Argentina's Energy Landscape from 2024 onwards
Energy independence in the near future looks very likely
Welcome Avatar! As a Sovereign Individual, in the future you want to be in a country that has enough food and resources, is slightly dysfunctional with flourishing freedom markets, still cheap, and without so much control over its residents. Argentina ticks a lot of those boxes. Today I will dive into the second part of the energy series for Argentina, looking at the current energy landscape and the near future.
Autist note: I published two previous articles in this series, which you can find here: Vaca Muerta: Argentina's ticket to energy independence? and YPF starts mining Bitcoin in Vaca Muerta.
The Current Energy Mix
The electricity sector in Argentina is the third largest electricity market in Latin America, behind Brazil and Mexico and the 31st in the world.
The current energy matrix depends first of all on plants powered by fossil fuels (87%, mainly natural gas), the remaining 10% corresponds to renewables, and 3% nuclear power plants.
The Argentine matrix differs from the Latin American average matrix by a lower proportion of hydroelectric energy, a greater proportion of fossil fuels and the use of nuclear energy.
A little history
The local electricity sector was completely redesigned in the 1990s after the deregulation and privatization rounds of public services during the Menem presidencies (1989-1999).
In the 1990s, private companies took advantage of the high availability of natural gas and combined cycle thermoelectric plants to considerably modify the energy matrix, increasing the use of fossil fuels (from 50% in 1990 to 63% in 2019), while reducing the percentage of hydraulic energy (from 43% in 1990 to 27% in 2019) and atomic energy (from 17% in 1991 to 4% in 2019).
In 2011, the state-owned company YPF discovered the enormous energy potential of the Vaca Muerta oil reserves. In Vaca Muerta: Argentina's ticket to energy independence? you can find a summary of that discovery and what it means in terms of energy independence for Argentina.
As one of the largest shale oil and gas reserves in the world, it opens up the possibility of energy independence for Argentina, where the country could become a net exporter of oil and gas as long as production increases. More about that later.
Next to the State-owned YPF, the three main business groups in the energy sector are Pampa Energía, Grupo DESA and Grupo Sadesa.
In 2006 the Argentine government launched a plan to promote nuclear energy, finishing the Atucha II nuclear power plant.
The Néstor Carlos Kirchner Nuclear Power Plant (Atucha II) is the third nuclear power generation plant in the country. The gross power was about 745 MWe at its first chain reaction started in 2014, and today it contributes about 690+ MW of electricity to the national grid.
In 2022, Argentina signed a new deal with China, to build Atucha III. The construction project involves an investment of more than 8 billion USD.
The contract includes the provision of engineering, construction, procurement, commissioning and delivery of a HPR-1000 type reactor, which will use enriched uranium as fuel and light water as coolant and moderator.
Atucha III will have a gross power of 1,200 MW and an initial useful life of 60 years.
What about water?
In 2020, Argentina was the 21st largest hydroelectric power producer in the world, with 11.3 GW of installed capacity.
Regarding hydroelectric energy, the Yacyretá dam on the border with Paraguay is the biggest source of energy. The dam was officially inaugurated on July 7, 1994.
From the end of the 1990s, until 2011, the plant was only working at 60% of its maximum production capacity, due to pending works to be able to raise it to the required height. Nowadays it works at 100% capacity, providing energy to Brazil, Argentina and Uruguay.
In 2019, a succession of failures in just 30 seconds caused the biggest blackout in the Argentina’s history. It was nicknamed the "Blackout of the Century", because it was so extensive that it transcended Argentine territory and extended to sectors of Brazil and Uruguay, affecting more than 50 million people.
The weakest link in all this, is definitely the transportation part, due to the vast distances that need to be covered.
For the energy transportation in Argentina, the entire country has been connected to the National Interconnected System (SADI) since 2012, assigned to the company CAMMESA (Wholesale Electricity Market Administration Company).
The private company High Voltage Electricity Transportation Company (Transener) operates 100% the transmission network.
Transport is one of the key points to improve, which could be seen in several power outages over the past few years that have left some parts of the country without power.
This year one dude organizing an asado next to a power line was able to cut out most of the power to Buenos Aires and immediate surrounding areas, derp.
Definitely some ways to go here in terms of building in some more redundancy in the network.
2023 could well be the beginning of a change in economic and energy terms, thanks to Vaca Muerta and multiple incentive programs combined with oil companies’ investments to expand their gas and petroleum production.
The construction of the Gasoducto del Noreste Argentino (GNEA) is close to complete, and was originally conceived to supply natural gas to more than 3.5 million inhabitants in the provinces of Salta, Formosa, Chaco, Santa Fe, Corrientes and Misiones; although the revision of the project postponed the extension of the work to the last two provinces.
Once it is finished it will solve the decline of Bolivian gas in terms of the supply of gas for the northern part of the country.
The inauguration of the first stage of the President Néstor Kirchner Gas Pipeline (GPNK), scheduled by the Government for June 20 2023 is another milestone. Close to 11 million m3 per day will replace fuel imports and allow savings of close to 2.5 billion US Token.
The expansion of Oleoductos del Valle (Oldelval) and the reactivation of the Oleoducto Trasandino (Otasa) to export oil to Chile will begin to uncover the bottlenecks in the transport infrastructure in the medium term.
YPF Projected Expansion
In 2022, Argentina’s energy deficit was around US$5 billion, a product in part of the rise in international oil and gas prices.
Besides new pipelines, the increase in production in Vaca Muerta also depends on other investments to increase oil production. With the current increased production and pipeline construction, Argentina could end its energy deficit as soon as 2024.
In 2024 the energy deficit could be close to zero, with a possible surplus in 2026, all this without overly ambitious projections of future efficiencies.
According to Moody's, the concern lies in how the investments will be financed, although the expectation is that the gas pipeline construction times will be met.
Vaca Muerta had the challenge of achieving large investments at the beginning when starting up most of the fracking projects. Now these are close to break even and today Vaca Muerta is self-sufficient.
Oil & Gas Outlook
Regarding the local Oil & gas market, even given the weak local macroeconomic conditions and the lack of access to the international credit market, the industry will increase the level of production in 2023 and maintain solid credit metrics.
Local production companies, especially in Vaca Muerta, continue with a high growth in the level of production, leveraged by higher international prices. Their levels of indebtedness and cash flow generation improve year over year. YPF even suggested distributing dividends in the foreseeable future.
The Strategic plan for 2023-2025
Between 2023 and 2025, YPF's commitment is to continue developing crude oil from Vaca Muerta. The greatest opportunity for growth lies in exports to Chile in the middle of the year, through the reopening of the Trasandino Pipeline (Otasa).
The gas pipeline development is a Government project, while there is expectation for the LNG project with Malaysian Petronas, which today is in the feasibility analysis stage.
This year, $2.3 billion of YPF's investments (almost half of the total) will be for unconventional oil and gas from Vaca Muerta.
They will also continue to apply secondary and tertiary recovery in conventional wells and will begin offshore exploration (in the Argentine Sea off the coast of Mar del Plata) together with their partners Equinor and Shell.
On the natural gas side, YPF will continue to be the main contributor to power plants, homes and industries and will hold meetings every three months with the executives of Petronas to develop the liquefaction plant and convert the fuel into liquefied gas (LNG) to boost exports in the medium term.
In the case of crude oil, YPF is mobilizing resources and expanding the pipeline that connects the Neuquén basin with Puerto Rosales, Bahía Blanca. Proyecto Duplicar is a US$1 billion project that will enable export growth in this section over the next two years.
As you can see, even with minimal investments, Argentina is on track to become completely energy independent. It is likely that at the end of this decade, the country will be a net exporter of energy.
It is very encouraging to see that despite all the monetary and economic malaise which tends to be the base case for Argentina, the government left ESG wokeness aside and instead focused on expanding current oil and gas production and pipelines, combined with nuclear energy.
Energy is just one important element in the decision to create your home base (or one of your home bases), for when shit hits the fan. Other factors include access to food, transportation, climate and much more.
Overall, Argentina offers just about the right mix of lack of government oversight, a LOT of space, and sufficient resources to feed a country with 4x the population. If you want to know more about making a move down south, I recommend these articles so you can prep:
See you in the Jungle, anon!
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