Argentina hopes to become a significant crude exporter after benefits from the privatization/deregulation push of President Carlos Saul Menem are realized.
Jose Estenssoro, president of state oil company Yacimientos Petroliferos Fiscales, said his company could be exporting 25% of its oil production in as little as 2 years.
The catch is how well YPF succeeds in a public offering of its stock and in attracting foreign private and domestic investment in Argentine exploration and development to hike oil and gas production enough to justify the export increase.
EXPORT PUSH
Key export markets YPF is targeting include Brazil and the U.S.
Currently, Argentina exports about 10-15% of its crude production of 400,000 b/d. It supplies one fourth of Uruguay's oil needs and one third of Paraguay's.
"Our target is to export 25% of production, and if the economy begins to grow again, increase production by 1% for each 1% rise in the gross domestic product," Estenssoro said.
To crack bigger export markets such as Brazil and the U.S., however, calls for much larger export volumes than those going to Argentina's smaller neighbors.
"When we are able to supply under annual contracts large volumes ... (Brazil) will become a major client because Petrobras is not interested in irregular, small deliveries," Estenssoro said.
That's illustrated by Argentina's difficulties in winning Brazilian support for a pipeline to export Argentine natural gas to southern Brazil.
YPF is trying to secure private as well as public sector investment in expanding Argentina's gas grid, including a trunk export line to Brazil. It plans a gas line from Salta province in northern Argentina to Buenos Aires. From there, two lines would move gas to Puerto Iguacu at the border of Brazil's Parana state and to Paso de Los Libreas at the border of Brazil's Rio Grande do Sul state.
Argentina will win Brazil's support for importing Argentine gas only when it is able to offer at least 1 bcfd, Estenssoro said. Argentina currently produces 1.06 bcfd.
ESTENSSORO'S MISSION
Estenssoro, formerly president of Argentina's Sol Petroleum for almost 20 years, has pushed hard in privatizing YPF during his 4 months in office.
In addition to selling hydrocarbon reserves, equipment, buildings, services, three of YPF's six refineries, and 80% of its tanker fleet, he wants to attract private capital into the company "until the state becomes a minority partner."
Estenssoro also wants to reduce the role of political and regulatory bodies and labor unions in the company's day to day operations.
In addition, he is continuing efforts to deregulate domestic prices of refined products, previously set by YPF.
PROBLEMS
However, Argentina's export prospects are running into the same choppy economic waters that threaten to swamp Menem's fiscal reforms.
In addition to uncertainty over economic policies still being formulated, there is a lack of cash because the Argentine Central Bank has intervened in the foreign exchange sector to halt the rise of the U.S. dollar. Despite harsh economic austerity measures, Argentine inflation is running high-at 28.7% in February. Argentineans have deposited almost $54 billion in foreign banks, an amount about equal to the country's foreign debt.
The private sector complains about a deepening recession, and workers' unhappiness over low wages is increasing.
Domingo Cavallo, Menem's fourth economic minister appointed earlier this year, recently met with the U.K.'s minister of industry and commerce to discuss privatization efforts and possible British investment in Argentina.
Some U.K. companies interested in investing in Argentina's economy reportedly are among those whose assets were nationalized by President Juan Peron 40 years ago.
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