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An Energy Overview of Argentina

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Energy Summary [Oil, Natural Gas, Coal, Nuclear, Hydroelectric, Infrastructure, Electricity, Industry Overview] Energy Policy | Environmental Activities | Privatization Status | Economic Situation | Trade & Investment

General Information

Argentina, the 8th-largest country in the world and the second largest in South America, has a land area approximately equal to that of the United States east of the Mississippi River. Its climate varies from subtropical in the north to subarctic in the south. Argentina shares borders with Bolivia, Brazil, and Paraguay in the north, Uruguay to the east, and Chile to the west. The southeast border is a 3,000-mile coastline on the South Atlantic Ocean. The population of approximately 36 million is primarily European, mostly of Spanish and Italian descent; Spanish is the national language. Gross domestic product (GDP) was estimated at $310 billion in 1997. Argentina's currency, the peso, has been fixed at one peso to the U.S. dollar since April 1991. Argentina is a member of Mercado Comun del Sur (Mercosur), a regional common market which includes Brazil, Paraguay, and Uruguay; Chile and Bolivia are associate members. Mercosur came into effect on January 1, 1995, and includes a free trade area and common external tariffs on most traded goods. Argentina is also a member of the World Trade Organization. The United States and Argentina have a close bilateral relationship, due in part to Argentina's recent efforts to open its economy and realign its foreign policy.

Argentina's fuel and energy exports have risen sharply following extensive energy sector privatization, and the domestic oil industry, which had been an inefficient supplier to the noncompetitive domestic market prior to privatization, has become a major driver of export growth. Energy exports in 1996 totaled $3.0 billion dollars, of which the majority was accounted for by crude oil (net exports of $1.8 billion). Exports to Brazil are a significant percentage of the total, and the Transandean oil pipeline supplies approximately half of Chile's oil.

The Department of Natural Resources and Human Environment (Secretaria de Recursos Naturales y Ambiente Humano) and the Department of Energy and Transport (Secretaria de Energia y Transporte) are the federal regulatory bodies responsible for the energy sector, regulating environmental compliance by industry operators. Organizations facilitating interactions between government and industry include the Argentine Petroleum and Gas Institute (Instituto Argentino del Petroleo y del Gas) and the Association of Sanitary Engineering and Environmental Sciences.

A draft hydrocarbon law has been in circulation since 1994. This legislation, which would resolve uncertainties associated with regulation and exploration, has been under consideration in the Argentine Congress for three years, but for political reasons it is unlikely to be approved in the short term in spite of support from the oil industry and the administration. The law would create a new federal bureau of hydrocarbons, the Ente Nacional Regulador de Hidrocarburos (ENARHID), and divide responsibilities and jurisdiction between the federal government and the provinces. ENARHID would be responsible for technical regulations related to upstream activities and the environment, and the provinces would have control over exploration and production activities, crude storage, and other infrastructure within the province. National jurisdiction would be established over transportation, processing, and marketing.

Argentina is rapidly developing into a major energy producer and exporter, accounting for approximately 17 percent of Latin American hydrocarbon production and five percent of proven reserves. Brazil and Chile constitute the major export markets. Total consumption of energy has risen by more than 30 percent since 1990 and has almost doubled since 1980. During the period 1998 - 2002, energy investment is expected to reach $4.13 billion per year, including $2.5 billion on exploration and development; $350 million on natural gas projects; $250 million on refining and marketing; and the remainder on petrochemicals and electricity. Domestic energy consumption and production in 1996, by fuel type, is shown in Tables 1 and 2.

An historical summary of Argentina's Total Primary Energy Supply (TPES), according to the International Energy Agency (IEA) is shown in Table 3.

An historical summary of petroleum production and consumption in Argentina is shown in Table 5.

Major local oil companies include Yacimientos Petrolíferos Fiscales (YPF), the former state-owned monopoly, as well as local subsidiaries of Shell ($1.67 billion in sales in 1997), Exxon ($1.46 billion), CGC ($850 million), Perez Companc ($485 million), EG3 ($385 million), Bridas ($280 million), Astra ($174 million), Amoco ($247 million), France's Total ($148 million) and Germany's Deminex ($96 million) and Pluspetrol. YPF remains the leading oil company in Argentina, accounting for about 43 percent of crude oil production (down from 98 percent in 1990) and 38 percent of gas production in 1995. Perez Companc is the second largest oil and third largest gas producer with 10.7 percent of oil and 9.9 percent of gas production; Petrolera San Jorge is the third largest oil producer, with a 7.4 percent market share. YPF, Petrobras of Brazil, and U.S. Dow Chemical have joined in a "Mega" LPG Project worth $650 million, and Astra and YPF have purchased Mexpetrol Argentina for $200 million, with plans to invest $345 million more

Although industry reform has encouraged many companies to participate in Argentina's oil industry, with more than 30 operators active as of early 1995, YPF remains the largest of Argentina's oil and gas companies. Over the next ten years, YPF plans to invest $14 billion in exploring and exploiting new wells and in upgrading pipelines and distribution equipment. With $6 billion in annual revenue, YPF is relatively small by international standards (37th and 50th, respectively, among the world's crude oil producing and refining companies in 1994). It dominates the Argentine market, and its privatization has dramatically increased Argentina's oil production, from 483,000 b/d in 1990 to 700,000 b/d in 1995, with 1 million b/d expected by 2000. Net exports in 1995 totaled about 260,000 b/d, with most exports going to Brazil and Chile. Petroleum production in 1997 was 1,730 million cubic feet, and reserves are estimated at 14,550 million cubic feet.

As shown in Table 4, most of Argentina's oil is produced in the Neuquen and Golfo San Jorge basins (about 400,000 and 300,000 b/d, respectively). There are three other producing basins: Noroeste (Northwest), Cuyana, and Austral, and 14 other basins that have not been developed. There are also many unexplored areas in current producing basins.

The offshore continental shelf, which is relatively shallow, appears to be a promising site for future discoveries, given its large size (larger than the North Sea). Although the area near the Falkland Islands, claimed by Argentina as the Islas Malvinas, is subject to a conflict of sovereignty with the United Kingdom (U.K.), Argentina and the U.K signed an agreement in September 1995 to share economic benefits from oil exploration in a 7,000 square mile cooperation zone to the southwest of the islands, and Argentina agreed not to obstruct a licensing round by the Falklands in areas outside the cooperation zone. Under the agreement, a joint commission will oversee exploration and revenue sharing in the cooperation area. However, the timing and pace of development remains uncertain.

There are 12 refineries in Argentina, with a combined capacity of 665,900 b/d. The major refineries are YPF's La Plata (176,000 b/d), Shell's Buenos Aires plant (121,700 b/d), YPF's Lujan de Cuyo (120,000 b/d), and Esso's Campana (88,100 b/d). These refineries produce petroleum products primarily for the domestic market. The three largest refiners are YPF, Shell, and Esso, while the smaller EG3 consortium (consisting of Astra, Isaura, and Puma) controls 14 percent of the retail fuel market.

Most of these refineries have been significantly upgraded over the past several years, mostly to meet new environmental standards and streamline operations, but also to be able to produce lighter products and enhance octane as the country switches to unleaded gasoline. YPF has retrofitted the La Plata refinery, and Astra upgraded the 24,000 b/d EG3 refinery located in Bahia Blanca; both refineries are now fully modernized and capable of producing a sophisticated combination of products (see Table 6). In spite of the modernization, most refineries are optimized for lighter, low-sulfur Argentine crudes and are unable to economically convert heavy crudes.

The natural gas industry was privatized in June of 1992. The Gas Law split state monopoly Gas del Estado into eight distributors (MetroGas, Gas Natural, Pampeana, Litoral, Sur, Centro, Cuyana, and Noroeste) and two pipeline companies (Transportadora de Gas del Sur SA (TGS) and Transportadora de Gas del Norte SA (TGN)); TGN and most of the distribution operations were sold in December 1992. Because the new regulatory system gives companies a "reasonable return" on investment in expansion, and allows companies to recover costs from future clients, gas distribution system penetration in marginal areas grew at a rate of 7 percent annually from 1992 through 1996. Argentina's natural gas transportation system operates under a non-discriminatory "open access" policy, with rates set by ENARGAS, the state regulatory agency.

An historical summary of natural gas production and consumption in Argentina is shown in Table 8.

Argentina has two binational hydroelectric generation facilities: Salto Grande, owned jointly with Uruguay, and Yacyreta, jointly owned with Paraguay. The largest plant is the 3,200 MWe Yacyreta dam, which became fully operational in July 1998. This project was completed nine years behind schedule, and has had problems with non-governmental organizations due to social disruptions associated with environmental damage and resettlement. A number of hydroelectric plants, including Yacyreta, are being privatized.

Major natural gas pipelines include Neuba I, Neuba II, and Central-Oeste, from the Neuquen Basin; San Martin, from the Austral Basin; Norte, from the Northwest Basin; and GasAndes, from the Neuquen Basin to the Metrogas distribution system at Santiago, Chile. GasAndes, which is one of several projects targeted at Chile and Brazil, was completed in 1997; the $325 million, 290 mile project has contracts with Chile's major electric power producers and other large customers. GasAndes is currently delivering 318 mmcf/d, to be expanded to 706 mmcf/d. The 24-inch pipeline has a capacity of approximately 1,235 mmcf/d. TGN is expanding its capacity to 1,360 mmcf/d to provide additional gas to the GasAndes line.

Several other natural gas pipelines have been proposed or are under development. Chile and Brazil promise to be major export markets. Transgas, a competing project passing from La Mora, Argentina, through Concepcion to Santiago, Chile, was canceled when the GasAndes project was completed first. The Transgas project has been replaced by the 329-mile Pipeline of the Pacific (Gasoducto del Pacifico), a venture of YPF in conjunction with Nova Gas International (Canada), Empresa Nacional de Petroleos (Chile), and El Paso Energy, of the United States. This pipeline, scheduled for completion in 1999, will deliver 35 million cubic feet of gas per day. The 31-mile San Sebastian - Baudurria pipeline is currently delivering 71 mmcf/day, to be expanded to 177 mmcf/d in 1999. Gasoducto Atacama S.A., a joint venture of CMS Energy Corporation (U.S.) and Endesa (Chile), will deliver natural gas to Mejillones in northern Chile via a 584-mile pipeline for two planned 355 MWe thermal power plants. The 544-mile NorAndino pipeline, under construction by Tractebel, Edelnor, Electroandina and Techint, will compete with TransAndino, and will run from Salta, Argentina, to Tocopilla, Chile.

Two pipelines are currently under construction between Argentina and Brazil: The Parana, Argentina-Uruguyana, Brazil pipeline (273 miles, 88 mmcf/day) will provide gas to a 500-MW thermal unit in Brazil in early 1999, and the Gasoducto Mercosur pipeline (3,100 miles, $1.5 billion) is under construction from Santa Cruz de la Sierra to Sao Paulo, Brazil by a consortium including Marubeni, Mobil, AES, and TGN. TGN plans to build a 310-mile pipeline to Rio Grande do Sul in southern Brazil.

Pan American Energy, a joint venture of Amoco and Argentina's Bridas, will invest $2.3 billion by 2002 in natural gas and electricity projects, including a "Cruz del Sur" gas pipeline that will run 681 miles from Buenos Aires, through Uruguay, to Porto Alegre, Southern Brazil by the year 2000, carrying 530-700 mmcf/d. Another planned gas line to be started in 1999, running from Northern Argentina to southern Brazil to supply thermoelectric plants, would be 1,800 miles in length and deliver 1,271 mmcf/d by 2003.

There are two pipelines running to Uruguay: the 292-mile Parana-Paysandu pipeline (88 mmcf/day) and the Buenos Aires-Montevideo pipeline (155 miles), which will be extended into southern Brazil. The Argentine and Bolivian governments are discussing the possibility of building a second natural gas pipeline between the two nations. Additional domestic gas pipeline capacity is also needed, as existing pipelines are operating near capacity.

An historical summary of electricity generation and consumption in Argentina is shown in Table 13.

Table 14 lists the 34 large power generating units (over 100 MWe) in Argentina. In addition, there are numerous smaller generators operating in remote regions of the country to supply village power or industrial processes.

Industry is by far the largest consumer of electric power, followed by domestic users, as shown in Table 15. The end use shares of residential and other non-industrial commercial users has been steadily rising, however.

The first three federally-owned electricity companies to be privatized -- Segba, serving Buenos Aires; Ayee, serving most of the rest of the nation; and Hidronor, which oversaw hydropower in the south -- produced about 80 percent of the nation's electricity. Between April 1992 and June 1995, over 25 state-operated power companies were privatized, essentially becoming independent power producers; this privatization process is continuing, though at a somewhat slower pace, as the government sells off its remaining power companies and the distribution services. Thirty-year concessions were awarded for hydroelectric plants, while thermal plants were sold off. Over 2,000 MWe of natural gas-fueled power plants are being installed.

Argentina's environmental legislation is based on the "polluter pays" principle. Most environmental laws are promulgated at the provincial and municipal level. For example, Buenos Aires has statutes on industrial startups, industrial waste, and air pollution. Environmental awareness and strong environmental protection and safety standards are being promoted as a measure of sophistication. In 1996, the Secretary of Natural Resources and the Environment was upgraded to ministerial level.

Before privatization, the oil and gas industry was a major polluter. Oil wells were not shut down properly; gas flaring was common; mud pits were not treated; and leaks and spills were not cleaned up. Legislation on environmental standards passed in 1992 and 1993 required the industry to conduct environmental studies, develop plans for environmental protection, monitor activities, and restore abandoned mud pits and drilling wells. Because the National Directorate of Resources was not adequately prepared to regulate the industry when the new rules and regulations were established in 1993, the Directorate entered into a cooperative arrangement with industry in order to remedy the problems quickly. This close industry/government cooperation has continued as the Directorate emphasizes cooperation and partnership with industry operators. Results have been good; natural gas losses had been cut by 83 percent by the end of 1996, and a database had been established containing information on the status of all producing wells. Provincial authorities have copied federal policies, and play a role in monitoring local compliance.

At the federal level, the responsible authorities are the Department of Natural Resources and Human Environment (Secretaria de Recursos Naturales y Ambiente Humano), the Department of Energy and Transport (Secretaria de Energia y Transporte), and the Department of Works and Public Services (Secretaria de Obras y Servicios Publicos); these bodies regulate environmental compliance. Although the federal government has overall responsibility, there are regulatory bodies at the provincial level with similar functions.

During the fourth Conference of the Parties on the United Nations Framework Convention on Climate Change, Argentina requested that the issue of voluntary commitments by countries not listed in Annex I of the convention be discussed; according to President Carlos Menem, Argentina will be prepared to make a commitment to lower emissions during the period 2008 - 2012 at the fifth Conference of the Parties. An historical summary of CO2 emissions from fossil fuel use in Venezuela is shown in Table 16.

Argentina's energy sector has been undergoing privatization since 1991. Government policy for the electric power industry, the natural gas industry, and the oil industry are targeted at encouraging investments and creating competitive markets. Most electric power companies have been privatized since 1991. The natural gas transportation network has been privatized, and an exploration plan permits bidding for existing basins on a bimonthly basis. A natural gas pipeline between Chile and Argentina is expected to boost production and export sales. Prior to 1992, the government set prices and volume production limits for oil, and foreign producers were not permitted to export crude oil. These policies were dropped in 1992 when the oil and gas industries were privatized and deregulated.

The Argentine government began deregulating the oil industry in 1989, and today has the most deregulated oil and gas industry in Latin America. Most public enterprises have been sold, and public procurement projects continue to be available as the county modernizes, rebuilds its social and transportation infrastructure, water, and sewerage systems, and cooperates with formerly state-owned corporations in the fields of electricity, oil and gas, and telecommunications. Argentine oil companies have been expanding into other Latin American markets to take advantage of opportunities there.

The government expects to privatize the country's three nuclear power plants in late 1998, on the basis of a 30-year concession to private operators. The state will maintain a minimum stake, and workers will hold ten percent of the shares. A regulatory agency in charge of nuclear plant security and granting of licenses has been established.

A joint venture led by Enron won a concession to own and operate one of the two privatized national gas transmission systems in 1992.

As a result of economic restructuring, Argentina's economy has been expanding at a rapid pace. Argentina's economic strategy is to maintain fiscal and monetary discipline while promoting economic growth in conditions of low inflation and structural reform. After a year-and-a-half-long local recession, Argentina's real GDP growth reached 8 percent in 1997, which was above the average of 6 percent for the 1991 to 1997 period. Consumer prices increased by only 0.3 percent in 1997, and unemployment was about 13.7 percent in October 1997, down from a peak of 18.4 percent in 1995. Real GDP growth is likely to drop to 4 percent in 1998. However, Argentina's real economy is expected to grow 4.1 to 6.2 percent per year for the next five years. Argentina's exports have more than doubled over the past five years, from $12 billion in 1992 to $25 billion in 1997. Imports also doubled during the same period, from $15 billion to $30 billion. The fiscal deficit of $4.5 billion is less than two percent of GDP. Within Argentina, economic activity is unevenly distributed. Less than one-fifth of the country -- the federal district and Buenos Aires, Cordoba and Santa Fe provinces -- accounts for over 60 percent of the population, 80 percent of industrial production, and 92 percent of agricultural output.

MERCOSUR, the South American Common Market, provides a significant growth opportunity; Argentina's trade with other MERCOSUR members has increased fivefold since 1991, while total foreign trade only doubled. Mercosur brings together 200 million people with a combined GDP of more than $900 billion. Argentina's exports to the U.S. in 1997 totaled $2.5 billion, and imports from the U.S. totaled $5 billion.

About two dozen holding company groups control about half of Argentina's economic wealth. These groups have purchased many major state assets sold in the last two years. Their financial strength and access to domestic finance have facilitated their participation in privatizations in the communications, electricity and natural gas sectors. Companies owned by these groups include the largest private banks; significant shares of recently-privatized natural monopolies; urban property; manufacturing facilities in key industries; and large service companies. They have been compared to Japanese "keiretsu", and it has been suggested that they could use their power to move Argentina into a development strategy similar to that of Japan. Although this is currently unlikely, their influence over economic policy could turn the country in that direction in the long term.

The Argentine economy is vulnerable to disruptions of the Brazilian economy, due to dependence on exports to Brazil, which is the largest single export market. Brazil has not been affected to date by the global financial crisis, and it appears that the risk is decreasing as worldwide market concerns are being addressed.

Although there is still some uncertainty over the status of the Falkland Islands, the sovereignty dispute with the United Kingdom appears sufficiently resolved not to hinder long-term economic development in the area, although discussions on the status of the islands can be expected to continue.

Average annual foreign direct investment has climbed steeply over the past five years, and is expected to continue to increase. Foreign direct investment exceeded $6 billion in 1997, and was projected to reach $12 billion in 1998; total foreign direct investment from 1997 to 2000 has been projected to exceed $53 billion. Although Argentina's trade deficit is expected to reach $6 billion annually in 1998 and 1999, and the current account deficit will exceed $10 billion in 1998, Argentina remains an attractive market for U.S. trade and investment. The Central Bank of Argentina has a repurchase agreement with a consortium of international banks to provide $8 billion as a safety net in event of a liquidity squeeze.

U.S. electricity companies currently investing in Argentina's power generation include Cinergy, CMS Energy, Dominion Resources, Duke Power, Entergy Corporation, Houston Industries, LG&E Energy Corporation, Northeast Utilities, PSI Resources, and Southwestern Public Service. U.S. oil and gas companies investing are Amoco and Enron.

The cost of credit varies widely among sectors. Banks usually charge annual interest rates for loans of twelve percent or less, but annual rates can reach 25 percent for consumer overdrafts or small- and medium-sized firms that are considered high-risk. These interest rates are very high in relation to Argentina's low rate of inflation.

The 1989 Economic Emergency Law, the 1989 Reform Law, and a 1993 amendment to the Foreign Investment Law were combined in an act called Decree 1853, which removed most remaining restrictions on foreign investment. Decree 1853 allows foreigners to own 100 percent of most Argentine companies, and to freely repatriate profits and capital. Although the 1989 laws permitted foreign companies to invest in Argentina, the 1992 Bilateral Investment Treaty provides an additional incentive for U.S. companies by ensuring that U.S. firms can invest on terms at least as favorable as those accorded domestic investors. Foreign and domestic companies have equal access to all economic sectors, and are eligible for incentive programs and state procurements. Foreign investors do not need prior approval for investments.

Deregulation of the electric power industry has also created an opportunity for gas-fired power generation. There is strong competition among producers of cutting-edge combined-cycle power plants in the Argentine market. The market for electric power generation and transmission equipment was projected to reach $805 million in 1998. Imports were valued at $530 million, and U.S. firms were expected to capture approximately $200 million of this. Some of the most promising sales opportunities recently have been single-phase 5-amp. meters; circuit breakers (15.5 kV and larger); conductors and hardware; distribution transformers; electrical wires for low voltage distribution; fuses for low and medium voltage distribution (380/220 volts); switches; switchboards; and power transformers. The market for oil and gas field machinery was projected to total $1,662 million in 1998, with U.S. firms accounting for $207 million out of $372 million in total imports. The market is expected to continue growing at 10 percent per year. The most promising sectors include compressors and stationary engines ($8 million), control devices ($4 million), metering devices ($3 million), finishing tools ($5 million), injection equipment ($6 million), pipeline equipment ($10 million), and cementing equipment ($6 million).

Potential Funding Sources

The U.S. and Argentina have an Overseas Private Investment Corporation agreement and an active U.S. Export-Import Bank program. Funding through U.S. assistance programs in 1994 included $1.5 million from USAID; $582.4 million from EXIMBank; $336.8 million from OPIC; and $1.0 million from the U.S. Trade and Development Agency. Assistance from the World Bank and Inter-American Development Bank totaled $608.5 million and $717.2 million, respectively, in 1994.

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Information Availability

Information sources reviewed in the development of this overview were numerous, including: the U.S. Department of Energy, the U.S. DOE/Energy Information Administration, the U.S. Central Intelligence Agency, the U.S. Department of State, the U.S. Department of Commerce, and the International Energy Agency.

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last updated on April 26, 1999

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