Argentina's ruling party proposes reducing ethanol, biodiesel blends

Argentina's ruling political party has submitted a bill to Congress to reduce the obligatory mixes of biofuels in diesel and gasoline on the expectation of a rise in oil supplies for refiners and also to promote the use of electricity, hydrogen and natural gas to run cars as part of the transition to cleaner energy.

The draft legislation calls for cutting the ethanol blend in gasoline to 10% from 12% and halving the minimum for biodiesel to 5% from 10%, according to a copy submitted to the lower house late March 22.

The bill comes as the law for the mix is due to expire in May.

On Feb. 9, Argentinian President Alberto Fernandez said he planned to seek a renewal of the biodiesel and ethanol blends, saying that he wanted to preserve the investments made in the sector. Argentina produces all of its biodiesel — mostly from soybeans — and ethanol from corn and sugarcane for the blends.

But on March 22, Energy Secretary Dario Martinez suggested that there's leeway to lessen the mix requirements because times have changed since the current law was sanctioned in 2006.

In an address before the lower house's energy commission, he said that back then Argentina's oil and gas reserves were maturing, leading to a steady decline in output and a rise in imports.

The 2006 law had encouraged companies to invest in biofuels, reducing crude demand at local refineries and also spurring the export of excess biodiesel, he said.

To be sure, Argentina went on to become one of the world's top exporters of biodiesel by capturing market share as more countries implemented a required mix in diesel.

Now with the development of Vaca Muerta, a huge shale play in northern Patagonia, Argentina has the potential to not only supply all of its own oil and gas, but to export the surplus. This means, Martinez suggested, that the biofuel blends can be reduced, helping at the same time to shield consumers from the impact on pump prices of fluctuations in the prices of corn, soybeans and other feedstocks for making the additives. Indeed, if prices rise too much for biodiesel, the proposed legislation would allow refiners to reduce the blend to 3% in diesel.

Argentina's oil production is quickly recovering from a slump in 2020 with expectations of long-term growth. While crude output fell as low as 445,614 b/d in May 2020 from 520,000 b/d in March 2020 because of a lockdown of the economy for the COVID-19 pandemic, it has since recovered to 486,929 b/d in January, according to Energy Secretariat data.

Cleaner fuels

In his address, Martinez also said that he wants to promote the use of electricity, hydrogen and gas — as well as pure biodiesel and ethanol — as vehicular fuels as part of the transition to a carbon-neutral future, another reason for reducing the biofuel blends.

"The energy transition is what is coming and it has variables that must now be considered, such as electro-mobility and hydrogen," he said. "In 20 or 25 years, starting a combustion engine will also be looked at askance and we cannot deny this. The world is going that way."

On March 1, President Fernandez said he would submit a bill to Congress this year to provide incentives for the use and production of electric vehicles, helping to capitalize on the country's large lithium resources. The government has been working with the transport sector to test the use of electric buses, while the carmakers Nissan and Renault have already started selling EVs in the country.

Another effort has been to expand the use of gas in trucks, building on the widespread use of compressed natural gas, or CNG, for cars. There are 1.7 million cars, or 16% of the 10.6 million cars on the streets, that run on CNG in Argentina, according to Enargas.

While the country's gas production tumbled 19.7% to 116 million cu m/d in January from a most recent high of 144.4 million cu m/d in July 2019, the government is seeking to turn this around by attacking the main deterrent to investment: low prices. In December, it launched a 2020-24 incentives program that has increased prices for about half of the national output to $3.50/MMBtu, up from less than $2.50/MMBtu in 2020.