On the sidelines of the G20 summit in Buenos Aires in early December, Argentina and the US signed an agreement of cooperation on energy and infrastructure. In addition, the US Overseas Private Investment Corporation (OPIC) committed to finance energy and logistics projects, including a pipeline widely seen as key to supporting the growth of shale gas in Vaca Muerta. In our view, the agreements signal an effort by Washington to regain strategic and economic influence in Latin America, in light of increased participation by Chinese firms and capital in the region.
The G20 summit was a foreign policy success for President Mauricio Macri’s government, which needed a positive note after a traumatic year for the domestic economy. The government hopes that it can use the push of the G20 to improve its approval ratings at the start of 2019, an electoral year that will define whether Macri can secure a second term.
As host, the Macri government sought to strike a delicate balance between the US and China, whose trade war had escalated during the year. Macri’s personal relationship with the leaders, especially US President Donald Trump, played an important role. Of note, Macri and Trump were business acquaintances prior to entering politics.
At the top of the government’s agenda was a drive to attract investments to Argentina. Macri held 17 bilateral meetings with fellow heads of state during the summit, and the energy sector was at the heart of some of the talks.
On 30 November, Treasury Secretary Nicolas Dujovne and his US counterpart Steve Mnuchin signed a “Framework to Strengthen Infrastructure Investment and Energy Cooperation.” Mnuchin said that the agreement was part of a US initiative called “The Americas Grow,” designed to expand opportunities in energy trade, investment and finance. He added that the accord “should help catalyze private sector capital for investments across the energy value chain, including upstream energy production, as well as power generation, transmission and distribution.” He cited energy growth, integration and security as the foundational goals of the agreement.
Two days earlier, in the Foreign Trade Ministry, the head of OPIC signed six letters of intent to finance several projects in Argentina worth a total of $813mn. The largest project allocates $350mn to the construction of a 1,200km gas pipeline from Vaca Muerta to the farming and manufacturing hub around Rosario, Argentina’s third largest city. The project, worth around $1.7bn in total, is being pursued by Tecpetrol, the Argentine oil company owned by Techint Group. Tecpetrol is leading the shale gas development in Vaca Muerta and needs a way to channel that gas in order to increase production further. OPIC also allocated funds to two renewable energy projects in southern Argentina: $50mn to support a 122 MW wind power project in Santa Cruz province led by YPF Luz, and $118mn for the construction of both a wind and solar power plant in Chubut province led by Genneia.
The agreements signed with the US Treasury Department and OPIC were the first major steps in the Macri government’s attempts to bolster US investment in the Argentine energy sector. As we described in our 20 November analysis, the government had organized two ranking delegations to the US in September and November hoping to score new investments, but did not secure any concrete commitments. Our government contacts report that the announced financing points to a change of attitude from Washington: under President Trump, the White House is taking a more proactive approach toward restraining China’s advance in some strategic sectors in the continent by supporting US business investment.
However, our contacts in the administration also note that the Macri government will continue to play both ways and welcome investments from all sides, including China. On 2 December, Macri and Chinese President Xi Jinping signed over 30 bilateral agreements, some of which also touch on infrastructure related to Vaca Muerta. In addition, Buenos Aires has agreed to go ahead with the Chinese-led construction of a nuclear power plant, a sector that carries high sensitivities for Washington.