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Soaring temperatures put heat on Argentina's powergrid

Wednesday, January 3rd 2007 - 20:00 UTC
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Summer has come to Argentina with a vengeance, bringing temperatures soaring above 40 degrees Celsius this week and almost unbearable loads on the power system.

The national grid is groaning under the strain of soaring demand for price-capped electricity and as sticky residents in Buenos Aires flip on their air conditioning en masse, consumption has hit a new peak, surpassing last summer's high and plunging parts of the capital into sporadic blackouts. Power cuts are one of the most tangible signs of trouble in Argentina's energy industry, where tariffs have largely been frozen since the 2002 financial crisis, and remain tightly controlled by a government unwilling to relax its grip for fear of stoking inflation already running at 10 per cent. But they are not the only alarm bells. There were major shortages of diesel last October at the start of the planting season of soyabeans, Argentina's top cash crop. After an investigation, the government of President Néstor Kirchner reacted in typically feisty style â€" not by bowing to criticisms that price controls were causing a crippling lack of investment across the industry, but by slapping a $7m fine on Royal Dutch/Shell Plc for its alleged failure to ensure adequate supplies to the domestic market. The government had already forced Shell to withdraw what it was marketing as a superior quality diesel in September because its price was 10 per cent higher than pump prices. The company has made it clear it sees the new diesel fine as a witch-hunt, and is appealing. Daniel Montamat, a former energy secretary, said low prices had led to low investment across the sector, which had held back oil production and refining capacity, resulting in insufficient diesel to meet demand. Filling that gap means buying at high international prices and selling at low domestic prices, and no companies want to sustain such a loss, although the government could bear the cost provided it maintains a budget surplus. Meanwhile, energy consumption across the board is set to rise as the economy expands at nearly 9 per cent a year. "Energy is a hostage to short-term politics," Mr Montamat said. "The government has to wake up." Analysts believe Latin America's number three economy â€" where oil production has been on a downward trend since 1998 and producers complain export tariffs are hampering investment â€" will be a net energy importer within a couple of years, and say things are likely to get worse before they get better. "How long can the Argentine market sustain prices that are 50 per cent below international ones?" implored Juan Jose Aranguren, Shell's Argentina president, at an industry event last month. Nevertheless, 2006 saw a range of successful hydrocarbons tenders attracting interest from North America and even China. And as some oil and gas fields become mature, Spain's Repsol-YPF and Brazil's Petrobras are also moving into promising, but high-risk, offshore exploration. Argentina is currently generating just enough electricity to meet demand and analysts say the government â€" which faces presidential elections next October that Mr Kirchner is seen as winning easily â€" is hoping to hold things together through a supply bottleneck in the next couple of years until two big new power stations come onstream in 2008. But Eduardo Barreiro of the Society of Petroleum Engineers and a former executive of Argentina's erstwhile state energy company, YPF, said prices would have to be addressed sooner or later. "I don't know how you get out of this situation and I don't think the government does either," he said. "The government is walking a tightrope and I think it would be easier if the rope were wider." (FT)

Categories: Energy & Oil, Argentina.

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