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Argentina to expand tax-free diesel imports for power sector as demand rises

Highlights

Import amount now at 25 million barrels

Local diesel output is unable to keep up

Electricity demand rose 5.4% in H1 2022

Argentina said Aug. 8 it has authorized Cammesa, operator of the wholesale power network, to increase the amount of diesel supplies it can import under a tax-free scheme this year to 25.2 million barrels from 15.7 million barrels as diesel demand for electricity generation grows faster than previously expected.

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The increase in the importable amount is designed to meet "peaks in demand" for diesel as a power fuel that can't be met with local supplies of diesel or natural gas, the government said in a presidential decree.

This is the latest increase in the amount of diesel imports for use as power plant fuel under the scheme, which began at 9.4 million barrels, in line with the amount brought in last year.

But Cammesa surpassed that amount in the first half of this year by importing 11.7 million barrels, leaving only 4 million barrels available for imports under the scheme at the previous amount of 15.7 million barrels.

"The forecast for diesel consumption for electricity generation for the rest of 2022 is higher than the remaining volume," the government said.

Diesel consumption has risen for two main reasons. The first is that low water levels have reduced hydropower output. The second is that cold weather so far this winter—June to August—has limited access to natural gas for power plants, as more of the supplies are going, as a priority, to homes for heating, the government added.

"It is necessary to increase the total annual volume of diesel that Cammesa is authorized to import with the planned tax exemptions to guarantee the normal operation of the Argentinian electricity system during the winter period, as well as the requirement to manage the acquisitions of these fuels in the international market sufficiently in advance to ensure their availability for the system," the government said.

Argentina produced 30.8 million barrels of diesel in the first five months of this year, in line with the amount in the year-earlier period, according to the latest data from the Argentina Oil and Gas Institute, an industry group. Over the same period, gas output rose 12% to 136 million cu m/d, the data showed.

The stable output of diesel and rise in gas production, however, has not been enough to keep up with power demand, which has been steadily recovering since the country emerged from lockdowns for the coronavirus pandemic in the middle of 2021.

Electricity demand in the first half of 2022 increased 5.4% year on year, according to the Argentine Institute of Energy.