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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Argentina’s New President Is Looking To Shake Up Its Oil Industry

  • Argentine President Milei’s new bill has far-reaching implications for Argentina’s energy sector.
  • Milei’s administration is looking to privatize 41 state-owned companies, including national oil firm YPF.
  • Milei is also seeking to unshackle crude exports and leave local fuel prices at the mercy of market forces.
Argentina Oil

When Argentine libertarian Javier Milei made his debut into politics in 2020 with a mission to"blow up" the system, few predicted that he would have a chance to do the shake-up from the highest office in the land and, not certainly, just three years later. However, that’s exactly what the economist and former TV pundit is now doing. 

Last week, Milei sent a wide-ranging omnibus reform package to congress, part of his shock therapy approach he has adopted to transform Argentina’s economic policy into myriad aspects of government. Through the omnibus legislation, Milei is seeking to enforce shock economic policies, such as lifting import controls, undertake sharp spending cuts and devalue the peso by more than 50%.

The new bill has far-reaching implications for Argentina’s energy sector. At a time when a wave of nationalization is sweeping through Latin America, Milei has proposed to privatize 41 state-owned companies, including national oil firm YPF, nuclear power company Nucleoeléctrica Argentina and energy infrastructure player Energía Argentina

Milei is also seeking to unshackle crude exports and leave local fuel prices at the mercy of market forces. The free-market provisions in his bill aim to replace rules that date back to the 1960s that prioritize ensuring affordable fuel supplies at home. Those rules allow the government to meddle in crude and gasoline pricing and also gives refiners the right to first refusal on export cargoes. However, the rules have  come under criticism in recent years for holding back the vast shale patch known as Vaca Muerta. 

Under Milei’s proposal, “the executive branch won’t be able to intervene in, or fix, prices in the domestic market.” Argentina's shale oil traded at $58 a barrel in the third quarter, way lower than Brent’s $86 per barrel price tag at the time.

Energy prices will couple with international values. The most radical change is eliminating the requirement to satisfy the needs of the local market — it’s an historic rupture with a century of Argentine tradition,” Juan Jose Carbajales, energy consultant and former oil and gas undersecretary, wrote in a report.

Gasoline prices in Argentina have skyrocketed since Milei was elected as president in November; however, at less than $3.10 per gallon, Argentines are still enjoying some of the cheapest gas anywhere on the planet.

A Win For Vaca Muerta’s Shale Oil Companies

Argentina Crude Oil Production (000’s of barrels per day)

Source: Trading Economics

Milei’s energy reforms are a big win for  YPF SA–the state-run oil company that he seeks to privatize– as well as dozens of Vaca Muerta oil and gas companies such as Chevron Corp. (NYSE:CVX), Shell Plc (NYSE:SHEL) and Vista Energy (NYSE:VIST) whose shale investments have been curtailed by low oil prices and protectionist policies that favor national energy companies.

Back in August, Bloomberg reported that Exxon Mobil Inc. (NYSE:XOM) was seriously mulling an exit from Vaca Muerta. According to the report, Exxon is currently working on six areas of the Vaca Muerta formation in Patagonia; unfortunately, efforts to ramp up development of its flagship Bajo del Choique-La Invernada site have hit a wall with the site currently producing just 15K boe/day. Bloomberg reported that Exxon is currently reviewing its 21% stake in a pipeline that transports oil to the Atlantic coast for export. The report, however, says Exxon does not intend to sell its three Argentine offshore exploration blocks.

 Located in the oil-rich Neuquén province, Vaca Muerta is a massive shale play estimated to hold 16 billion barrels of oil and 308 trillion cubic feet of natural gas in recoverable hydrocarbon resources, making it the second-largest shale gas deposit in the world. Indeed, Vaca Muerta is like the prolific U.S. Eagle Ford shale but on steroids because its dry gas window has proven to be commercially viable.

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But whether or not Milei’s economic and energy reforms will bear fruit remains to be seen. And, that’s assuming the bill passes Congress where it’s likely to face stiff opposition where his party is a minority.

For a decade, the Argentine economy has been in a semi-permanent state of crisis which has only worsened in recent years, with inflation now approaching 150%, a sliding currency and rising poverty rates. Milei and his Liberty Advances coalition have enjoyed massive public support, especially among the young, helped by his colorful antics as well as his aggressive and theatrical style. However, Milei's detractors have pointed to his lack of experience in political office, not to mention that the controversial bill rips at the fabric of status-quo Argentine policymaking and might ultimately prove to be unpopular with the public.

By Alex Kimani for Oilprice.com

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