Argentina awaits subsidized gas supply bids

Argentina is awaiting bids by 2 December to supply more than 70mn m3/d of natural gas for power generation in 2021-24 at subsidized wellhead prices, with awards to be issued on 15 December.

The new gas plan is designed to stimulate production and cut back on LNG and pipeline gas imports.

To ensure supply during peak-demand winter months, the government added supplemental gas to the tender: 13.11mn m3/d of gas for May, 24.6mn m3/d for June, 29.65mn m3/d for July, 22.72mn m3/d for August and 12.83mn m3/d for September.

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

There are several incentives in place to encourage competition and lower gas prices. Companies that are part of the program, for example, would be given priority when seeking permits to export excess gas to neighboring countries such as Chile.

To participate in the gas subsidy program, all companies must sign a statement vowing to renounce any payments for previous gas subsidy schemes.

A 2017 program covering approved tight and shale gas projects paid as much as $7.50/mn Btu, decreasing by 50¢/yr until reaching $6/mn Btu in 2021.

That program resulted in higher gas production but later sparked legal battles after the government changed the way it interpreted the program in response to a steep currency devaluation that made the subsidy more costly to sustain.

Existing legal challenges can proceed, but companies must agree not to demand the higher price as soon as the new subsidy program comes into effect.

Participants can obtain access to the official hard currency market as an exception to Argentina's strict capital controls designed to conserve international reserves. Companies will be able to access the foreign exchange market starting in the second year of the plan, according to regulations outlined by the central bank.

Shale-rich Argentina produced 126.1mn m3/d of gas in January-September, down by 7.3pc from a year earlier.

By Daniel Politi