Argentina offers profit repatriation for gas investment

Argentina's government is offering hard currency access to energy companies that sign up to a new program designed to stimulate natural gas production through state-subsidized wellhead prices.

The incentive partially lifts Argentina's crippling restrictions on repatriating profits, long considered a drag on investment.

The new gas plan, which was announced by President Alberto Fernandez in October but only detailed yesterday, will operate as an auction for 70mn m3/d of gas supply through 2024 to electricity distributors and state-controlled electricity wholesaler Cammesa.

The auction will set a maximum price of $3.70/mn Btu, higher than the current average price of around $2.3/mn Btu. The difference between the market price and the price obtained at auction will be paid by the government.

The first auction of the new subsidy scheme is expected to take place in early December, with the objective of boosting gas production by May when wintertime demand starts to shoot up.

Most of the supply acquired in the auction will be reserved for shale-rich Neuquen basin, which will get a quota of 47.2mn m3/d. The Austral basin will get 20mn m3/d, and the Northeast basin, 2.8mn m3/d.

Coaxed with capital

The gas plan specifies that Argentina's central bank must "facilitate access" to the official currency exchange market by any company that devotes hard currency to gas-related investments.

Argentina reinstated capital controls late last year shortly before Fernandez took office as a way to protect the central bank's reserves. The restrictions have been tightened this year as Argentina's peso has steadily lost value relative to the US dollar.

As expected, the restrictions have led to a surge in parallel exchange rates, including the so-called blue-chip swap to which companies often turn to access hard currency when the official market is closed.

For now, the gas plan does not affect Argentina's gas and electricity tariffs that have been frozen for more than a year. The tariff freeze is partly responsible for drying up investment in natural gas, which sparked concern in government circles earlier this year that it would lead to a wintertime surge in LNG and pipeline imports.

Argentina's gas production declined by 7.3pc to 126.1mn m3/d in January-September from a year earlier, according to energy secretariat figures.

By Daniel Politi