Unleashing Javier Milei’s Impact on Argentina’s Energy Sector

Can Javier Milei Turbocharge Argentina’s Oil And Gas Industry?

Can Javier Milei Turbocharge Argentina’s Oil And Gas Industry?

Argentina’s Political Earthquake: The Rise of Javier Milei

Argentina’s presidential election results on November 20, 2023, marked a historic turning point in the country’s political landscape. The victory of right-wing outsider Javier Milei, known as ‘El Loco’, by a record 56% of the public vote, sent shockwaves through the nation. Fed up with economic turmoil, high inflation, and widespread poverty, Argentinians turned to the 53-year-old economist in a bold move for change. With his unorthodox economic policies and promises to shake up the status quo, Milei’s presidency is set to be nothing short of revolutionary.

Milei’s Bold Economic Policies

Milei’s radical economic agenda includes plans to “kick Keynesians and collectivists in the ass” and abolish the country’s currency in favor of the US dollar. He also aims to privatize state-owned companies, including the energy giant YPF, and boost Argentina’s energy industry. His vision for the country’s economic future is both audacious and contentious, with potential far-reaching implications for Argentina’s energy sector and global energy markets.

The Impact on Argentina’s Energy Policy

As Milei prepares to take office, his plans to privatize YPF have already sent shockwaves through the energy industry, with shares soaring and speculation rife about the future of Argentina’s energy sector. Additionally, his focus on leveraging Argentina’s vast shale gas and oil reserves, as well as the potential for increased lithium production, underscores his commitment to transforming the country’s energy landscape.

Challenges and Opportunities

While Milei’s sweeping electoral victory has given him a powerful mandate, he now faces the daunting task of navigating Argentina’s political landscape to enact his agenda. As he seeks to negotiate with political opponents and implement his policies, the road ahead is fraught with challenges and uncertainties. However, the potential for Argentina’s energy industry to undergo a paradigm shift under Milei’s leadership presents a unique opportunity for investors, stakeholders, and the global energy market.

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When the results of Argentina’s presidential election finally came out on Monday (November 20, 2023), the outcome wasn’t all that surprising. However, the margin of victory was certain and it is nothing short of a political earthquake.

Fed up with the seemingly perpetual economic malaise, annual inflation lurking around 143% and widespread poverty affecting 40% of the population, Argentinians turned en masse to 53-year-old economist and right-wing outsider Javier Milei.

The man scathingly described as ‘El Loco’, or the madman, was swept to power by his critics and opponents, almost a record 56% of the public second round of voting, against incumbent minister and left-wing rival Sergio Massa (with 44%).

He won in 20 of the country’s 23 provinces. Even the country’s capital, Buenos Aires, favored him over his opponent, with 70% of the votes going to Milei in a few provinces.

His economic policies, many of which may be quite bizarre to some, will undoubtedly come under scrutiny ahead of his inauguration on December 10, 2023. But a core mission of Milei is to “kick Keynesians and collectivists in the ass” might give some color to that.

In addition to promising to cut bureaucracy (a firm favorite of his fan base), the president-elect has also promised to “blow up” the central bank to prevent it from printing more money, which he claims will fuel rampant inflation in Argentina. . He also wants to abandon the country’s currency – the peso – in favor of the US dollar. And there’s more!

El Loco will give a boost to Argentina’s energy policy

Milei has also promised to cut government spending and privatize state-owned companies, something that has inevitably attracted interest from the energy world. According to the International Energy Agency (IEA), Argentina has the second largest supply of shale gas in the world the fourth largest reserves of shale oil in the world.

In 2022, Argentina produced 706,000 barrels per day of oil and the Vaca Muerta shale formation contains nearly 310 trillion cubic feet of natural gas. The standard bearers of Argentina’s hydrocarbon wealth are the state energy companies YPF and Enarsa.

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Milei confirmed his intention to privatize the YPF in statements after his election victory. It sent New York-listed shares of YPF (NYSE: YPF) soaring 39% from Friday’s closing price of $10.78 to $15 on Monday (3:00 p.m. EDT).

However, Milei also told Argentine broadcasters that before YPF could be privatized, his government would have to “rebuild” it. The president-elect did not specify how long this would take or what kind of operational and process streamlining he had in mind. The market would undoubtedly consider the details as they arise.

But luck also seems to be somewhat on the new president’s side. In a desperate bid to curb crippling energy imports, his predecessor built pipeline infrastructure to monetize Vaca Muerta’s natural gas.

Energy exports have finally increased, including to neighboring Chile, after an economically painful and nearly two-decade hiatus. In 2022, Argentina faced a $5 billion energy deficit and the current year could be a balancing act. But government data points to an energy surplus of $4 billion by 2024.

The windfall could ultimately reach $20 billion by 2030, depending on the direction of the market. Many, including likely Milei himself, hope that Argentina’s energy exports will also help reduce the country’s overall trade deficit.

And the newly elected president, who proudly calls himself a climate skeptic, has promised to free Argentina’s energy industry from red tape. This broad all-encompassing pledge seemingly extends from shutting down the country’s Ministry of Environment and Sustainable Development to encouraging private sector investment in renewable energy sources, should there be any takers.

There is also some hope that attempts at commercially viable oil and gas exploration in the Falkland Islands – a British Overseas Territory 300 miles off the southern coast of Argentina that is claimed by Buenos Aires – could be more conducive and cordial.

Two countries went to war over the islands in 1982 during the British premiership of “Iron Lady” Margaret Thatcher. A British expeditionary force retook the area in June 1982 after an Argentine invasion in April led to a brief occupation by Buenos Aires.

Successive left-wing Argentine governments have used the dispute for political gain in recent decades, but Milei ruffled political feathers by describing Thatcher as “one of humanity’s great leaders” in a televised debate earlier this month.

Although Milei is in line with many predecessors, he still considers this one to be Argentina’s sovereignty of the islands as “non-negotiable”its tone is likely to be more conciliatory and promote a softer level of economic dialogue.

Don’t forget lithium

In politics it is often said that timing is everything and the broader energy complex also seems to be turning in Milei’s favor. Argentina has the second largest lithium reserves in the world, estimated at around 20 million tons. American Geological Survey.

Domestic production of the metal desperately needed for the world’s energy transition is increasing and could rise to 120,000 tons/year by 2024 (from a current level of around 60,000 tons/year). Milei’s encouragement of private sector investment could further up the game with nearly 40 projects under development across three active mines.

The one big key in energy policy is that Milei spent the entire presidential campaign attacking almost the entire political class and politicians in Argentina, especially those on the left.

But his party has only a small number of seats in Argentina’s Congress. Despite his powerful mandate, Milei will now have to negotiate with those he attacked during the campaign to get his agenda moving. This won’t be easy. While it’s too early to say how it will all play out, there are tangible reasons for cautious optimism.


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