Argentina cutting back on LNG in 2018

Argentina's latest LNG purchase tender will likely be the last of the year, according to Hugo Balboa, chief executive of state-owned energy company Ieasa, formerly known as Enarsa.

Bids on the tender for eight cargoes to be delivered at the end of August and September are due today, and will be awarded later this week.

So far this year, Argentina has bought 50 cargoes, meaning this last tender will take the total number for 2018 to 58, 10 fewer than the 68 cargoes Argentina bought last year.

On average, Argentina is likely to pay around $7.80/mn Btu for its LNG cargoes, a 35pc increase in price from last year.

The lower requirement for LNG imports partly reflects increasing local gas production in the Vaca Muerta shale formation.

If current trends continue, Argentina's purchases of LNG cargoes should keep on declining and will likely reach 40 within two years, Balboa said yesterday.

The increased local output is part of the reason why Argentina and Chile have not yet reached an agreement over a short-term gas supply contract that normally begins in June.

Under the terms of the pipeline supply contract that is still being negotiated, Argentina would agree to buy a total of 93mn m3 of LNG-derived gas at around $10-$10.50/mn Btu, according to Balboa.

Last year, Argentina purchased a total of 276mn m3 of gas for delivery between 1 June and 31 August, at an average price of $7.7/mn Btu.

Under terms of the contract, the price is tied to Brent, which has increased this year.

Although gas from Chile would be slightly more expensive than LNG when the price of regasification — of around $1.50/mn Btu — is taken into account, the imports from the neighboring country would only be used when the country's two LNG receiving terminals are fully utilized in the peak wintertime months of July and August.

Importing diesel, which is what thermal plants often turn to in winter when gas demand soars, would cost the equivalent of $17/mn Btu.

"We want the contract with Chile to be as flexible as possible," Balboa said. "We do not know if we are going to need it yet."

But this more modest need for gas from abroad also comes at a time when Bolivia is failing to fulfill the full term of the pipeline contract with its neighbor.

At this time of year, Bolivia should be supplying 20.3mn m3/d to Argentina, but it is falling short by around 1.5mn-1.7mn m3/d, according to Balboa.

This year Argentina is paying around $6.2/mn Btu for the gas from Bolivia, compared to $4.75/mn Btu last year.

Under the terms of Argentina's contract, Bolivia has an obligation to first supply its domestic gas demand, then Brazil and then Argentina.

Although Argentina has expressed interest in renegotiating its contract with Bolivia that expires in 2026 to decrease imports in the summer and raise them in the winter, the two countries have still not been able to coordinate a meeting to discuss the issue.

Earlier this year, Enarsa sought to open up LNG imports through its two terminals in Buenos Aires province to the private sector but no companies expressed interest.

"Nobody wants to lose money," Balboa said, noting that Ieasa sells LNG to wholesale market administrator Cammesa at a loss at $5.50/mn Btu.

The increased cost of imports and the weaker peso are largely why Ieasa will need almost double the subsidies from the state to operate this year, compared to 2017.

Ieasa will need around 29bn pesos ($1.1bn) in subsidies from the state in 2018, compared to Ps14.8bn last year, according to Balboa's estimates.

The peso has depreciated 27pc this year.