Argentina and Brazil follow two completely different paths for investing in oil and gas
Argentina and Brazil are following two almost opposite paths to exploit their energy resources as Rystad Energia notes.
Argentina: the search for large investments on the market
Argentina has taken a big step forward in attracting foreign and domestic investment in the country's energy sector with the approval of the Basic Law, which includes the Incentive Regime for Large Investments (known as RIGI by its Spanish and Italian acronym …). This is a significant move to attract substantial investment in Argentina's energy sector, particularly for large-scale projects such as gas pipelines and export terminals linked to the Vaca Muerta shale play.
Projects exceeding $200 million are guaranteed 30 years of legal and regulatory stability, provided that 40% of the investment is made in the first two years. For projects above $1 billion, there are significant tax breaks and exemption from export taxes after 2-3 years, depending on the size of the project, as well as exemption from import taxes depending on the size of the project and progressive access to foreign currencies: 20% after two years, 40% after three years and full access (100%) after four years.
This initiative aims to create a favorable environment for foreign and domestic investors by offering financial incentives and ensuring long-term project security. This could provide a significant boost to investment in Argentina's energy infrastructure, boosting oil and gas production and growing export capacity. The RIGI framework outlines specific eligibility criteria and benefits for large-scale investment projects in Argentina, focusing on attracting substantial investment and promoting strategic industries.
Vaca Muerta gas well
The RIGI is available to single-project entities, joint ventures and other forms of association involved in large investment projects, commonly structured as special purpose vehicles (SPVs). To qualify, investments must be worth at least $200 million in calculable assets. The executive branch has the discretion to establish higher thresholds for specific sectors, up to a maximum of $900 million. Projects with investments of $1 billion or more that could establish Argentina as a long-term global supplier may be classified as strategic exports.
These projects can access additional benefits and incentives compared to the standard RIGI terms. Due to their export orientation, oil and gas, mining and hydrogen projects are likely candidates for these additional benefits. Requests to join RIGI must be submitted within the next two years. The Executive Branch has the authority to grant a one-year extension for filing the application.
Brazil follows a national path
On the other side of the coin, President Luiz Inácio Lula da Silva's recent policy shift on natural gas has thrilled supporters of natural gas sovereignty in Brazil. However, it has also raised concerns about the potential impact on investments in Brazil's oil and gas sector.
A new decree gives the ANP ( Agência Nacional do Petróleo, Gás Natural e Biocombustíveis ), the authority to set limits on the amount of natural gas that oil producers can reinject into fields. Today, in Brazilian offshore fields, most of the natural gas produced in conjunction with oil is typically reinjected to maintain reservoir pressure and improve oil extraction.
This practice also helps manage the high costs of transporting gas ashore. With this decree, the administration intends to increase the supply of domestic natural gas and lower prices to stimulate industrial activity in Brazil. By potentially reducing the volume of gas reinjected, the policy seeks to divert more gas to the domestic fuel market.
Brazilian offshore well
However, there are potential investment concerns, particularly regarding cost implications. For companies such as Equinor, Shell and Petroleo Brasileiro SA (Petrobras), the new rules could impact the economics of their offshore projects. If the policy leads to increased gas transportation costs or requires more gas to be diverted from reinjection, it could impact the viability and profitability of projects.
The uncertainty surrounding the new regulations could make these companies more cautious. Equinor and Shell are evaluating how the decree could affect their multibillion-dollar offshore investments in Brazil. It is worth noting that the rule will only apply to new wells and will not affect existing contracts. For the Lula administration, the decree prioritizes increasing natural gas supplies and reducing prices, which it considers crucial for industrial growth. However, the introduction of this new regulatory framework could create significant challenges for oil companies operating offshore, potentially influencing their investment decisions and project economics.
Two states emerging from periods of instability
How these government mandates will shape the future of the energy sector in both countries is yet to be seen, and indeed, the implications here are long-term in nature. Argentina and Brazil have seen a rather pronounced swing in their political leadership over the last decade, moving from left to right and from right to left. In this sense, it is unclear how future changes to the Casa Rosada and Palácio do Planalto may influence these policies in the future. For now, the positions of both leaders appear well defined.
President Lula will continue to emphasize greater state control and regulation to manage domestic energy supply and prices, potentially leading to more cautious investment by international companies. At the same time, President Milei will focus on liberalizing the energy market to attract investment and expand Argentina's energy infrastructure and export capacity, with the aim of creating a more favorable environment for large-scale projects.
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The article Argentina and Brazil follow two completely different paths for investment in oil and gas comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/argentina-e-brasile-seguono-due-strade-completamente-diverse-per-linvestimento-nel-petrolio-e-gas/ on Wed, 04 Sep 2024 06:00:41 +0000.