Argentina’s government is pushing for long-term oil price controls as the nation runs out of time to unearth the Vaca Muerta shale trove in Patagonia.
The idea of setting a ceiling and floor on domestic crude prices is being written into draft legislation aimed at spurring oil-and-gas investments, Productive Development Minister Matías Kulfas said in a Thursday interview with Bloomberg.
A cap would prevent bull runs in oil markets from triggering a surge in fuel prices. And – crucially for Argentina’s shale ambitions – a floor would discourage major oil companies from pulling out of a marginal asset like the burgeoning Vaca Muerta if markets collapse.
The administration of President Alberto Fernández is in the midst of drafting the bill, which will be sent to congress this year for debate among lawmakers. Enacting controls by law would send a clear signal about the rules under which drillers can produce oil in Argentina in the coming years when the specter of peak demand threatens to keep vast resources buried in Vaca Muerta.
Drillers are producing 137,500 barrels of crude daily at the largely untapped shale deposit in the southern part of the country, according to the Río Negro newspaper. In comparison, the Permian Basin in the United States is expected to produce 4.6 million barrels of crude a day in May.
Argentina is a perennial meddler in energy markets. Just last year, when oil prices tanked, the government priced its crude higher. Companies also recently agreed to help refiners pressured by the government to keep gasoline prices in check.
Other highlights from the interview:
– Companies that qualify for an export programme won’t have to process hard currency through the Central Bank.
– The government wants to prioritise public transport as it plans a transition to electric vehicles because that’ll help lower its costly subsidies bill.
– Argentina is likely to end its strictest price controls on consumer goods – known as ‘Precios Máximos’ – in May if it reaches an agreement with companies this month. “If we achieve a successful and satisfactory negotiation for the government, it’s probable that it won’t be extended beyond May 15,” Kulfas said in the wide-ranging interview.
– Kulfas said March inflation was around four percent.
– The minister sees a “K-shaped” recovery for Argentina’s economy.
– The government continues looking for ways to mitigate the impact of global grain rallies on domestic food inflation. The crop trading arm of state-run oil company YPF SA is seen playing a role.
– Kulfas responded to comments from an International Monetary Fund official about division within Argentina’s government on economic policy. “I’d say there aren’t differences of opinion, there’s no difference with respect to the strategic path that the country has to have.”
by Jorgelina do Rosario & Carolina Millan, Bloomberg