Argentina currency rout unnerves energy sector

Argentina's oil and gas sector is reconsidering its cost structures amid a severe currency crisis that has stoked fears of fuel shortages and a populist reaction at the ballot box next year.

"There are no shortages and there will not be any shortages," assured Gabriel Bornoroni, the head of the FECAC industry group of service stations in Argentina's central provinces.

But Bornoroni acknowledged that some stations are restricting sales volumes in the face of extraordinary demand from consumers scrambling to get ahead of successive price hikes.

The central bank´s decision yesterday to try to check a rout on the peso by increasing the country's benchmark interest rate to a stunning 60pc failed to stop the currency´s freefall.

In the first four days of the week, the value of Argentina's peso plunged by 20pc against the dollar. So far this year, the local currency has lost 52pc of its value.

The depreciation trend accelerated this week after president Mauricio Macri's 29 August announcement that Argentina would seek an advance on a $50bn standby credit line it sealed with the IMF in June. The IMF said it is considering the request.

The currency crisis is running parallel to steep inflation, which ran to an annual 31.2pc in July. The bleak indicators have put many oil and gas companies in a bind because wellhead prices are in dollars while domestic sales are in pesos.

FECAC said on 1 August that pump prices were around 22pc-25pc lower than they should have been.

The peso´s sharp depreciation is also hitting utilities, which say that rate increases are not keeping up with costs.

Firms in the natural gas value chain are scheduled to make their arguments at a 4 September hearing for how much rates should rise in October.

Gas distributors had been complaining before the latest depreciation that the sharp currency loss had affected their balance sheets since they need to pay $2.70-$4.20/mn Btu for supply but customers pay their bills in pesos.

Earlier this month, the government was able to temper an increase in electricity rates for Buenos Aires by slashing the wellhead gas price that state-owned wholesale electricity regulator Cammesa pays to supply thermal plants to $4.20/mn Btu from a previous $5.20/mn Btu, while getting the two largest distributors to partially postpone price hikes.

The recent economic turmoil also comes shortly before the energy ministry was set to launch auctions in September for January wholesale gas supply in a bid to introduce competition to the heavily regulated market. It is not clear if the auctions will now be postponed.

Argentina´s business community is on alert for a return to state intervention when investor-friendly Macri´s term ends in 2019. Elections will take place in October next year.

The economic crisis is taking place in a parallel to a sweeping corruption scandal in Argentina's construction sector.