Thursday, April 19, 2012

Cry for Yourself Argentina


Cristina Kirchner expropriating Repsol's holding in YPF is just about the boldest and dumbest thing you can do.   Bold in the sense that she herself and her hubby were major backers of YPF being privatized in the early 90's and as of 2010 praised Repsol for its work in Argentina.

As for helping Argentina, it is just a short term desperate measure.   She claims that Repsol did not invest, and that the country had to achieve energy self-sufficiency.

The reason production and investment is down is pretty much due to the complex Kirchnerian web of regulations, price controls  and subsidies in the hydrocarbons sector.

Gasoline prices are kept under international prices, while exports of crude are tightly controlled by the State.   Natural Gas - a cornerstone of the energy and heating needs of Argentinians - is subject to price controls and heavy regulation.  This means less money for exploration in oil and gas since you can't sell at market prices domestically and even abroad.     Less production meant the Argentine State went abroad to buy things like natural gas at market rates - selling them domestically at subsidized rates at a price of billions a year. Perversely, this lower prices also meant increased demand for oil and gas.

In the end it looks like another disastrous decision to remedy a situation the Kirchners themselves are responsible for in large parts.