Argentina Creates Gas Incentive Plan, But With Price Catch

The Argentine government's Energy Secretariat Thursday authorized higher prices for gas obtained through new or untapped, hard-to-reach gas reserves, although the measure leaves the door open for continued government intervention in the price.

The "Gas Plus" plan, outlined in Resolution 24/2008 in Thursday's Official Bulletin, had been announced in general terms Monday by Planning Minister Julio De Vido.

The plan aims to boost the stagnant supply of gas as the nation faces a fourth straight year of gas shortages in the coming winter.

Although the "Gas Plus" plan provides an exemption from the current price and supply accords that ongoing gas projects are subject to, the actual prices for the gas from new projects will unlikely be free from government intervention.

Instead, Thursday's resolution, which requires that "Gas Plus" gas must be sold on the domestic market, calls for a sale price "that must contemplate costs and a reasonable profit" - code words the government has used in the past to justify price controls.

As such, "it could be more of the same; the price might not be that free," one industry official told Dow Jones Newswires.

A call to the Energy Secretariat inquiring about how it plans to calculate reasonable profits was referred to the Planning Ministry, where officials were not immediately available for comment.

Argentine government-set price controls hold domestic wellhead prices for natural gas at around $1.4 per million British thermal units, a move that industry analysts say has put the brakes on much-needed domestic gas exploration and production investment. In contrast, Argentina pays $7 per million BTU for gas imported from Bolivia.

"Any price would be better than the current one, so this measure is good in that sense," said another industry official. "But if you want to know if it will fully satisfy the industry, I would say no," he added, noting the potential for government price intervention.

Another possible conflict with the new plan is that it usurps the power of provincial governments which, under a 2006 law, were given control of hydrocarbons resources following the expiration of existing federally held contracts, the first industry official said.

The "Gas Plus" benefits apply to new discoveries and to "tight gas" fields, where gas that it harder to reach has so far been left unexploited.

The incentive program is only open to producers enrolled in current government accords for gas supplies and prices who continue to meet supply levels spelled out in those accords.

To apply for the new program, interested producers must provide the Energy Secretariat with details about their plans, including a reserves estimate and a timeline for estimated daily production until the reserves are fully exploited or the concession ends.

Additionally, for "tight" gas projects, the Energy Secretariat wants a breakdown of investment and work needed to tap the gas.

Repsol YPF SA is Argentina's top gas producer, accounting for about 30% of all production, followed by Total SA with about 24%, and BP PLC-controlled Pan American Energy with about 14%. The remaining gas is produced by several smaller producers.

Among these, local company Emgasud announced Wednesday that it plans to build a $33 million plant under the "Gas Plus" plan that will process natural gas, as well as propane and butane, which are known collectively as liquified petroleum gas, or LPG.

The plant is expected to produce 1 million cubic meters of natural gas a day, 10,000 metric tons of propane a day, and 5,000 metric tons of butane a day. Under the company's plan, 10,000 metric tons of LPG a day will be exported.

Emgasud is owned by Argentine businessman Alejandro Ivanissevich.

In all, Argentina produces up to about 140 million cubic meters of natural gas a day.

Copyright (c) 2008 Dow Jones & Company, Inc.

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