The Rates-Subsidies Dilemma in the Gas Sector: Argentina’s Current Economic Conflict

The ongoing economic conflict surrounding the sustainable equation of rates and subsidies for natural gas has posed a new problem for the energy sector. Recently, the government has been working to dismantle the scheme inherited from the previous administration, which has led to challenges in paying for imports of Liquefied Natural Gas (LNG) that arrive by boat to the Buenos Aires port of Escobar.

Recent increases in gas rates have only validated wholesale prices based on contracts between oil companies, national production, and distributors, formalized with the Plan Gas. However, Resolution 41/2024 issued by the Ministry of Energy at the end of March did not pass on the estimated cost of imports to users. This cost is typically higher than local production, which could pose a risk to the economic contracts within the sector. While physical gas supply is not in danger, the economic responsibility for these imports is uncertain. The government has been struggling to find buyers for imported gas, with distributors hesitant to commit without clarity on cost transfer.

The gas law regulates distributors and establishes a principle of neutrality, preventing them from earning or losing money on the gas component. Distributors are supposed to deliver gas to users at regulated rates. However, recent increases in gas prices have affected both high and low-income households, as well as businesses and industries. The government is attempting to reduce reliance on imports through initiatives like the President Néstor Kirchner Gasduct (GPNK) of Vaca Muerta, which aims to lower local supply costs and subsidies by transporting national production at lower prices than imported gas. Other variables such as hydroelectric energy supply and demand due to the recession also play a role in the energy sector’s challenges.

As rates continue to increase and final negotiations regarding Argentina’s Basic Energy Basket take place, it remains uncertain what will happen with gas subsidies and pricing in