Over the last 20 years the fortune of the Argentine economy has been closely tied to one commodity: natural gas. In the 1990s, a time of economic boom for the country, the construction of combined-cycle power stations allowed Argentina to produce plentiful and inexpensive energy from its conventional gas fields in the south and west. Industry forecasts were so optimistic that several trans-Andean pipelines to Chile were constructed, but after a brief period as an exporter in the early 2000s, Argentina returned to being a net importer of gas in 2008.

Under the administrations of Néstor Carlos Kirchner and his wife, Cristina Elisabet Fernández de Kirchner, from 2003 through to 2015, price controls reduced incentives for firms to explore and drill. Gas fell from 41.5m tonnes of oil equivalent in 2006 to 31.5m tonnes in 2012, according to BP, while consumption continued to grow. This led Argentina to import $9.3bn worth of energy in 2012, principally natural gas from Bolivia. That year congress voted to renationalise Yacimientos Petrolíficos Fiscales (YPF), the state-owned energy company that had been privatised in the 1990s and was under the ownership of Repsol of Spain.

Meanwhile, the fixed prices for energy that were introduced in the wake of the 2002 financial crisis barely increased over the next 13 years. Consumer energy prices in Argentina were the cheapest on the continent, making it difficult to promote energy efficiency among the population and running up government debt. Since coming to office in December 2015, one of President Mauricio Macri’s principal tasks has been to bring order to the energy sector. Despite encountering some pushback, he has made significant progress in terms of boosting hydrocarbons production, normalising the energy market and developing alternative sources of power generation.


Since 2011 the Vaca Muerta shale formation in Neuquén Province, one of the largest non-conventional hydrocarbons fields in the world, has been the focus of foreign investment in the energy sector (see analysis), while production of conventional hydrocarbons has been in decline for 20 years. In the late 1990s Argentina produced 850,000 barrels per day (bpd) of oil, much of it coming from major fields in the southern provinces of Chubut and Santa Cruz. By April 2017 this figure had dropped to 454,000 bpd before new tight oil production at Vaca Muerta helped boost output to 511,000 bpd in October 2017.

“Today, the energy sector is of national interest in Argentina. All stakeholders know the importance of putting the sector back on track and are working towards the same goal,” Eduardo Lifschitz, CEO of MetroGas, told OBG. “To progress further, we should develop long-term policies applied for several consecutive presidential terms. This administration, in particular, has put a lot of emphasis on renewable energy and pushed for the construction of solar plants, but the entire sector in general presents opportunities.” This description is true for many smaller, local companies that have found their place in the country’s energy landscape. “Argentina has hundreds of mature fields producing less than 20 bpd with a high water cut,” Diego Garzón Duarte, CEO of Oilstone, told OBG. “Companies like ours work with fields too small to interest the major oil firms, and we invest in geoscience to maximise production. It is a well-known model in the US and it has good growth potential in Argentina.”


At the other end of the size and maturity spectrum, in October 2017 the government announced that it would launch a bidding round for new offshore exploration blocks in late 2018 (see analysis). Deepwater exploration requires large amounts of capital investment – typically from big local or international players – with a single well often costing over $100m. At a conference in Buenos Aires in October 2017 Juan José Aranguren, the former minister of energy and mines, said, “There is a high probability that the subsalt basin that exists off the coast of Brazil continues south, so we foresee the discovery of a conventional oil and gas formation in the area as very likely. It could be very profitable for the country.”

In November 2017 Norwegian firm Spectrum was contracted to complete an additional 14,500 km of offshore 2D seismic surveying, having already completed a 35,000-km project earlier in the year. The data will be used by the Ministry of Energy and Mining (Ministerio de Energía y Minería, MINEM) to parcel out blocks for the 2018 bidding round. However, a number of offshore blocks are already under exploration. In January 2018 Chilean firm ENAP Sipetrol purchased the Octans Pegaso block off the coast of Santa Cruz from a consortium of European oil firms for an undisclosed fee and a commitment to invest $47m in the block. “This new area will significantly increase the company’s level of gas reserves in Argentina, as it has enormous potential,” Julio Aranis, manager of exploration and production at ENAP Sipetrol, told local press that month.

Gas Priority

Investment in conventional gas exploration and production is also set to increase. “It is fact that 50% of Argentina’s energy matrix is fuelled by gas and that demand will have to be met by domestic production or costly imports,” Duarte told OBG. In pursuit of the first option, YPF will invest over $30bn between 2018 and 2022 in order to boost production by 5% per year, with the goal of reaching 700,000 barrels of oil equivalent per day (boepd) by 2022. While the national energy company is a partner in many concessions of the Vaca Muerta shale deposit, much of this investment will go towards drilling around 1600 wells across 29 conventional hydrocarbons projects. In September 2017 Aranguren forecast that total national gas production will reach 140m cu metres per day by 2022, up from 105m cu metres at that time.


The development of Argentina’s conventional and shale-gas potential is part of a larger shift in the Southern Cone energy market. In recent years Bolivia has been the region’s energy supplier, piping gas to meet demand in neighbouring countries. According to the “BP Statistical Review of World Energy 2018” report, Bolivia sent 6.3bn cu metres of gas to Argentina and 8.6bn cu metres to Brazil in 2017, compared to 5.8bn and 10.4bn, respectively, in 2016. The development of Brazil’s own offshore oil and gas fields has led to the drop in its imports, and Vaca Muerta could enable Argentina to lessen its import bill as well. Aranguren told local press in February 2018 that Argentina could reduce imports from Bolivia and resume exporting gas to Chile at a rate of 3.5m cu metres per day in 2019 (see analysis). Exporting gas to Uruguay was also under consideration.

Reducing imports can only be done with the development of domestic pipeline infrastructure to take gas from the fields to the market. “The energy sector needs to build pipelines that move gas from the fields to the Neuquén processing plant, as well as major trunk pipelines to expand transmission from Neuquén to major cities,” José Montaldo, manager of institutional and regulatory affairs at Transportadora de Gas del Norte, a local pipeline operator, told OBG. “At the moment there are no evacuation issues. The Neuquén basin has a capacity of around 85m cu metres of gas per day, while daily throughput is around 75m cu metres per day, but demand and production are growing quickly.”

Gas Transport

In April 2018 rival firm Transportadora de Gas del Sur was given approval to construct a pipeline and treatment centre at Vaca Muerta to move gas produced by YPF, Dow Argentina, Tecpetrol and ExxonMobil. The entire project will cost $800m, with $250m to be invested across 2018 and 2019.

Although it has taken on the project, the company believes that the local business environment could be more conducive to these types of investment works. “Given the high costs of extraction and transportation, gas producers need greater incentives to invest in Argentina’s oil and gas sector,” Javier Gremes, CEO of Transportadora de Gas del Sur, told OBG. “Companies cannot take all the risk associated with such large investments, dealing, for example, with unions or local communities. A holistic approach is needed to solve current challenges with all parties involved.”

Furthermore, where the product is transported to is highly influenced by the seasons. According to Montaldo, between October and April gas demand totals around 140m cu metres per day, but this picks up to 160m cu metres per day during the rest of the year. During the summer months between November and February, residential units consume 20m cu metres, while electricity generators use 60m and the industrial sector utilises 40m. In winter industrial demand remains stable, but residential use triples to 60m cu metres per day, with only 40m cu metres sent to electrical generators. “If there were sufficient gas supply to develop new industrial and electrical projects, demand could reach 210m cu metres per day, almost one-anda-half times its current rate,” Montaldo told OBG.


Although gas dominates the energy scene in Argentina, downstream activities for oil are coming into focus for some international players. Oil refineries in the country have suffered from underinvestment and low capacities. Argentina’s eight major refineries have a total capacity of 627,000 bpd and only two of those – the La Plata refinery (188,000 bpd) and Lujan de Cuyo refinery (106,000 bpd) owned by YPF – process over 100,000 bpd. However, recent activity saw Singaporean firm Trafigura, a commodity trading company, reach an agreement to buy an oil refinery, 250 service stations, a lubricants plant and a fuel storage terminal from local Pampa Energía for $90m in December 2017, and in April 2018 Royal Dutch Shell’s Argentine refinery and distribution units were sold to Brazilian firm Raízen for $950m.

The petrochemicals industry also holds potential, but the same incentive scheme that makes shale exploration so attractive at Vaca Muerta hurts companies looking to convert gas into downstream products. The imposition of a guaranteed price for shale gas – which stands at $7 per million British thermal units (Btu) in 2018 and is revised down by $0.50 each year – makes it difficult for industrial customers to compete internationally. According to Alberto Calsiano, head of the energy department at the Argentina Industrial Union, wellhead gas costs $3-4 per million Btu in the US, making Argentine gas comparatively expensive. “This has caused some petrochemicals firms to redirect their investments to the US, where there is more long-term price stability,” he told OBG.

Still, some players are optimistic due to recent domestic production forecasts. “The chemicals and petrochemicals industry deal to a large extent with the transformation of energy into products,” Rodolfo Pérez Wertheim, president of local chemicals company Meranol, told OBG. “Room for growth in Argentina is enormous given the projected development of Vaca Muerta over the next five to 10 years. Sectors like agriculture, automotive and mining will also act as catalysts for our domestic industry.”

Power Generation

Argentina had an installed power generation capacity of 36,725 MW in January 2018, according to CAMMESA, the market’s wholesale electricity manager. Just under two-thirds of this comes from thermal generators, of which 10,451 MW flows from combined-cycle plants, a further 6537 MW from gas turbine plants, and steam and diesel turbines make up the remainder. This composition was not always the case. “Ten years ago both hydroelectric and thermal power provided 40% of Argentina’s energy,” Calsiano told OBG. “But since then the matrix has become increasingly dependent on fossil fuels. Abundant gas in the region reduced the price of generation and led to the cancellation of several hydroelectric projects.” However, hydroelectric power is regaining popularity under the current administration.

In December 2017 work began on the Condor Cliff and Barrancosa hydroelectric projects in Santa Cruz. The projects, which will provide 1.3 GW of capacity, were originally tendered in 2008. In June 2017 MINEM said it would publish a white paper on a further 55 hydroelectric projects at differing stages of development, with combined capacity of around 18.4 GW.

Despite Argentina’s abundance of energy resources, blackouts and power shortages have been regular occurrences over the last 15 years, especially during the summer months when dams run dry and air conditioners operate at full blast. “It is incorrect terminology to talk about an energy crisis in Argentina – what we have is a crisis of generation,” Calsiano told OBG. “We have hydrocarbons, sun, wind and water, but often short-term political decisions have prevented the country from reaching its full potential.” According to Bloomberg, a total of 3.6 GW of new thermal-powered energy will enter the grid by 2020, and a further 2.8 GW will come from renewable sources.


Even with a wealth of gas and hydroelectric resources, Argentina’s renewables segment could well become the star of the sector in the long term. The southern Patagonia region experiences some of the world’s most consistent winds, and the provinces of Jujuy, Tucuman and Salta in the north of the country have year-round sunshine. In 2016 renewable energy accounted for just 2% of national generation, but the government has targeted raising this to 8% by the end of 2018 and to 20% by 2025. The RenovAr programme, in which the government auctions off renewable energy allocations for the grid, has been very popular with foreign and domestic investors. RenovAr round 1, the first auction held at the end of 2016, was so successful that it was complemented by a follow-up phase, round 1.5. A total of 2400 MW of capacity were awarded across 59 projects, but the capacity of all bids received exceeded 6200 MW, according to a September 2017 report by PwC Argentina.

Regulators increased the offering for RenovAr round 2, awarding 1.4 GW of capacity across 66 projects in November 2017. Wind initiatives accounted for the greatest share of capacity and the cheapest energy costs: the eight projects awarded will have a capacity of 665.8 MW at an average price of $41.23 per MWh. A dozen solar projects will provide 556.8 MW of additional capacity at an average price of $43.46 per MWh, while 14 biomass projects, producing at prices over $100 per MWh, will contribute a further 117.2 MW. This time, the total capacity of all bids received totalled 9.39 GW. As with the first round, an extra phase was announced whereby unawarded companies could rebid for an additional 600 MW of generation capacity, providing they matched the average price awarded in the second round.

Green Investment

The government expects to attract over $20bn into the renewable energy segment between 2016 and 2026, and current investor appetite is strong. Local diversified energy firm Pampa Energía won a 100-MW wind farm project in Bahía Blanca in October 2016 under RenorAr round 1, which went live in May 2018 after an investment of AR3bn ($155m). A major winner of RenovAr round 2 was local company Genneia, which was awarded two wind projects in Chubut Province with a total capacity of over 150 MW. “Along with shale gas and agri-business, renewable energy is one of the most dynamic and attractive industries to invest in,” Santiago Paz, executive director of consultancy Ecolatina, told OBG.

The development of a strong renewables segment will help diversify Argentina’s energy matrix, reduce carbon dioxide emissions and lessen the strain on government finances. According to Sebastian Kind, the undersecretary for renewable energy, every 1000 MW of renewable energy produced saves over $300m per year in liquid fuel costs and reduces carbon emissions by 2m tonnes per year. Such is the potential of the industry that it poses difficult – but welcome – questions about the country’s future energy mix. “The government needs to decide on what it is betting for future power generation, shale gas or renewables,” Calsiano told OBG. “The development of the latter could allow greater exports of gas in the future.” This is just one of many perks. The prices per MWh for projects awarded under Renovar round 2 were 18% lower than those of the first round due to increased process transparency and better practices. For RenovAr round 3, expected in late 2018, the government anticipates further price reductions and will offer certain projects through the public-private partnership model.

Transmission & Distribution

Given that renewables projects are often located in more remote parts of the country, their success in becoming a large component of the energy matrix will depend on expanding the electricity grid. In 2016 Argentina had 14,000 km of 500-KV transmission lines, but will need to add a further 5000 km by 2020 to keep pace with increasing demand, according to industry media. Greater connectivity with Chile is also on the docket. In September 2017 Andres Rebolledo, the Chilean minister of energy, told press that Chile and Argentina were investigating five new interconnection points for energy swaps.

While revisions to pro-market policies and incentive regimes have opened up a host of opportunities across the local energy sector, some of the toughest political decisions concern domestic consumers. Between 2002 and 2016 Argentinians paid extremely low prices for power due to generous subsidies, but this contributed to a large fiscal deficit. The Macri administration has therefore had to strike a balance between normalising the energy market and avoiding increased inflation that could hit the poorest citizens the hardest.

After previous subsidy roll backs in 2016, officials raised prices by 60-90% for most consumers in early 2017. The move was key to helping the government lower the primary fiscal deficit to 3.9% that year, which was below the target of 4.2%. In December 2017 electricity rates were raised again, by an average of 45%, although subsidised rates were maintained for low-income users (see analysis). At a press conference that month, Aranguren stated that the average Argentine family now paid around AR1500 ($77.67) per month for their gas and electricity needs.


Declining domestic production due to a lack of incentives, coupled with rising gas imports from neighbouring countries, placed the energy sector at the centre of Argentina’s economic woes throughout the 2010s; however, the sector could also hold the key to the country’s revival. A stable and attractive regulatory environment, combined with significant potential in the hydrocarbons, renewable energy, and thermal and hydroelectric generation segments, provide ample opportunities and security for global investors.