2004 Argentine energy crisis

Last updated January 18, 2024

The Argentine energy crisis was a natural gas supply shortage experienced by Argentina in 2004. After the recession triggered by the Argentine economic crisis (1999-2002), Argentina's energy demands grew quickly as industry recovered, but extraction and transportation of natural gas, a cheap and relatively abundant fossil fuel, did not match the surge.

According to estimates, 50% of the electricity generated in Argentina depends on gas-powered plants. The national energy matrix has no emergency reserves and by 2004 it was functioning at the top of its capacity. At this point, barely emerging from the seasonal low demand caused by summer, many industrial facilities and power plants started suffering intermittent cuts in their supply of natural gas. Between February and May the cuts amounted to an average of 9.5 million m³ a day, about 13% of industrial demand, and by the end of May they grew to a maximum of 22 million m³. The most seriously affected regions were the capital, certain regions of the province of Buenos Aires, and the province of La Pampa.

As winter approached, the Argentine government announced that it would restrict natural gas exports in order to preserve the supply for internal consumption, both domestic and industrial, in compliance with the Hydrocarbons Law. These export cuts would seriously harm Chile and affect Uruguay and Brazil.

The Chilean Minister of Economy and Energy, Jorge Rodríguez, warned Argentina that supply contracts with Chilean companies must be fulfilled. This caused a mild diplomatic crisis. Chile imports more than 90% of its natural gas from Argentina and depends heavily on it to generate electricity; it has shifted the focus from coal and oil towards gas, and had five gas pipelines built for the specific purpose of getting gas from Argentina.

Causes

The energy crisis was blamed on a number of factors. Former Argentine President Néstor Kirchner attributed it on lack of investment on the part of the private companies that extract the resource (such as Repsol YPF), and the concomitant lack of pressure from past governments on those companies.

The private corporations contended that their profits after the collapse of the Argentine economy were severely hurt by the freezing of domestic and industrial fees since 2002. Natural gas remained at the same price during the inflationary process caused by the devaluation of the Argentine peso, while the prices of gasoline and diesel were adjusted upwards, which increased the demand for gas as a cheap alternative fuel and at the same time discouraged its production. In addition to this, a larger part of the supply of natural gas was required to compensate for a smaller yield of hydroelectricity.

The exporters complained that heavy export tariffs compounded with the price freezing and prevented them from investing on more surveyance and further exploitation, thus leaving them unable to keep up with demand. However, the government and critics of the neoliberal model of the Menem administration point out that the privatized companies obtained huge profits during the 1990s.

Remedies

In order to diminish the impact of the crisis, three measures were suggested: buying natural gas from Bolivia, which has abundant reserves of it; directly buying electricity from Brazil, which generates a large part of it using hydroelectric power plants; and importing oil from Venezuela.

For historical reasons, Bolivia would not sell natural gas to Chile. Moreover, it lacks the infrastructure to convey it. A projected gas pipeline that would transport massive amounts of gas to Argentina was delayed by the critical political situation in Bolivia during 2003. Moreover, some people and organizations in Bolivia have expressed strong disagreement about the idea of exporting gas, calling the energy crisis "a fiction".

The Venezuelan Chávez administration, which at the time was politically close to the Argentine government, signed energy accords that including sending fuel oil tankers to Argentina at reduced costs, through PDVSA (the Venezuelan state oil company). Fuel oil (imported or otherwise) is, in any case, considerably more expensive than natural gas.

In addition to industrial supply, Argentina employs Compressed Natural Gas for stoves, ovens, etc., and as fuel for over 1.4 million natural gas vehicles. While the possibility of restricting domestic usage was considered, it was deemed unnecessary and disruptive.

As a response to the 2001 economic crisis, electricity tariffs were converted to the Argentine peso and frozen in January 2002 through the Public Emergency and Exchange Regime Law. Together with high inflation (see Economy of Argentina) and the devaluation of the peso, many companies in the sector had to deal with high levels of debt in foreign currency under a scenario in which their revenues remained stable while their costs increased. This situation has led to severe underinvestment and unavailability to keep up with an increasing demand, factors that contributed to the 2003-2004 energy crisis. Since 2003, the government has been in the process of introducing modifications that allow for tariff increases. Industrial and commercial consumers' tariffs have already been raised (near 100% in nominal terms and 50% in real terms), but residential tariffs still remain the same. Nevertheless, the national government even tried to profit from the crisis by creating a new oil company, Enarsa, with 53% of state control and full exploitation rights over offshore areas.

Winter 2005

As 2004 passed with no major disruptions, some people claimed that the so-called "energy crisis" had in fact turned out a minor complication, inflated by the government and the media. In a broader context, though, it is still true that investments on exploitation of energy resources, as well as energy production and distribution, are insufficient. In March 2005, President Kirchner admitted that "for a long time the possibility will remain that we must move on the brink [of a crisis]". However, the government also pointed out that remedies are on the works, and that Argentina is better prepared than in 2004 to face problems with energy generation.

In the meantime, fuel oil supply from Venezuela has continued, amounting to 50 million tonnes sent in two ships (in April and May) by PDVSA, in a coordinated effort with the Brazilian oil company Petrobras and the Electrical Market Management Company of Argentina (Cammesa).

Analysts and officials, such as former President of Uruguay Jorge Batlle, have remarked that a full-fledged protocol for energetic integration of Mercosur should be outlined and brought into action as soon as possible to coordinate energy production and distribution in the region.

Related Research Articles

The economic history of Argentina is one of the most studied, owing to the "Argentine paradox". As a country, it had achieved advanced development in the early 20th century but experienced a reversal relative to other developed economies, which inspired an enormous wealth of literature and diverse analysis on the causes of this relative decline. Since independence from Spain in 1816, the country has defaulted on its debt nine times. Inflation has often risen to the double digits, even as high as 5000%, resulting in several large currency devaluations.

The economy of Bolivia is the 95th-largest in the world in nominal terms and the 87th-largest in purchasing power parity. Bolivia is classified by the World Bank to be a lower middle income country. With a Human Development Index of 0.703, it is ranked 114th. Driven largely by its natural resources, Bolivia has become a region leader in measures of economic growth, fiscal stability and foreign reserves, although it remains a historically poor country. The Bolivian economy has had a historic single-commodity focus. From silver to tin to coca, Bolivia has enjoyed only occasional periods of economic diversification. Political instability and difficult topography have constrained efforts to modernize the agricultural sector. Similarly, relatively low population growth coupled with low life expectancy has kept the labor supply in flux and prevented industries from flourishing. Rampant inflation and corruption previously created development challenges, but in the early twenty-first century the fundamentals of its economy showed unexpected improvement, leading Moody's Investors Service to upgrade Bolivia's economic rating in 2010 from B2 to B1. The mining industry, especially the extraction of natural gas and zinc, currently dominates Bolivia's export economy.

An energy crisis or energy shortage is any significant bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particular, those that supply national electricity grids or those used as fuel in industrial development. Population growth has led to a surge in the global demand for energy in recent years. In the 2000s, this new demand – together with Middle East tension, the falling value of the US dollar, dwindling oil reserves, concerns over peak oil, and oil price speculation – triggered the 2000s energy crisis, which saw the price of oil reach an all-time high of $147.30 per barrel ($926/m³) in 2008.

The Bolivian gas conflict was a social confrontation in Bolivia reaching its peak in 2003, centering on the exploitation of the country's vast natural gas reserves. The expression can be extended to refer to the general conflict in Bolivia over the exploitation of gas resources, thus including the 2005 protests and the election of Evo Morales as president. Before these protests, Bolivia had seen a series of similar earlier protests during the Cochabamba protests of 2000, which were against the privatization of the municipal water supply.

Repsol S.A. is a Spanish multinational energy and petrochemical company based in Madrid. It is engaged in worldwide upstream and downstream activities. In the 2022 Forbes Global 2000, Repsol was ranked as the 320th-largest public company in the world. As of 2022, it has 24,000 employees worldwide.

Petróleos de Venezuela, S.A. is the Venezuelan state-owned oil and natural gas company. It has activities in exploration, production, refining and exporting oil as well as exploration and production of natural gas. Since its founding on 1 January 1976, with the nationalization of the Venezuelan oil industry, PDVSA has dominated the oil industry of Venezuela, the world's fifth largest oil exporter.

Foreign trade of Argentina includes economic activities both within and outside Argentina especially with regards to merchandise exports and imports, as well as trade in services.

Energía Argentina Sociedad Anónima, mostly known for its acronym ENARSA, is a state owned company in Argentina. It is engaged in the exploitation of petroleum and natural gas, and the production, industrialization, transport and trade of these and of electricity.

Natural gas prices, as with other commodity prices, are mainly driven by supply and demand fundamentals. However, natural gas prices may also be linked to the price of crude oil and petroleum products, especially in continental Europe. Natural gas prices in the US had historically followed oil prices, but in the recent years, it has decoupled from oil and is now trending somewhat with coal prices.

The usage and pricing of gasoline results from factors such as crude oil prices, processing and distribution costs, local demand, the strength of local currencies, local taxation, and the availability of local sources of gasoline (supply). Since fuels are traded worldwide, the trade prices are similar. The price paid by consumers largely reflects national pricing policy. Most countries impose taxes on gasoline (petrol), which causes air pollution and climate change; whereas a few, such as Venezuela, subsidize the cost. Some country's taxes do not cover all the negative externalities, that is they do not make the polluter pay the full cost. Western countries have among the highest usage rates per person. The largest consumer is the United States.

<span class="mw-page-title-main">Energy in Brazil</span> Overview of the production, consumption, import and export of energy and electricity in Brazil

Brazil is the 7th largest energy consumer in the world and the largest in South America. At the same time, it is an important oil and gas producer in the region and the world's second largest ethanol fuel producer. The government agencies responsible for energy policy are the Ministry of Mines and Energy (MME), the National Council for Energy Policy (CNPE), the National Agency of Petroleum, Natural Gas and Biofuels (ANP) and the National Agency of Electricity (ANEEL). State-owned companies Petrobras and Eletrobras are the major players in Brazil's energy sector, as well as Latin America's.

The Maletinazo, Valijagate, or suitcase scandal was a 2007 scandal involving Venezuela and Argentina, souring friendship between the countries.

The electricity sector in Argentina constitutes the third largest power market in Latin America. It relies mostly on thermal generation and hydropower generation (36%). The prevailing natural gas-fired thermal generation is at risk due to the uncertainty about future gas supply.

As of August 2020 Chile had diverse sources of electric power: for the National Electric System, providing over 99% of the county's electric power, hydropower represented around 26.7% of its installed capacity, biomass 1.8%, wind power 8.8%, solar 12.1%, geothermal 0.2%, natural gas 18.9%, coal 20.3%, and petroleum-based capacity 11.3%. Prior to that time, faced with natural gas shortages, Chile began in 2007 to build its first liquefied natural gas terminal and re-gasification plant at Quintero near the capital city of Santiago to secure supply for its existing and upcoming gas-fired thermal plants. In addition, it had engaged in the construction of several new hydropower and coal-fired thermal plants. But by July 2020 91% of the new capacity under construction was of renewable power, 46.8% of the total solar and 25.6% wind, with most of the remainder hydro.

Brazil has the largest electricity sector in Latin America. Its capacity at the end of 2021 was 181,532 MW. The installed capacity grew from 11,000 MW in 1970 with an average yearly growth of 5.8% per year. Brazil has the largest capacity for water storage in the world, being dependent on hydroelectricity generation capacity, which meets over 60% of its electricity demand. The national grid runs at 60 Hz and is powered 83% from renewable sources. This dependence on hydropower makes Brazil vulnerable to power supply shortages in drought years, as was demonstrated by the 2001–2002 energy crisis.

Electricity in Paraguay comes almost entirely from hydropower. As Paraguay is landlocked and has no significant natural gas reserves, its citizens often burn firewood which contributes to deforestation. The government imports fuel to use, and state-owned Petróleos Paraguayos (Petropar) has a monopoly on all crude oil and petroleum product sales and imports in Paraguay. It operates Paraguay's sole refinery, the 7,500 bbl/d (1,190 m³/d) Villa Elisa facility.

Resource nationalism is the tendency of people and governments to assert control over natural resources located on their territory. As a result, resource nationalism conflicts with the interests of multinational corporations.

The electricity sector of Uruguay has traditionally been based on domestic hydropower along with thermal power plants, and reliant on imports from Argentina and Brazil at times of peak demand. Over the last 10 years, investments in renewable energy sources such as wind power and solar power allowed the country to cover in early 2016 94.5% of its electricity needs with renewable energy sources.

The economy of Argentina is the second-largest national economy in South America, behind Brazil. Argentina is a developing country with a highly literate population, an export-oriented agricultural sector, and a diversified industrial base.

The 2021–2022 global energy crisis has caused varying effects in different parts of the world.

References

Argentina: crisis energética (26 March 2004) (in Spanish)
Argentina teme crisis energética (9 May 2005) (in Spanish)
Peligro... crisis energética (in Spanish)
Crisis energética - Ficción asesina (in Spanish)
¿Cómo impacta la crisis energética argentina en el mercado eléctrico? - A paper by Carlos Santiago Valquez, Instituto de Economía y Finanzas, Facultad de Ciencias Económicas, Universidad Nacional de Córdoba, Argentina. (in Spanish)
Ley Nº 17.319 - Text of the Hydrocarbons Law of Argentina. (in Spanish)
IANGV - Worldwide statistics on natural gas vehicles. (in Spanish)