Energy in Argentina

Investment Opportunities
for the International Community
Contents

Argentina’s Energy Policy Objectives

Facts and Figures

Energy Policy from December 2015 to date

2030 Energy Outlook

What can we do together?

2
Complete version to be made available shortly at http://energia.gob.ar
Energy Policy 2002—2015
A somber and long period of intervention and value destruction

• Wholesale energy markets were intervened.

• Frozen public utility tariffs.
• Private investment shrunk.
• Energy subsidies spurred.
• Energy trade balance reversed.
• Quality of transmission and distribution substantially affected.

Energy sector microeconomics impacted on Argentina’s

macroeconomic situation, creating strong fiscal and trade
imbalances

The 2001 economic crisis and the ad-hoc policies that followed resulted in interventions in the energy markets 3
 Energy Policy 2002—2015: key consequences
Energy trade balance

7.8 7.8
7.2 6.9 7.0
6.5 6.5 6.7
6.2
5.4 5.6
4.9
6.1 4.2
5.6
4.9 5.2
4.1 2.2 2.5
3.5 3.8 2.0
Billion USD

1.8

-0.5
-1.0
-1.5 -1.7
-2.2 -2.3
-2.8 -2.6 -2.8
-3.1 -3.2
-4.3 -4.6
-4.8 -4.9
Exports FOB
-5.7
Imports CIF -6.4 -6.9 -6.5
-6.9
Exports - Imports
-9.1
-9.8

-11.3
-12.5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

As a result of “artificial pricing” policies, as of 2011, Argentina entered into a heavy energy trade balance deficit phase,
due to declining production and increasing demand 4
Energy Policy 2002—2015: key consequences
Energy subsidies
4.0%

Others LPG Natural Gas Electricity

3.5%
3.5%
3.1%
3.0%
3.0%
1.3%
2.4%
2.5%
0.9%
2.1%
% of GDP

1.2%
2.0% 0.6%
2.0%
1.6% 1.7%
0.7%
1.5% 0.5%
1.2% 0.3% 1.2%
0.2% 1.1%
0.2% 1.0%
1.0% 2.1%
1.9% 0.4%
0.7% 1.7% 1.7%
0.2% 0.5%
0.1% 1.3%
0.4% 0.4% 1.1% 1.2% 1.2%
0.5% 0.3% 1.0%
0.1% 0.7% 0.7%
0.6% 0.5%
0.0% 0.3%
0.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

“Artificial pricing” also resulted in generalized subsidies, which translated into significant fiscal deficit increases
5
Energy policy from December 2015 to date
Normalization, transition and development
• Regulatory and market reforms.
• End of the intervention of the gas and electricity regulatory entities.
• Transition from regulated to market-oriented pricing.
• Realignment of the oil and by-products prices with international references.
• Gradual and foreseeable increases in wholesale market prices.
• Integral tariff reviews for transmission and distribution segments.
• Overarching energy efficiency program and initiatives.
• Power generation capacity additions of more than 4+GW (5GW more to come).
• Reserves on peak power demand grew from 1.5% in 2016 to 10.3%.
• Ambitious renewable energy program.
• Impulse to Oil and Gas development and cost reductions.
• Natural gas exports to Chile and Brazil were resumed.
A market-oriented view replaced the previous interventionist policy, although political and societal aversion to
volatility sets a limit to further liberalization of pricing mechanisms 6
Energy policy from December 2015 to date
Domestic natural gas prices and share of subsidies over income
6

5 4.7 4.8 4.8

4.6
10%
4.1 9%
4 27%
3.6 38%
USD/MBTU

3.2
3 47%
39%
41%
1.9 91% 90%
2
2% 73%
62%
1 61% 53%
98% 59%

0
2012 2013 2014 2015 2016 2017 2018e 2019p
Price por precio
Ingresos Incentives
ingresos por incentivo
7
Domestic gas producers are getting better prices, while subsidies are being reduced
Energy policy from December 2015 to date
Monetization of domestic resources – Renewable energy

RenovAr 1

2.5 Rounds
147 Projects
21 Provinces

4,466+
207 MW installed

Generation: +559% 2018 vs 2017

MW 803 MW installed

Generation: +129% 2018 vs 2017

1) RenovAR is a Power Purchase
Agreement (PPA) program to
invest in renewable energy
boosted by Federal Goverment

8
RenovAr rounds dramatically spurred Argentina’s renewable power capacity
Energy policy from December 2015 to date
Monetization of domestic resources – Upstream oil and gas
Tight Oil window: 5.4+ M acres Gas window: 3.2+ M acres
Shale
Conventional
Unconventional in
Granted development phase
Unconventional 4%
concession
23%

8.6 M
acres
Not granted
yet
73%

Only 4% of Vaca Muerta’s acreage has entered the development phase yet 9
Energy policy from December 2015 to date
Monetization of domestic oil & gas resources – shale fracture evolution
800
VISTA O&G
YPF
700 XTO
Wintershall
Total
600
Tecpetrol
569
Shell

500 Pluspetrol +41%

Number of fracs

Petrolera El Trebol
PAE 402
400 Average
+62%
300
248
+73%
200
143

100

-
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2
2016 2017 2018 2019
Source: Luciano Fucello, Country Manager NCS Multistage
10
Compared to 2016, average monthly fracs increased by 181% in 2018, peaking at 712 monthly fracs in February 2019.
Energy policy from December 2015 to date
Monetization of domestic resources – Upstream oil and gas

11
In early 2019, shale oil production nearly doubled, whereas shale gas production increased three-fold
Key drivers and enablers
Increasing linkage to international markets

Exports They are And will soon

Resumed
After a sudden stop in 2007, the
success of Vaca Muerta allowed
to resume gas exports to
neighboring countries.
increasing
In February 2019 gas exports
grew up to 6.3 Mm3/d in average
with a maximum of 9.1 Mm3/d.
turn into LNG
YPF signed a ten-year contract to
commission a floating
liquefaction unit with 5 MTPA
capacity, equivalent to 2.5 Mm3/d
of natural gas.

Argentina now has natural gas surpluses during the summer, which are mostly exported to its neighbours by 12
pipelines, but will evolve into LNG accesing the international markets
What can we do together?
Key investment opportunities
UPSTREAM POWER GENERATION INFRASTRUCTURE ACCESS TO NEW
OIL & GAS AND RENEWABLES DEVELOPMENT INTERNATIONAL
Accelerate the development of Renewables Expansion of the natural gas MARKETS
Vaca Muerta (Neuquen basin) transmission capacity from
5+ GW | ~USD 6 Bn Vaca Muerta Construction of natural gas
35,000 km2 (8.6 M acres)
liquefaction facilities
~USD 5-10 Bn per year 1,000 km (~621 miles)
5 MTPA
~USD 1.5+ Bn
~USD 2-3 Bn
Develop the unexplored offshore Thermal Expansion of the high voltage
oil and gas basins 3+ GW | ~USD 3 Bn transmission lines
~5,000 km2 (1.2 M acres) ~4,585 km (~2,849 miles)
1 tender per year ~USD 4.6 Bn
starting March 2019

Develop small-scale LNG for Hydroelectricity New transmission capacity for

vehicles and the industrial 1.5+ GW | ~USD 3 Bn liquid hydrocarbons
sector ~600 km (~373 miles)
~USD 0.1 Bn per year ~USD 1.3 Bn

Bahia Blanca – Añelo railway

~700 km (~435 miles)
~USD 0.8 Bn

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Key investment opportunities
Latest announcements
Call for Expressions of Interest to increase gas RIG: [Spanish for] Program for Replacement of
transmission capacity from Vaca Muerta Natural Gas Imports
• A new natural gas pipeline, or the expansion of • It aims to replace LNG imports.
the existing transmission capacity, from the
• Gas to be evacuated through new natural gas
Neuquen basin to Buenos Aires and Litoral.
capacity.
• We will identify possible solutions for capture,
• Applicable to winter period, with a maximum of
treatment, transmission and storage
12 MMm3/d from producers.
requirements.
• “Winter”: 5/15 to 9/15 (4 months).
• Some proposals will turn into a bidding process
to be concluded this year. • Duration: from 2020 to 2023.
• Dispatch priority for thermal power generation
using RIG program gas.

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The RIG program will increase domestic production of natural gas, replacing seasonal LNG imports in winter.