For decades, natural gas has been the star of the Argentine energy sector. It supplies more than 50% of the country needs, and has one of the largest participations around the world regarding the use of natural gas powered vehicles, which in Argentina have a high technology development.

However, together with the consumption rise and with the fall in the domestic offer, it acquired two new characteristics: it is a resource that is imported in growing volumes and with prices that grow costlier by the day.

According to the last information provided by the Secretariat of Energy, during 2012 the country imported gas for US$4,697 million dollars. The figures represent almost 7% of the total amount of purchases that the country made abroad in 2012 and 37% of 2012 trade balance. Due to the price rise during 2012, the country paid a price 15 percent more expensive than the average paid in the previous year.

The gas production of last year fell roughly 3 percent, but the demand increased by more than 5 percent. Argentina's gas imports have two main sources: from Bolivia, through gas pipelines, and from overseas countries, as liquefied natural gas (LNG) that arrives by ships to the re-gasification terminals located at Bahia Blanca and Escobar ports (in both cases, the operation is in charge of YPF and Enarsa).

Last year Bolivia supplied more gas than expected, and therefore the LNG imports were smaller than forecasted. In 2012, the purchases to Bolivia increased a 65 percent in volume. The foregoing has saved Argentina some considerable amount of money since Bolivian imports have a cost of approximately US$11 per MM/BTU, while LNG imports have a cost of almost approximately US$17 per MM/BTU. Notwithstanding the foregoing, in comparison to the 2011 figures, last year, imports have grown 17%, but they involved an expenditure that was 46% greater.

To counteract the growing cost of imports, the deputy minister of Economy, asked businessmen to submit to the Government projects to produce more gas and, from the beginning of January 2013, the government has been consenting an increase in prices to be paid to domestics producers for gas produced in excess of current levels of production.

In such respect, in early January, the government reached an agreement with Pan American Energy (PAE), for which the Government allowed PAE to charge US$7.50 per MM/BTU for all natural gas injected to the system in excess of the then existing levels of production. As we have anticipated in our early January newsletter, the above mentioned measure was later extended to the whole market: according to Resolution 1/2013, which was published in the Official Gazette on February 14, 2013, the Commission in charge of the Oil & Gas National Investment Plan has resolved that all domestic producers injecting natural gas to the system in excess of current levels of production (as adjusted) shall be allowed to enroll in a Plan that will allow them to collect a price with the addition of a State subsidy that will result for the producer in an aggregate revenue of US$7.50 per MM/BTU in respect of such natural gas exceeding current levels of production.

Companies wishing to enroll in the Plan allowing them the price increase shall have to submit to the Commission in charge of the Oil & Gas National Investment Plan projects relating to their production increase, and binding commitments in respect to compensations to be paid to the State in the event they cannot meet the production targets offered within their projects.

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