Argentine energy crisis (2004)
Encyclopedia
The Argentine energy crisis was a natural gas
supply
shortage
experienced by Argentina
in 2004. After the recession
triggered by the economic crisis
and ending in 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, a large number of 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 export
s 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.
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 inflation
ary 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.
, 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 is 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 vehicle
s. While the possibility of restricting domestic usage was considered, it was deemed unnecessary and disruptive.
Argentina's lack of energy independence due to the full privatization of the fossil fuel market into an oligopoly
was noted as a major cause of the crisis. The national government reacted by creating a new oil company, Enarsa
, with 53% of state control and full exploitation rights over offshore areas.
[ 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 tonne
s 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.
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
supply
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
shortage
Economic shortage
Economic shortage is a term describing a disparity between the amount demanded for a product or service and the amount supplied in a market. Specifically, a shortage occurs when there is excess demand; therefore, it is the opposite of a surplus....
experienced by Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
in 2004. After the recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
triggered by the economic crisis
Argentine economic crisis (1999-2002)
The Argentine economic crisis was a financial situation, tied to poilitical unrest, that affected Argentina's economy during the late 1990s and early 2000s...
and ending in 2002, Argentina's energy demands grew quickly as industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
recovered, but extraction and transportation of natural gas, a cheap and relatively abundant fossil fuel
Fossil fuel
Fossil fuels are fuels formed by natural processes such as anaerobic decomposition of buried dead organisms. The age of the organisms and their resulting fossil fuels is typically millions of years, and sometimes exceeds 650 million years...
, 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, a large number of 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
Buenos Aires
Buenos Aires is the capital and largest city of Argentina, and the second-largest metropolitan area in South America, after São Paulo. It is located on the western shore of the estuary of the Río de la Plata, on the southeastern coast of the South American continent...
, certain regions of the province of Buenos Aires
Buenos Aires Province
The Province of Buenos Aires is the largest and most populous province of Argentina. It takes the name from the city of Buenos Aires, which used to be the provincial capital until it was federalized in 1880...
, and the province of La Pampa
La Pampa Province
La Pampa is a sparsely populated province of Argentina, located in the Pampas in the center of the country. Neighboring provinces are from the north clockwise San Luis, Córdoba, Buenos Aires, Río Negro, Neuquén and Mendoza.-History:...
.
As winter approached, the Argentine government announced that it would restrict natural gas export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
s 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
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
and affect Uruguay
Uruguay
Uruguay ,officially the Oriental Republic of Uruguay,sometimes the Eastern Republic of Uruguay; ) is a country in the southeastern part of South America. It is home to some 3.5 million people, of whom 1.8 million live in the capital Montevideo and its metropolitan area...
and Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
.
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
Diplomacy
Diplomacy is the art and practice of conducting negotiations between representatives of groups or states...
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
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
and oil
Oil
An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....
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 PresidentPresident of Argentina
The President of the Argentine Nation , usually known as the President of Argentina, is the head of state of Argentina. Under the national Constitution, the President is also the chief executive of the federal government and Commander-in-Chief of the armed forces.Through Argentine history, the...
Néstor Kirchner
Néstor Kirchner
Néstor Carlos Kirchner was an Argentine politician who served as the 54th President of Argentina from 25 May 2003 until 10 December 2007. Previously, he was Governor of Santa Cruz Province since 10 December 1991. He briefly served as Secretary General of the Union of South American Nations ...
attributed it on lack of investment on the part of the private companies that extract the resource (such as Repsol YPF
Repsol YPF
Repsol YPF, S.A. is an integrated Spanish oil and gas company with operations in 29 countries...
), 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 inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
ary process caused by the devaluation
Devaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
of the Argentine peso
Argentine peso
The peso is the currency of Argentina, identified by the symbol $ preceding the amount in the same way as many countries using dollar currencies. It is subdivided into 100 centavos. Its ISO 4217 code is ARS...
, while the prices of gasoline
Gasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
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
Hydroelectricity
Hydroelectricity is the term referring to electricity generated by hydropower; the production of electrical power through the use of the gravitational force of falling or flowing water. It is the most widely used form of renewable energy...
.
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
Carlos Menem
Carlos Saúl Menem is an Argentine politician who was President of Argentina from 1989 to 1999. He is currently an Argentine National Senator for La Rioja Province.-Early life:...
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 BoliviaBolivia
Bolivia officially known as Plurinational State of Bolivia , is a landlocked country in central South America. It is the poorest country in South America...
, which has abundant reserves of it; directly buying electricity from Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
, which generates a large part of it using hydroelectric power plants; and importing oil from Venezuela
Venezuela
Venezuela , officially called the Bolivarian Republic of Venezuela , is a tropical country on the northern coast of South America. It borders Colombia to the west, Guyana to the east, and Brazil to the south...
.
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
Hugo Chávez
Hugo Rafael Chávez Frías is the 56th and current President of Venezuela, having held that position since 1999. He was formerly the leader of the Fifth Republic Movement political party from its foundation in 1997 until 2007, when he became the leader of the United Socialist Party of Venezuela...
administration, which is politically close to the Argentine government, signed energy accords that including sending fuel oil
Fuel oil
Fuel oil is a fraction obtained from petroleum distillation, either as a distillate or a residue. Broadly speaking, fuel oil is any liquid petroleum product that is burned in a furnace or boiler for the generation of heat or used in an engine for the generation of power, except oils having a flash...
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
Compressed natural gas
Compressed natural gas is a fossil fuel substitute for gasoline , diesel, or propane/LPG. Although its combustion does produce greenhouse gases, it is a more environmentally clean alternative to those fuels, and it is much safer than other fuels in the event of a spill...
for stoves, ovens, etc., and as fuel for over 1.4 million natural gas vehicle
Natural gas vehicle
thumb|right|200px|2009 [[Honda Civic GX]] hooked up to Phill refueling system.A natural gas vehicle or NGV is an alternative fuel vehicle that uses compressed natural gas or liquefied natural gas as a clean alternative to other fossil fuels...
s. While the possibility of restricting domestic usage was considered, it was deemed unnecessary and disruptive.
Argentina's lack of energy independence due to the full privatization of the fossil fuel market into an oligopoly
Oligopoly
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...
was noted as a major cause of the crisis. The national government reacted by creating a new oil company, Enarsa
Enarsa
Enarsa , in full Energía Argentina Sociedad Anónima, is a company managed by the national state of Argentina for the integral exploitation of petroleum and natural gas, and the production, industrialization, transport and trade of these and of electricity.Enarsa was founded on December 29, 2004 by...
, 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 brinkIn the meantime, fuel oil supply from Venezuela has continued, amounting to 50 million tonne
Tonne
The tonne, known as the metric ton in the US , often put pleonastically as "metric tonne" to avoid confusion with ton, is a metric system unit of mass equal to 1000 kilograms. The tonne is not an International System of Units unit, but is accepted for use with the SI...
s sent in two ships (in April and May) by PDVSA, in a coordinated effort with the Brazilian oil company Petrobras
Petrobras
Petróleo Brasileiro or Petrobras is a semi-public Brazilian multinational energy corporation headquartered in Rio de Janeiro, Brazil. It is the largest company in Latin America by market capitalization and revenue, and the largest company headquartered in the Southern Hemisphere by market...
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
Mercosur
Mercosur or Mercosul is an economic and political agreement among Argentina, Brazil, Paraguay and Uruguay. Founded in 1991 by the Treaty of Asunción, which was later amended and updated by the 1994 Treaty of Ouro Preto. Its purpose is to promote free trade and the fluid movement of goods, people,...
should be outlined and brought into action as soon as possible to coordinate energy production and distribution in the region.