December 6, 2023
Could President-elect Javier Miley turbocharge Argentina’s energy industry?

Finally, when the results of Argentina’s presidential election became clear on Monday (November 20, 2023), the result was not at all surprising. However, the margin of victory was definitely there, and it is nothing less than a political earthquake.

Fed up with seemingly perennial economic malaise, lurking annual inflation hovering around 143% and widespread poverty affecting 40% of the population, Argentines turned in large numbers to 53-year-old economist and right-wing outsider Javier Miley.

The man often described by his critics and opponents as “El Loco”, or the mad man, came to power by winning a record 56% of the public run-off vote against Sergio Massa, an outgoing government minister and leftist rival. , with 44. ,

He won 20 of the country’s 23 provinces. Even the country’s capital, Buenos Aires, gave him preference over his rival and in some provinces Milley got as much as 70% of the votes.

His economic policies, many of which may be too strange for some, will undoubtedly be scrutinized ahead of his inauguration on December 10, 2023. But Miley’s core mission of “kicking the Keynesians and collectivists” may be paying off. He.

In addition to pledging to cut bureaucracy (a favorite of his fan base), the president-elect has also promised to “blow up” the central bank to stop it from printing more money, which he says is Argentina’s Increasing uncontrolled inflation. To mark some of the things said on the campaign trail. He also wants to abandon the local currency – the peso – in favor of the US dollar.

Will El Loco compromise Argentina’s energy policy?

Miley has also promised to cut public spending and privatize state-owned companies, which has inevitably increased interest in the energy world. According to the International Energy Agency (IEA), Argentina has the world’s second largest reserves of shale gas and the fourth largest reserves of shale oil worldwide.

In 2022, Argentina produced 706,000 barrels (bpd) of oil and 308 tcf of natural gas in its Vaca Muerta shale formation. The flag bearers of Argentina’s hydrocarbon wealth are the state-owned oil companies YPF and Ensarsa.

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Miley confirmed his intention to privatize YPF in statements following his election victory. That caused New York-listed shares of YPF (NYSE: YPF) to jump 39% from Friday’s closing price of $10.78 to $15 on Monday (15:00 PM EDT).

However, Miley also told Argentinian broadcasters that before privatizing YPF, his administration would have to “reconstruct” it. The President-elect did not specify how long it would take or what kind of streamlining of operations and processes he had in mind. The market will undoubtedly pounce on them as the details emerge.

It appears that luck is also somewhat on the incoming President’s side. In a desperate attempt to curb crippling energy imports, his predecessor built pipeline infrastructure to monetize Vaca Muerta’s natural gas.

After an economically distressful and nearly 20-year long hiatus, energy exports have finally increased, including to neighboring Chile. In 2022, Argentina had an energy deficit of $5 billion and the current year is probably an exercise in balancing. But government data points to an energy surplus of $4 billion in 2024.

Depending on market direction, windfall profits could ultimately amount to $20 billion by 2030. Many people, perhaps including Miley herself, are hoping that Argentina’s energy exports will also help reduce the country’s overall trade deficit.

And the president-elect, who is proud to declare himself a climate skeptic, has also promised to free Argentina’s energy industry from red tape. This broad omnibus pledge appears to range from closing the country’s Ministry for the Environment and Sustainable Development to encouraging private sector investment in renewables, if there is a buyer.

There are also high hopes that efforts to explore for commercially viable oil and gas in the Falkland Islands – a British overseas territory 300 miles off Argentina’s southern coast, which Buenos Aires claims – could be more favorable and cordial. .

The two countries went to war over the islands in 1982, during the UK premiership of the “Iron Lady” Margaret Thatcher. A British expeditionary force recaptured the islands in June 1982, following a brief occupation by Buenos Aires following the Argentine invasion of the islands in April.

Successive leftist Argentine governments in recent decades have used the controversy for political gain, but Miley caused a political stir earlier this month by describing Thatcher as “one of humanity’s great leaders” in a televised debate. Created a stir.

While Miley, in line with many predecessors, still views Argentina’s sovereignty over the islands as “non-negotiable”, his tone is likely to be more cordial and could promote a gentler level of economic dialogue.

Don’t forget lithium

It is often said in politics that timing is everything and the broader energy complex also seems to be in Miley’s favor. According to the US Geological Survey, Argentina has the world’s second largest lithium reserves, estimated at 20 million tonnes.

Domestic production of the metal, vital to the world’s energy transition, is growing rapidly, and could reach 120,000 tonnes/year in 2024 (from current levels of about 60,000 tonnes/year). Miley’s encouragement of private sector investment could further up the game with about 40 projects under development in three active mines.

The only major detail in the energy policy actions is that Miley spent his entire presidential campaign attacking almost Argentina’s entire political class and politicians, especially those on the left.

But his party has very few seats in Argentina’s Congress. Despite her powerful mandate, Miley will now have to negotiate with the very people she attacked during the campaign to advance her agenda. This will not be easy. Although it is too early to say how this will all play out, there are solid grounds for cautious optimism.

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