The price of liquefied natural gas (LNG) has experienced a sharp rise and volatility since Russia’s invasion of Ukraine, which puts Argentina’s supply in check in winter given that the country does not have the dollars to import the amount necessary to cover seasonal demand in a context with these values.

Yesterday, the value of LNG soared in Europe to touch USD 100 per million BTU due to the threat of the West to stop importing it from Russia in the midst of the war, whose outcome remains unpredictable. However, despite the aforementioned peak, the value was reduced by almost half at the end of the day, although it is still a price five times higher than the one paid by Argentina in the winter of 2021.

In sum, the scenario of uncertainty is such that the market assures that today “there is no price” for liquefied gas. “The distortion is absolute, with a value of more than 50 dollars that before the war was between 8 and 9. In the absence of reasonable prices, the cost can be set by Russia by closing a key and leaving Europe without gas,” he illustrated. this means a former official who knows the energy market. He explained that the United States could increase its fracking activity to try to replace Russia as a supplier in various markets, while the Russians will seek to supply China’s demand with greater intensity.

In 2021, Argentina imported LNG for USD 1,100 million and in 2022 it will have to face an additional factor to the rise in price: the dollar restriction that the agreement with the IMF will bring, which includes the firm obligation to replenish BCRA reserves

This complex international situation makes the supply of LNG for the winter in Argentina a mystery, either because the price validated by the international market is too high for Argentina’s dwindling reserves in dollars, or because the volume available in the market is scarce as a result of the strong demand that was generated in Europe as a result of the war.

The former official reviewed some data that in his opinion explains the risk that this year Argentina will have to apply supply cuts to either industry or residential users. In 2021, Argentina imported LNG for USD 1,100 million and in 2022 it will have to face an additional factor to the rise in price: the dollar restriction that the agreement with the IMF will bring, which includes the firm obligation to replenish BCRA reserves.

At the same time, 60% of the electricity consumed in Argentina depends on gas generation, so supply risks impact both services. The complex relationship of subsidies and tariffs, the central axis of the fine print of the agreement with the IMF (and of the disagreements within the government) is crossed by international prices, something in which the Government has no interference.

In the latest report by the Economy & Energy consultancy, the cost of importing LNG was analyzed in different international price scenarios. In this sense, it was indicated that in a framework in which LNG is quoted at 20 dollars per million BTU -a level lower than the one currently reflected in the market-, Argentina will have to disburse USD 3,252 million for the same volume that it imported last year. Likewise, he indicated that for every additional 10 dollars per million BTU the cost rises by 1,626 million dollars.

Meanwhile, if the price of LNG per million BTU were to consolidate at USD 40, Argentina would need USD 6,500 million to deal with gas imports. And if the cost were reduced to USD 30 per million BTU, something unthinkable at this time, the import of LNG would demand USD 4,877 million, a very high figure for the country.

While in a scenario of high prices like the one validated today, of USD 100 million per BTU, if Argentina consumed the same volume as last year, USD 16,260 million would be needed, according to the consultant’s estimate.

“The increase in energy prices in the international market, together with the water crisis and the decrease in the supply of Bolivian natural gas, will put significant pressure on the level of energy subsidies in the Argentine economy during 2022. In turn, for the first time since 2019, there will be a noticeable deterioration in the balance of the trade balance for energy products,” said the Economy & Energy report, directed by Nicolás Arceo.

Industry sources told Infobae that this situation would be unfeasible for the Government considering the shortage of foreign currency. And they affirmed that even if they had that amount of dollars, the problem also goes through the availability of LNG since Europe would demand large volumes.

It should be noted that for this winter the import of some 69 LNG ships will be required, 13 more than last year, according to sources close to the operation. In 2021, according to information published by the company Ieasa (the former Enarsa), liquefied gas was imported with 56 ships —through five tenders— for a total of USD 1,096 million through the ports of Escobar and Bahía Blanca and with an average price of USD 8.33 per MMBTU.

The former official who spoke with Infobae pointed out that to avoid cuts the Government “must take charge” of the market and review various aspects of its energy policy, especially in terms of exports: ” It makes no sense to export to Chile to a favourable value to later have to import at a high price through the gasifier ships. In recent years we gave Chile 20 points of its GDP, which it would have had to spend importing by other means if we had not sold it cheap gas”.

“Supplying the domestic market must be prioritized. The same with Brazil, which is our partner but also our competitor”, added the former official who, familiar with public works, estimated that the Néstor Kirchner gas pipeline could be completed in a year. Once completed, this gas pipeline will connect Vaca Muerta, in northern Patagonia, with the heart of the province of Buenos Aires. In the Government, they manage objectives along these lines and they hope that in the winter of 2023 LNG imports will begin to be reduced.

Winter is going to be very hard for the State coffers and it will further boost this type of project and also the gas pipeline to Vaca Muerta (Martínez)

But for that, there is a long way to go. The Secretary of Energy, Darío Martínez, affirmed that the reduction in imports will come thanks to Vaca Muerta, but he also warned that in the winter of 2022 Argentina will have to “import a lot of gas at unusual values.” And he admitted that the government is ” very concerned about gas imports for the winter because the need for demand for dollars is tremendous and continues to rise.”

“The world today is in an energy crisis, with a brutal spike in the price of liquefied natural gas (LNG). For the world, this offshore exploration is a great opportunity and the Argentines have to take it that way,” Martínez told the Río Negro newspaper.

“We have already done the calculation three times, at 11, 17 and 24 dollars per million BTU – today futures are expected around 40 – and with the level of consumption and low hydroelectricity, winter is going to be very hard for the coffers of the State and promotes, even more, this type of projects and also the gas pipeline to Vaca Muerta”, affirmed Martínez.