The editor of the “Magazine Energía en Movimiento” had the pleasure of interviewing leading experts in the energy field, who are referents of Juntos por el Cambio in this area.

Luis Bolomo and Juan Carlos Sanchez Arnau, in a pleasant chat, gave us a vision of the future of energy in Argentina and they also shared details about the projects in their political space and the relevance of the economic perspective. 

What is your vision about the energy in the coming years and Argentina’s energy potential?

Luis Bolomo mentioned that at the beginning of the Kirchnerist period, a serious issue was raised when the incoming government stated that Argentina was not a gas producing country, but a country with gas. This declaration led to the cutting of gas supply to Chile. But reality is different, Argentina has important gas and oil reserves.

The discovery of Loma de la Lata y Vaca Muerta

Luis Bolomo made it clear that when it was believed that Argentina was running out of gas, Loma de la Lata appeared and then Vaca Muerta emerged 

The expert also pointed out that Vaca Muerta was not discovered by YPF but it had been previously identified by the international energy agency of the United States while carrying out a 

global survey of possible unconventional fields in the world, estimating that the United States was the country with the greatest possibilities together with China and Argentina.

Luis Bolomo mentioned Cristobal López and Lázaro Báez among those who had bought land in Santa Cruz and Chubut at that time, provinces with potential deposits, but not in the province of Neuquén as it was governed by a different political party. 

In this context, work on Vaca Muerta formation was started. It is 600 or 700 meters thick and extends along the provinces of Neuquén , Mendoza and a little of Río Negro. Additionally, exploration on other formations have begun , such as “Palermo Aike” in Santa Cruz, on which CGC is working.

That is why Luis Bolomo stated that “Argentina is an oil and gas country “, news that brought about expectations about an important development, but it also raised the need for a level of investment that up till now it had not been expressed in its required scale.

As for the exploitation of these resources, what do you plan to do, taking into account the financial and economic issues? 

He answered that they will stress the need to improve and complete the infrastructure for transporting and gas preparation for its export. Luis Bolomo also said that Argentina could meet the internal gas demand, for which it will be necessary to complete the gas pipeline. The first part of it was just inaugurated so as to incorporate 11 million cubic meters per day to the system. And when a couple of compression plants are installed, it will be able to reach 29 million meters per day. At the moment, with 11 million, Argentina will start to reduce LNG imports to meet the local demand.

What do you think about the agreement with Petronas for the construction of LNG plant?

He said that the information spread by YPF about the agreement with Petronas for the construction of an LNG plant should be more transparent. Within the framework of this agreement, Petronas would operate certain YPF areas in exchange for an important investment, but this matter is not clear enough.

How do you plan to implement the actions and works to allow domestic supply and exports that will provide us with the necessary resources for these purposes?

Juan Carlos Sánchez Arnau stated firmly that so as to be able to carry out all these plans, it is essential to set the house in order first. Necessary large investments will come up against important obstacles in a country with high inflation, financial restrictions and limitations in the flow of capitals. The first step is to restore the necessary economic balance and the second one is to have a solid investment guarantee system. 

Sánchez Arnau explained that, at the moment, Argentina has 61 agreements for the protection and promotion of foreign investments with different countries, but the clauses of these agreements are often contradictory. Besides, national legislation is complemented by the Central Bank’s provisions on capital movements, which brings about uncertainty among the foreign investors as regards the guarantee they can be provided with when investing in the country.

Sánchez Arnau also stressed the importance of having a transparent and clear legislation that can offer certainty to investors as well as define the conditions under which they will carry out their long-term investments.

Once these domestic challenges have been overcome, he considered it important to address international policy issues. He commented that Argentina has not fulfilled its commitments to supply gas to Chile, a country that could become a major future customer and its ports strategic points for liquefied gas exports. Likewise, he pointed out that it is necessary to build a reliable bilateral relationship to be able to reach solid energy supply agreements with Brazil.

According to Luis Bolomo, just to quantify the situation, it can be assumed that Brazil could be a very favourable destination for Argentine gas, since in Argentina the cost per cubic meter of gas in wells is USD 3.5 and that of the United States is USD 2.5. Therefore, there is a significant gap that it is essential to reduce, and that could be achieved with favourable conditions, technology and effort. But Luis Bolomo added that, to do so, it is necessary to agree on a long-term contract to reduce the cost by 1,8 or 2 dollars, with a duration of 15 years. But anyway, the agreement of such a contract with Brazil depends on several factors related to our foreign relations, foreign policy and the dynamics of Mercosur. For Luis Bolomo technically, Argentina may be prepared to achieve it, but a fundamental challenge must be addressed, that is. regaining confidence, which will be a huge task that our leaders will have to deal with and solve to achieve the aim.

What is your idea about renewable energies?

Luis Bolomo highlighted the global trend towards the development of renewable energies and he also emphasised that Argentina not only accompanies but it has also been working in this field for a long time and it draws the attention to Argentina’s progress on this respect. Fourteen provinces have turned into using biofuels instead of alconaftas and are even exploring the possibility of improving the mixture of hydrocarbons with biofuels.

Bolomo stressed the importance of continuing the development of renewable energies, especially wind energy in the arid zone where significant progress has been made. Anyway, Bolomo believes firmly on the role of gas as a transition energy as Argentina has significant gas reserves that must be exploited.

On the other hand, Bolomo explained that “Juntos por el Cambio” thinks it vital the participation of environmental managers in the discussion of tariffs and hydrocarbon development. He also made it clear that he thinks firmly that hydrocarbons are one of the important tools to solve poverty and macroeconomic problems.

As for the poverty issue, What is the policy to be followed by “Juntos por el Cambio” in relation to the update of tariffs?

As regards the issue of poverty policy, Juan Carlos Arnau presented the results of an extensive study about economic subsidies in energy, gas, transport and water. In this context, he emphasized that subsidies on electricity and water could be completely eliminated keeping social tariffs for the most vulnerable sectors However, he warned that the issue of gas subsidies was more complex due to the combination of production and consumption subsidies Anyway, he felt confident of finding an adequate tariff through a thorough work in this respect. He stated firmly that indiscriminate consumption subsidy should come to a stop as well as the elimination of unjustified subsidies in the cold zone, which in his opinion are essentially political in nature.

In the area of transportation, Sánchez Arnau posed a more complex challenge due to the wide distribution of subsidies among the provinces, with a significant concentration in Greater Buenos Aires. The difference between the cost of the service and the tariff is considerable, especially in rail transport. These issues, he warned, should be dealt with caution because they involve major political decisions, with possible political costs but necessary to address inflation and fiscal deficit.

He added that if conditions go on improving in terms of production in the short and medium term, a downward trend in domestic demand will be possible and this could lead, in a first stage, to a reduction in subsidies and subsequently in tariffs as well.

How do you address this issue of Neuquén’s claims about the high cost of fuel and energy compared to the rest of country., being this province one of the main producers?

Juan Carlos Arnau took the floor and stated that they should pay the same price as the rest of the country but there are other factors that have an influence such as provincial taxes which have a strong impact on tariffs, and even municipalities. There are taxes applied such as gross income, transport tax, taxes on entering and leaving the province and other levies that distort prices, making it more expensive to fill gasoline in some places than in others.

In addition, he continued, provincial resources are often governed by local policies and lack coordination at the national level, so we are facing an extremely complex scenario in tax matters. 

He went on saying that they have the idea of moving towards a major reform of the tax system although they know it will not be possible in a first stage. An agreement between the nation and the provinces will be required in this respect, not only to reduce provincial taxes but also to homogenize them so as to ensure a more equitable distribution of fiscal and tributary resources.

He also said that, at present, there is a great distortion in the co-participation of resources, as the nation assumes a number of services for the whole national territory that the provinces do not finance. For example, the nation is in charge of the debt service, and the contribution of the provinces is only seen in those taxes that are not co-participated. The issue of positive co-participation must be reviewed and it is a complex one that will require a difficult agreement to be reached between the nation, the provinces and even among them. 

Likewise, Sanchez Arnau recalled that the constitutional mandate to agree on a new system of positive distribution at a national level has not yet been fulfilled since 1994. 

As regards Neuquén’s claims, Luis Bolomo explained that the province produces approximately 60, 65% of the gas and also an important part of the oil production which provides it with significant royalties. Besides, the province has partnerships with producing companies through its state-owned company, which grants it additional income. Although it is true that the fuel prices may not be lower than in other provinces, the revenues they earn are higher than elsewhere.

Juan Carlos Sánchez Arnau added “The resources are national, not provincial”

What is the idea of your political space about the nuclear energy?

Luis Bolomo explained that nuclear energy is a clean source and Argentina even has the necessary uranium resources. He made it clear that they are not against it, but he stressed the need to carry out an audit on the contract projects and the execution.

To complete the nuclear issue , “Juntos por el Cambio “ thinks that the nuclear production is a clean and safe one, though many times the generation cost can be higher if it is compared with other types of energy. Luis Bolomo emphasized that this energy produces an important impact on science and has many derivations.

What is your opinion about the role of ENARSA and CAMESA in the sector?

Juan Carlos Sánchez Arnau thought that it is necessary to go back to law 24065 so that CAMESA will be able to fulfil its role properly, and as for ENARSA, he believes it is a sum of poorly managed assets.

Luis Bolomo said that ENARSA arose as a result of the fact that YPF had been privatized and as Néstor Kirchner wanted to have a share in the energy issue in general, he created ENARSA, so as to take a step further in the story of energetic sovereignty and partial privatizations were carried out, financed with the profits of YPF.

In the mining field there are many projects in the country that have not been carried out. What is your vision of this sector?

Luis Bolomo said that in the mining sector there is both good and bad news. On the one hand, lithium is an interesting option as an economic outlet although it is not transcendentally important due to the future relevance of rare earth. On the other hand, copper 

Is the most important card to be played by Argentina. Although we export between 4 and 5 billion dollars in copper per year, Chile leads with 45 billion dollars, therefore, it is crucial to develop the copper potential, which many companies have in their sights.

Bolomo went on explaining that the mining development process is complex and requires time and financing. He also told us that many people registered their properties in the province records, claiming that their land, field or lagoon field, had lithium resources as it had already happened with the gold, silver and ferrous metals; seeking in this way to keep the resource property. But regardless of whether or not the acquisition is correct, the lord or lords have a property right, which is worth zero.

An exploration stage should be carried out with local small companies investing between 2 and 5 million dollars. But when becoming aware of the productive potential, these small companies will look for a bigger one to buy the property, may be in 10 or 12 million dollars. They will be small to medium-sized companies that could invest 10 or 12 million dollars over three of four years to pure risk, based on the information they have. If they see that there really is a vein or a formation in the open, they will look for a mining company in Canada or the United States to pay for this perhaps 200 or 300 million dollars. These companies which pay million dollars will carry out an additional exploration and if they see that it is exploitable, they will build the workshop, the accesses, the bridges in the working area and spend about 2,000 million dollars to start production. 

Therefore, the mining process takes time and when someone says that in mining they get it almost for free because they pay 3.4% or 6%, they forget that 4,000 million dollars and years of work were left behind.

Next, Juan Carlos Sánchez Arnau added that the mining issue must be regulated at a national level, stating that it is not fair that some provinces should deprive the rest of the country from mining exploitation and he raises questions such as: Why does La Rioja have to decide that mining cannot be done? Why does Chubut have to prevent the second largest silver deposit in the world from being developed? Why does a small group of people in Catamarca prevent resources from being exploited? Besides, he stated that the issue of social consensus calls for a more serious treatment and added that there are provinces that have dealt with environmental issues very well, provinces such as Salta, San Juan and Jujuy.

Sánchez Arnau explained that mining is not the great destroyer of the environment as it is believed because lithium mining is not the same as copper or gold mining. He restated the need

to regulate some very delicate matters in Argentina, which are poorly managed because they are done at the provincial level and there is a lack of management capacity. For example, the way in which the value at the mine mouth is determined in order to calculate the reality is a very difficult issue, because it has to do with the quality of the mineral with the quantities that are actually extracted. Cases like in Catamarca, where a crazy thing was done in Bajo de la Lumbrera , where an adust was created It took a kind of mud produced in the mine to Tucuman where it was refined, and then it was taken by railroad to Rosario where it was subject to the second stage of refining and it was sent abroad. 

Two interesting facts came out of this; the mine exported 16,500million dollars in its useful life and in Catamarca, between royalties and direct benefits, only 250 million dollars remained which although it was equivalent to 11 % of the total income of the province, it should have been much more. And the second interesting fact was that when someone came up with the idea of puncturing the product that was being exported and extracting samples of the mud, it was determined that there were several minerals inside the mud. So, what was the value of all that?, how much was the gold that came out of Bajo de la Lumbrera and that was transformed directly at the side of the mine and came out of the plane from Bajo de la Lumbrera to Zurich?. It is something that will never be known. That is why there must be control capacity and not corruption.

Have you thought about the participation of Argentine companies in the production of goods and services for the sector?

Luis Bolomo shared with us some ideas they have on the subject These ideas have not been developed by Juntos por el Cambio but anyway they believe they do not contradict the space’s thoughts.

As it is known, non-conventional oil production has been declining over time in really remarkable quantities and the most vivid expression of this is the fact that there are gas pipelines operating at 50%, and oil pipelines with a lot of idle capacity. They think that it is necessary to encourage conventional activity through SMEs, since conventional oil activity does not have an extraordinary technology, and the one that does have is very well known in Argentina. In Patagonia, in particular, there is an endless number of abandoned wells, not gone but closed with a production of may be two to five cubic meters/day, which is nothing for a company, but it is for a small company.If we take into account, for example, 20 wells that produce cubic meters, it would be 100 cubic meters/day, about 3,000 cubic meters/month and 40 thousand cubic meters/year. At an approximate value of US$ 400 per cubic meter, that would be about US$ 12 million per year.

Bolomo added that the wells are there, and at the same time, as the technology companies have gone to Vaca Muerta because production there is assured and there is a lot of infrastructure, etc, then, it can mean an important incentive for SMEs. Therefore, it will be important to evaluate how many of these wells there are, who has them and what can be arranged to rethink the issue. Everything related to legal security, rights of each one, etc. will be kept.

But surely, there is a solution for that, and besides it is necessary because the technology of primary, secondary and tertiary extraction particularly has been improving. In a conventional oil well when little is being extracted already, perhaps 20 % of what there is has been extracted and may be by using certain chemical products and certain forms of pressure and work, that 20% can become 40 %.