New rules for the natural gas market

On May 23, 2005 the Official Gazette published Resolution No 752 issued by the Secretariat of Energy (SE) in the legal framework provided by Decree No 180/04 and Decree No 181/04

1.    Bypass to the distributors - Unbundling

Since the publication of this Resolution the users of the distribution services network for natural gas, other than residential users and General Service “P” that in the last year registered requirements of less than 9,000m3, may purchase natural gas at the Injection Point of the Transportation System directly from the producers.

As of August 1, 2005 distributors shall not be allowed to provide the following customers’ categories with gas: Firm and Interruptible Large Customers; General Service “G” Customers; and General Service “P” Customers that consumed an average of 150,000m3 per month last year. The same shall occur starting on January 1, 2006 for General Service “P” Consumers with an average monthly consumption of more than 9,000m3. From these dates on distributors shall not be allowed to enter new time term agreements for the acquisition of natural gas to supply the above customers.

Customers of those categories that as of April 2, 2004 acquired natural gas from a distributor may request the assignment of the gas volume consumed at that time. That way customers can continue to require a gas supply from any producer that supplies that distributor for the contract’s remaining duration keeping the agreed “windows” with the licensee, if any.

2.    Supply mechanism for CNG gas stations

Regarding CNG gas stations, the ban of supply on distributors shall start on January 1, 2006. The supply mechanism for these customers shall be based on an assignation schedule of standardized units of natural gas agreements that shall assure equal opportunities for gas stations. This shall be the only market in which CNG gas stations may acquire natural gas on a time term basis.

CNG gas stations and producers shall issue anonymous Irrevocable Offers to buy or sell as the case may be on the Electronic Market for GAS (EMG).This is aimed at preventing producers from choosing their buyers beforehand and consequently at securing transparency.

The SE shall fix the maximum price to be charged for the gas by the producers under this mechanism.

3.    Standardized Irrevocable Offer Mechanism

Through this mechanism, new direct customers and direct customers that are not reached by the Producers–Government Agreement shall purchase their gas supply on a time term basis directly from producers.

For such purpose, customers may file through the EGM standardized irrevocable purchase offers under the following conditions:

(i) price: no less than the average of the billed prices under exportation agreements of each basin, determined by the SE, net from export duties;

(ii) term: no less than 3 years;

(iii) commencement date: no less than 10 operational days;

(iv) take or pay: no less than 75% of the contractual daily quantity calculated on a two month period;

(v) make up gas: to be recovered in a four month period;

(vi) delivery or pay: no higher than the take or pay calculated on a daily basis. In cases of non-delivery the fine will be three times the price of the undelivered gas and;

(vii)contractual daily quantity: no less than 1,000m3 a day.

4.    Permanent Additional Injection Mechanism

Once a period of 10 operational days pass from the publication of an irrevocable offer, and this remains unsatisfied, or in the case that the gas volume offered by the producers to the GNC gas stations under the mechanism described in section 2 above is less than the required by them, the customers may require the SE to assign to them the gas volume so required under a mechanism that follows the principles established by Resolution No 659/2004 of the SE.

The necessary volume to face the unsatisfied offers shall be required as a “Permanent Additional Injection” until the end of the corresponding season’s period (October- through -April and May- through -September) to those producers that export gas from the basins that can supply the unsatisfied irrevocable offers with priority to those that imply a lesser transportation cost at the customer’s delivery point -with the available transport capacity. Under this mechanism the gas price shall be that which is applicable under the Government-Producer Agreement starting on July 1, 2005.

5.    Exports’ Flexibilization Mechanism Program

Resolution No 752/2005 of the SE restricts the applicable frame of the export flexibilization mechanism through the substitution of gas for equivalent energy under the “Complementary Program for the Internal Market Supply of Natural Gas” established by Resolution No 659/2004 of the SE. Consumers that purchase gas through the mechanism of irrevocable offers shall not be able to use it, neither by themselves or third parties, for exportation or electricity generation for exportation. In addition, producers that export shall not purchase natural gas produced in Argentina with exportation purposes while there are unsatisfied irrevocable offers requiring additional permanent injection.

Although the re-negotiation process for natural gas licenses is not over, new obligatory regulations for the commercialization of gas have been set and gas export is even more conditioned than before.