If any country holds huge energy resources and needs increased production capabilities, it's Argentina.
Flagging natural gas output and insufficient electricity capacity over the past decade left the country exposed to shortages and dependent on imports. Oil production continues to decline—only 480,000 barrels were produced per day in the first four months of this year. That's down more than 40 percent from the record 847,000 barrels per day in 1998, according to Energy Ministry data.
Ironically, the slump has come as reports expose the nation's large energy resources. Argentina has the fourth-largest shale oil resources in the world and the second-largest resources in gas, according to the US Energy Information Administration. Its wind power capacity is equally advantageous. In central and southern regions, such as the immense Patagonia, winds average 9 to 12 miles per hour. That's enough to generate power at capacity factors of 45 percent—well above the 25 percent in Europe, according to the Argentine Chamber of Renewable Energies.
While companies are building wind parks and starting to drill for resources in shale-rich areas like Vaca Muerta, the new production has yet to plug the deficit. A lot more foreign investment is needed, and it has only really started to come in this year. Investors have been hesitant, however, because of Argentina's history of economic and political volatility.
Doing business in Argentina can be difficult. The energy sector took a hit when the nation fell into perhaps its worst-ever economic crisis in 2001–02. Prices were capped at among the world's lowest, pushing power companies to losses. This made it harder for them to expand their assets to keep pace with demand, which surged as the economy rebounded—and as the low prices spurred consumption. The result was chronic blackouts and protests on the streets—and, at times, in the offices of power distributors.
Argentina has a lot of catching up to do, and the new president, Mauricio Macri, is trying to make this happen. Since taking office in December 2015, he's ended a 15-year sovereign debt default; removed capital, currency, and trade restrictions; and shaved the inflation rate nearly in half, to what the International Monetary Fund estimates as 25.6 percent this year from 40 percent in 2016.
The progress can also be seen in the power sector, with higher tariffs and incentives to rebuild energy supplies. Macri knows that blackouts can slow the economy's recovery from the recession in 2016 by delaying the much-needed investment from abroad.
"You have to restore energy to what it is worth, otherwise the country will be left without energy," Macri said earlier this year, according to an official statement from the Casa Rosada.
President Macri has rolled out a fast power program for installing new generation capacity, as well as a system of bonuses for plants that run at higher availability factors. There are also bonuses that consider the amount of time plants are producing electricity. If a plant meets the requirements, it gets a bonus. If a plant fails to meet the minimum availability requirement, there's a fine.
This incentive has spurred investment in improving plant efficiency, productivity, and reliability, and there's no better way than with digital technology. It's faster and cheaper to equip an existing plant with sensors, software, and a few pieces of hardware than to invest millions of dollars and three to five years in building a new facility. The sensors feed data around the clock into a centralized location, so plant managers can monitor the health and performance of the plant in real time, even if the facility is more than 20 years old. This allows them to make faster and smarter decisions on how to improve reliability, improving profitability.
Reducing Plant Shutdowns with Technology
To ramp up availability rates, the key is to reduce the frequency and length of plant shutdowns. This is where digital technology is pivotal. Software programs analyze sensor data and are able to predict failures before they ever happen. This way, plant managers can order all the materials and get the maintenance crews in place for a scheduled repair, which saves time and costs less than a sudden breakdown that forces a shutdown. With less downtime, plants can save up to $500,000 per day. What's more, the higher availability factor can be monetized in less than a year with digital technology, while productivity can be increased by 10 percent and fuel consumption trimmed.
Argentina is encouraging investment because it needs the power—and because it's following a global trend to reduce carbon emissions. It's also offering incentives for developing its shale resources to boost gas production as a cleaner power plant fuel, while using renewable power as a backup. The country has a law to reach 20 percent renewable output by 2025 or about 10 GW, according to the Energy Ministry. That would be up from 2 percent this year. It would also mean that renewable sources would make up the brunt of the increase in total generation capacity, from 34 GW in 2017 to 56 GW by 2025. The rest is to come from thermal plants running on gas, which can be brought online when renewable power supplies run low.
With the new incentives and huge amount of resources, Argentina may reach these targets sooner than expected. When it becomes worthwhile for power plants to optimize performance levels, they will, and the payoff will be more production. That's a good thing for any economy and very much needed in Argentina.