Western Hemisphere 2021 Energy Landscape and Outlook

2025 when we should also see commodity prices slowly converging to pre-crisis levels as demand recovers. The greater reduction rate in oil and gas demand vis à vis electricity is explained by the fact that during the pandemic liquid fuels demand for transportation collapsed, an impact that was not seen in electricity demand, especially in the residential sector that saw an increase in consumption due to lockdown measures. As prices of oil and natural gas converge to their pre-crisis levels and the prices of alternative renewable sources of energy and storage continue to fall, we should see countries vigorously resume their transition from conventional hydrocarbon based power sources to renewables consolidating their march towards full decarbonization, digitalization and decentralization. Oil and gas production in Argentina has been decreasing during 2020 due to both falling prices consequence of the collapse in demand following the pandemic and lockdown measures. The government has reacted by enacting stimulus measures for domestic oil and gas prices to prop up local production. It is unclear that the package will eventually work given the high uncertainty that investors face in Argentina and the reluctance of consumers to pay higher prices. The government subsequently announced that local new prices for natural gas will not be passed on to final consumers meaning that the wedge between the price collected by supply and that paid by demand will be covered by subsidies as end user tariffs for natural gas continue to

be frozen since 2019 without a clear path of future evolution. If local gas production does not respond to the stimulus package quickly enough for the winter months, then LNG imports will have to increase. This reliance on imports will in turn enlarge the subsidies bill. In the electricity sector, the outlook is essentially the same: end user tariffs remain frozen since 2019 without any proposed future adjusting mechanism. As in the natural gas sector, the average electricity price paid by end users covers around 50% of generation costs, the difference has to be covered by public funds. It is estimated that this year subsidies to CAMMESA (Argentina’s system operator and electricity market broker) plus the gas sector will amount to 2% of GDP or US$ 9 billion. Regarding the transition to clean energy, Argentina today counts 4 GW of renewable capacity installed which represents 10% of total installed capacity with around 9% of total power generated. Total awarded renewable projects amount to 5.2 GW that are scheduled to become operational in the next two years. At this time, no new bidding processes of renewable energy sources are scheduled to take place in the coming years.

INSTITUTE OF THE AMERICAS

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