Since 2004, the Argentine energy sector is going through an important crisis as a consequence of the natural gas shortage, fixed energy tariffs, a cap on energy prices, and no investments in increasing energy generation, since 1999. Moreover, other factors such as the strong devaluation of Argentine's peso in 2001, the high international crude prices, and the continued economic expansion have led Argentina to an energy emergency. All these factors threatened Argentina's economic expansion, since gas shortage and consecutive blackouts have been negatively impacting transportation and industrial sectors. Furthermore, these problems are not only limited to Argentina, since the country has significantly reduced its gas exports to Chile and Uruguay.
The country is likely to have more severe electricity supply crisis in the short term. The Government needs to immediately implement adequate measures to attract investments in oil & gas exploration and electricity generation projects to expand the supply of energy and raise energy rates to international levels.
However, considering the significant delays that most projects experience in their initiation, the energy crisis is expected to continue affecting Argentina at least till 2009, until new projects are likely to add at least 2,500 MW (Atucha II and Yacyreta not included) to the system.
The current energy crisis in Argentina has to be analyzed based on several economic, political, technological, and environmental factors.
Toward the end of 1980, the energy sector in Argentina faced difficulties such as a persistent drought, which resulted in the reduction of 70 percent of hydrological power, unavailability of generation plants due to deficit in maintenance, and subsided energy tariffs.
These factors, combined with the economic crisis of 1989, led to a structural transformation of the energy sector aiming at improving the plants´ efficiency and to ensure that there is continuous energy supply in the nation. With regards to this, the government introduced two main laws: the privatization and regulation of the electric industry and the vertical and horizontal disintegration of the transportation, distribution, and generation activities.
As a consequence of these reforms, there was a strong private investment in the electrical market, which resulted in the transformation and modernization of the electric generation park and the distribution lines. The total installed capacity grew from 13.000 MW in 1988 to 22.490 MW in 1992, extending the energy supply to 97 percent of the country. In addition, the electricity tariff was also reduced.
However, since the 2001 economic crisis that resulted in the Argentine's peso devaluation and the introduction of the emergency public law (Ley de Emergencia Pública), the energy sector has been experiencing increased costs as the energy rates were frozen while the primary energy sources remain at international prices, in U.S. dollars. Overall, the Argentine utility rates are 50 percent below those seen in other countries.
This provision has resulted in years of underinvestment to expand production and has resulted in structural bottlenecks for the energy industry.
With regards to fuel supply, the introduction of a cap on natural gas prices for the internal market has lowered the gas prices, while other fuels, mainly the derivates of crude oil, are aligned with international prices, making natural gas less expensive than other alternative fuels. As a result, the private sector remained reluctant to invest in the exploration and construction of new oil fields.
Since 2004, Argentina has been importing natural gas from Venezuela to supply the energy sector due to its scarcity in the country. In addition, the Government established a different mechanism to guarantee the internal provision of natural gas and suspended the exportation of surplus that can serve the internal market. At present, the Government is subsiding companies to compensate for the extra cost of using diesel or heating oil to replace natural gas to meet their power needs.
As energy rates remain fixed and the energy generation and fuel prices are growing, no investments in new capacity have been made since 2001, to respond to the surging demand that has accompanied the economy's rapid expansion. Lack of investment, coupled with a rapid economic growth, has impacted both the residential and industrial sectors, causing rolling blackouts, forcing companies to retard their productions and investments.
The Argentine energy requirements are highly dependant on fossil fuels, which implies the urgent need for new investment in exploration and exploitation of those fuels.[1]
