Can President-Elect Javier Milei Turbocharge Argentina’s Energy Industry?

In the end, when the results of Argentina’s Presidential Election became apparent on Monday (November 20, 2023), the outcome wasn’t all that surprising. However, the margin of victory most certainly was, and its nothing short of a political earthquake.

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

The man often described scathingly as “El Loco” or the madman by his critics and opponents swept to power bagging close to a record 56% of the public run-off vote against incumbent government 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, preferred him to his opponent, and in a few of the provinces as high as 70% of the vote went to Milei.

His economic policies, many of which might well be pretty outlandish for some, will be doubtlessly scrutinized ahead of his inauguration on December 10, 2023. But a core mission of Milei’s to “kick Keynesians and collectivists in the ass” might offer some color on that.

Apart from the pledge of cutting bureaucracy (a firm favorite of his fan base), the President-Elect has also promised to “blow up” the central bank in order to prevent it from printing more money, which he says is driving Argentina’s rampant inflation to flag a couple of things said on the campaign trail. He also wants to the ditch the local currency – the peso – in favor of the U.S. dollar.

Will El Loco go turbo with Argentina’s energy policy?

Milei’s also promised to slash public spending and privatize state companies, something that’s inevitably piqued the interest of the energy world. According to 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 its Vaca Muerta shale formation holds 308 tcf of natural gas. The flag bearer of the Argentina’s hydrocarbon riches are state-owned oil companies YPF and Enarsa.

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Milei reaffirmed his intent to privatize YPF in statements following his election victory. It caused YPF’s New York-listed shares (NYSE: YPF) to jump by 39% from Friday’s closing price of $10.78 to $15 on Monday (15:00pm EDT).

However, Milei told also Argentine broadcasters that before YPF could be privatized, his administration would have to “rebuild” it. The President-Elect did not specify how long this would take and what sort of operational and process streamlining he had in mind. The market would doubtlessly pour over the details when they emerge.

Luck also somewhat appears to be on the incoming 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 are finally up, including to neighboring Chile, after an economically painful and near 20-year long hiatus. In 2022, Argentina had an energy deficit of $5 billion and the current year maybe a balancing exercise. But government data points to an energy surplus of $4 billion in 2024.

The windfall could ultimately be as high as $20 billion by 2030, contingent upon market direction. Many, including most probably Milei himself, are hoping Argentina’s energy exports would help reduce the country’s overall trade deficit as well.

And the President-Elect, who takes pride in declaring himself to be a climate skeptic, has also promised to unshackle Argentina’s energy industry from red tape. This broad all encompassing pledge seemingly ranges from closing the country’s ministry for the environment and sustainable development to encouraging private sector investment in renewables if there are takers.

There are also high hopes that attempts at commercially viable oil and gas exploration in the Falkland Islands – a British overseas territory 300 miles off Argentina’s southern coast that’s claimed by Buenos Aires – could be more conducive and cordial.

Two countries went to war over the Islands in 1982 during “Iron Lady” Margaret Thatcher’s U.K. Premiership. A British expeditionary force retook the Islands in June 1982 after an Argentine invasion of the Islands in April led to brief occupation by Buenos Aires.

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

While in line with many predecessors, Milei still deems Argentina’s sovereignty of the Islands as “non-negotiable”, his tone is likely to be more conciliatory and may foster a gentler level of economic dialog.

Don’t forget lithium

In politics, it is often said that timing is everything and the wider energy complex also appears to be turning in Milei’s favor. Argentina has the world’s second-largest lithium reserves estimated to be in the region of 20 million tons, according to the U.S. Geological Survey.

Domestic production of the metal desperately needed for the world’s energy transition is ramping up, and might rise to as high as 120,000 t/year in 2024 (from a current level of around 60,000 t/year). Milei’s encouragement of private sector investment could raise the game further with nearly 40 projects projects under development at three active mines.

The only very big spanner in the energy policy works happens to be that Milei spent the entirety of his presidential campaign attacking almost the entirety of Argentina’s political classes and politicians, especially those on the left.

But his party only holds 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 going. This won’t be easy. While it is too early to say how it will all pan out, but there are tangible grounds for cautious optimism.

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