Patagonia, to urban centers, where it is used. The solution is to build a gas pipeline.

In early May, President Fernández toured Spain, France, and Germany. He sold Argentina there as an option for hydrocarbons that Europe can no longer buy from Russia. In exchange, he asked for investments for the sector, which today is stuck by the lack of infrastructure.

“Argentina needs a gas pipeline in Vaca Muerta,” says Victoria Terzaghi, energy editor-in-chief of the newspaper Río Negro. “But it is a work that arrives late; it was tried during Mauricio Macri’s term because it was already known what was going to happen,” she explains.

The problem is simple: Vaca Muerta is at record levels of gas production, but the current pipelines are saturated and it is no longer possible to send the fuel to the distribution plants. Without gas in the big cities, the country must import it in gas ships that eat up the reserves.

A source from the oil sector explains that “the construction of the gas pipeline to Vaca Muerta would reduce import levels, supply the domestic demand and propose access to regional markets in the short term.”

“The opportunity is there,” she says, “but Argentina requires significant international investment for an extended period of time. The current economic conditions, without access to foreign exchange, are an impediment”, she adds.

The scenario is that of the dog that bites its tail. Due to the lack of dollars, Argentina applies strict exchange controls and limits the repatriation of multinational profits. Those same restrictions scare away long-term investments, such as those necessary in the oil sector.

And here we return to the gas pipeline, which the government has called Néstor Kirchner, in honor of the former president and husband of the current vice president.

THE DEPARTURE OF KULFAS FROM THE MINISTRY OF PRODUCTIVE DEVELOPMENT IS THE PICTURE OF A GREAT CRISIS

Argentina’s energy policy is in the hands of Kirchnerism. Its people control the Ministry of Energy and with it the agencies in charge of developing the production of gas, electricity, and oil. Alberto Fernández and the few ministers who respond to it, including Kulfas -before his departure- and the Minister of Economy, Martín Guzmán, have collided several times against the Kirchner officials in charge of the sector.

The fight paralyzed any state strategy until the war in Ukraine triggered the gas import bill and the idea of ​​the gas pipeline was reactivated. Fernández solemnly inaugurated the construction of the pipeline even before Energía Argentina, the office in charge of the work, had started the bidding process. Soon the problems began.

Last week, during the commemoration of the centenary of the state oil company YPF, Cristina Kirchner wondered why Techint, the company that will manufacture the pipes for the gas pipeline, “doesn’t bring its rolling mill to Argentina and make here that plate that it buys from Usiminas, in Brazil.”

Usiminas is one of the largest metallurgical companies in Latin America. As in Argentina the sheet metal needed to produce the pipes is not produced in the necessary thickness, Techint buys it from Usiminas, of which it is a 20% shareholder. Fernandez, sitting next to her, took the hit.

It was then that the Kulfas ministry leaked a statement to the press accusing Kirchnerism of having benefited Techint in the contract. The president, who was then rehearsing a truce with Kirchner, sacrificed a loyal man and removed him from office. Kulfas did not go quietly. On Tuesday he distributed his resignation letter to the media, 14 pages in which he mixed doses of catharsis with serious denunciations.

Kulfas accused Kirchner’s officials of delaying the start of the gas pipeline and of sustaining, against the opinion of the Economy Minister, a system of home energy subsidies that last year cost the public coffers US$11 billion, equivalent to 2.3% of GDP.

Electricity, gas, and water rates have been frozen since the end of the Mauricio Macri government and have accumulated a lag of more than 200%, in an effort to prevent them from adding pressure to inflation.

“The second challenge was to get out of the insane system of energy subsidies that has governed our country for two decades,” Kulfas wrote, “which has an enormous fiscal cost, is socially unjust, centralist, anti-federal and pro-rich (… ), which as a Peronist embarrasses me,” Kulfas wrote, without the pressure of the position.

From Energía Argentina they replied with a letter: “Unfortunately it is observed that while the Ministry of Energy was a dependency under his orbit, until August of last year, and not later, he managed to understand how the energy system works.”

Open war is declared. Meanwhile, the work on the gas pipeline is only in its initial stages and it is unlikely that it will be ready by the end of next year, as the government hopes and needs.

More: Argentina news in English, every day from The Rio Times.