Thomas White Global Investing
Argentina
Argentina Stamp
August 13, 2010
A Postcard from the Americas
Argentina: Record Winter Casts Shadow on Country’s Growth

img-argentina-cold-front-energy-crisis

July and August are Argentina’s coldest months and the increased energy demand this year has forced the country to purchase more liquid natural gas or LNG.

It’s been the coldest winter in 40 years. Much of South America has borne the brunt of an unusually strong cold front that has gripped the continent, sending temperatures plummeting, and causing several deaths. And Argentina too has suffered, as the cold snap is threatening to damage a reviving economy.

Even as temperatures in Buenos Aires, the capital, drop below freezing for the first time since the 1990s, Argentina is finding that it has to import gas from Brazil, which itself is struggling with a record snowfall.

Alongside, power consumption in Argentina has accelerated, with electricity requirements rising 2.7% in June over a year ago, led by both consumer and industrial demand. The government has struggled to meet the need for increased power consumption, and several industries have had to suffer blackouts as electricity demand peaked. Bloomberg News reports that companies like Dow Chemical and Siderar SAIC have had to cut back on production as power outages and gas shortages are causing severe disruption.

Although the extreme weather is unprecedented, Argentina’s chronic gas shortage has long been documented. For the past seven years, the country has struggled to meet energy demand during the peak winter months of July and August. The government, led by Cristina Fernandez de Kirchner, has kept energy costs low with price freezing after the economic collapse of 2001. The result is that Argentina has some of the cheapest gas and diesel prices on the South American continent. But with consumption rising, supply has failed to meet demand, especially given that almost 87% of Argentina’s energy requirements are met from fossil fuels. Inadvertently, such prize freezes will also prevent investment in exploration and production of natural gas or other energy sources.

Despite the criticism, it is unlikely that the government will raise prices, especially given that inflation is always a looming threat and a public furor over such a move is likely. It is a sensitive issue, fraught with political implications, and despite the obvious impact on industries, which are struggling without gas for extended periods of time, it is a matter that may not be resolved soon, given Argentina’s lack of clarity on future energy policies. The government denies that the country is facing energy problems, but gas production has already fallen 5% for the first four months of 2010 over a year earlier, and Argentina has long since curtailed exports to Chile, which used to obtain much of its natural gas from its neighbor. Argentina is trying to create a sustainable nuclear energy base, but clearly, there is a problem, and a chronic one at that, which hampers Argentina’s immediate economic prospects. Just how soon Argentina can resolve its energy crisis will determine if the country will have to play catch-up in the economic stakes game with powerful neighbors like Brazil or Chile.

Postcards from Around the World

South Africa: Will Its Mines be Nationalized?

Learn More 

Portugal: Falling Back on Gold

Learn More 

Hong Kong: Minimum Wages Bill Passed but Issues Remain

Hong Kong’s skyline in the night

Learn More 





Subscribe to get our global publications by email.



Use of this site signifies that you have read Terms & Conditions
© Thomas White International, Ltd. 2018