Economía 08-08-2017

Oil much cheaper in Northern Argentina than in the U.S.

According to information offered by Argentina’s Energy Minister Juan Jose Aranguren, reconversion came early on the northern side of the country, and more so in Salta and Jujuy, where oil is trading below U.S. and European prices since in July Refinor – the only refinery in this region of the country – started paying US$45 per barrel to producers based in the northwest basin, a small oil region that accounts for just 2 percent of the nation’s total hydrocarbon output.

The price set by Refinor is below Brent prices, which opened today at US$52.08, as well as WTI, which stands at over US$49. Crude extracted in the North is trading below the amounts agreed between producers and refiners under a deal promoted by the energy ministry in January of 2017. This document establishes a price of US$55 for the Medanito crude of the Neuquen basin and US$47.90 for the Escalante of the San Jorge Gulf. The price set for the Salta and Jujuy crude is below these amounts.

Sources close to Refinor assure that several oil companies based in the Argentine northwest did not sign the agreement sponsored by Aranguren, and therefore are not obliged to pay the price suggested by the government. Producing companies argue that they did not sign the document as they were not invited to be a part of the deal, and have begun proceedings to revert this situation. This week, two of said oil companies submitted a document at the ministry of energy requesting their incorporation to the agreement.

Within this scenario, the producers from the northwest basin, including companies like Magdalena, JHP, President Petroleum, and CGC, and others, warned that it will be unviable to continue drilling operations at the northwest fields after the trade adjustment applied by Refinor. Salta governor Juan Manuel Urtubey is aware of the situation and has instructed the hydrocarbons area in the province to seek an alternative to decompress the scenario, two sources told the EconoJournal.

“The logic approach would be that the north crude trades at an intermediate range between Medanito and Escalante, closer to US$50. In December 2016, the value at the northwest basin stood at around US$58 per barrel,” a source from an oil company stated.

Refinor’s position is also complex. The company is owned by YPF, Pluspetrol, and Pampa Energia, which is in charge of managing it (a responsibility it inherited after the purchase of Petrobras Argentina). The refiner’s business has grown over the past years thanks to fuel oil sales to electric power plants. Cammesa, a state-controlled mixed company that administers the electric market, purchased significant volumes of said fuel for thermal power plants at a subsidized differential price. However, following a decision by Aranguren, Cammesa significantly reduced the amount of fuel oil purchases, as well as the volume assigned to Refinor, in 2017.

“At one point, there was an agreement under which Cammesa would purchase 2,500 tons of fuel oil a month, but the deal was never closed. Due to matters related to freight charge, Refinor cannot compete with other refiners that supply power plants from the central region of the country; Nor can it cover the costs for storage. In detail, what happened was that in July the company started to pay a discount price for the crude processed to produce fuel oil,” according to sources close to Salta’s regional government, which has shown concern over this measure that seems to be an awful sign for investment in a basin that has carried forward production losses for years.

Energia 16