Regulation of the Hydrocarbon Export Regime and the Liquefied Natural Gas Export Regime
Energy Department Report |Regulation of the Hydrocarbon Export Regime and the Liquefied Natural Gas Export Regime
On November 29, 2024, Decree 1057/2024 was published in the Official Gazette, which regulates (a) the reforms introduced by the Framework Law and Starting Points for the Freedom of Argentines No. 27.742 (“Framework Law”) to the Hydrocarbons Law No. 17.319 (“Hydrocarbons Law”), (b) the reforms introduced to the Framework Law to the natural gas transportation and distribution regime established by Law No. 24.076, and (c) Article 163 of the Framework Law on harmonized environmental legislation for the purposes of compliance with Law 27.007.
As Annex I it was approved the regulation of Articles 101 to 152 of the Framework Law, which amended the Hydrocarbons Law in matters of general hydrocarbons regime, hydrocarbons export and derivatives, transportation authorizations and processing and storage permits, underground hydrocarbons storage and awards. Annex II approves the regulation of Articles 153 to 158 of the Framework Law, which amended the natural gas transportation and distribution regime established by Law 24.076, regarding liquefied natural gas export and import, natural gas transportation and distribution, jurisdictional procedures and control, and contraventions and penalties.
Please find below a summary of some relevant aspects of the regulation:
Regulation of the articles amending the Hydrocarbons Law
General Provisions:
Guiding Principles of the Activity. The regulation establishes that the principles governing the exploration, exploitation, processing, transportation, storage, industrialization, and commercialization of hydrocarbons and/or their derivatives include, among others, free market principles, promotion of competition, encouragement of long-term contracts, competitiveness, productivity, integration into global trade, and present and future security of hydrocarbon supply in Argentina.
Authority to grant concessions. The regulation establishes that the National State shall grant concessions and/or transportation authorizations in cases where the pipeline for the transportation of hydrocarbons and/or their derivatives has the purpose of (a) inter-jurisdictional trade between the City of Buenos Aires and/or one or more provinces and/or between two or more provinces or (b) exportation or importation, total or partial.
Commercialization Prices in the Domestic Market. The regulation defines commercialization prices in the domestic market, in the terms of Article 6 of the Hydrocarbons Law, as the prices of hydrocarbons and/or their derivatives resulting from supply and demand in their free commercialization. It is worth noting that Article 6, second paragraph of the Hydrocarbons Law prescribes: “The National Executive Power may not intervene or set commercialization prices in the domestic market for any of the activities indicated in the previous paragraph”.
Hydrocarbon Export Regime
The decree foresees a new hydrocarbon export regime in line with the provisions of Articles 3 and 7 of the Hydrocarbons Law and Law 26,741, both amended by the Framework Law. Decree 1057/2024 provides that Decree 645/2002 and Resolution 241/2017 of the Undersecretariat of Hydrocarbon Resources remain in force with regard to the registration of export operations. Furthermore, Decree 1057/2024 establishes that the Energy Secretariat must adapt “all other regulations related to hydrocarbons and/or their derivatives [including Resolution 241/2017 and Resolution SE 175/2023]; and promote the eventual repeal or replacement of higher-ranking norms that support them.”
While the previous regime provided for in Resolution 241/17 of the Secretariat of Hydrocarbon Resources applicable to crude oil exports required demonstrating that no local operator was willing to purchase the product intended for export, the interested party seeking to export must now demonstrate their production capacity and commercial commitments, among other data. However, the Secretariat of Energy still has the power to object to the export request by arguing that it would affect “the security of the domestic market’s supply” and “the occurrence of unforeseen and significant variations in domestic market prices“. Additionally, the new regime allows for the granting of permits for periods exceeding one month and up to multi-annual periods.
Below, we summarize the requirements for requesting an export permit, the review procedure for applications, the possible objections that the Secretariat of Energy may raise, and the options available to the applicant in the event that the Secretariat of Energy objects to the application due to “verification of the effective need of the domestic market to require similar volumes to those of export for its satisfaction”:
-Notification of Export. Any party interested in carrying out an export operation must submit to the Secretariat of Energy, among other requirements:
-A summary of the operation to be performed, including product, destination, maximum total volume to be exported annually, monthly and/or daily; sale price, including adjustment formulas if applicable; duration of the export (monthly, annual, multi-annual); and border exit points. The party must also declare the intended use of the product in the destination country or submit an affidavit to that effect.
-Capacity: sources of supply identifying the basins and/or production areas that will supply the export, and availability, certifying that sufficient production is available to meet the requested volume. A production plan may be required, if necessary, along with existing and planned facilities.
-Commercial commitments: sales contracts related to the export and details of committed sales, both domestically and internationally.
-Additionally, for the export of oil and/or its derivatives, the following must be submitted: (i) semi-annual and annual projections, with monthly breakdown, of production and availability volumes intended for export, commercialized in the domestic market, and without a determined commercialization destination; (ii) quality of oil to be produced; (iii) port/pipeline from which the operation will be carried out; and (iv) estimated loading date, within a 10-day period.
-In the case of export notifications with a delivery period or program exceeding one year, the interested party must certify the right to dispose of the volumes referred to in the Export Notification by submitting documentation of reserves and/or prospective resources and certified production capacity by independent experts of recognized and proven competence, for the committed volumes and terms. Additionally, the party must renew the certification of the right to dispose of technically proven existing resources, according to the term established by the Secretariat of Energy, which cannot be less than 3 years.
Procedure
Once the Export Notification has been filed, the Secretariat of Energy will have a period of 30 administrative days to object to the export request, based on technical and economic studies and analyses. If this period lapses without the Secretariat of Energy issuing an objection, said authority will issue, upon request by the interested party, a Certificate of Free Export within a period of 5 days.
The Secretariat of Energy may not raise any objections, and firm export commitments may not be reviewed again once the 30-day administrative period has lapsed. Exceptionally, the Secretariat may take specific measures in response to exceptional circumstances, such as force majeure or unforeseen events, that objectively compromise the security of supply.
Objection.
Grounds for objection. The Secretariat of Energy may object to the export, either totally or partially, on a reasoned basis, in certain specific circumstances, including:
-The existence or occurrence of unforeseen and significant variations in domestic market prices.
-Lack of proportionality between the reported projections and the security of supply for the domestic market. It is worth noting that the security of supply is not determined solely by the volume of hydrocarbons, but it must also be ensured that the price in the domestic market is reasonable.
-Replacement of Objected Export Volumes. In the event of an objection by the Secretariat of Energy, the applicant may opt to replace the objected volumes at their own cost through: (a) The acquisition and/or importation of equivalent-quality hydrocarbon volumes; and/or (b) The total or partial waiver of the right to export during the period affecting the security of supply for the domestic market. The replacement of volumes requires approval from the Secretariat of Energy.
Concessions and Authorizations for Hydrocarbon Transportation, Processing, and Storage.
The decree regulates the regimes applicable to transportation concessions granted before the enactment of the Bases Law, transportation authorizations granted after its enactment, processing permits, and storage authorizations.
The Decree establishes the minimum requirements that the model tender document, to be prepared by the Secretariat of Energy, must include. These requirements comprise work units, royalties, entry bonuses, environmental protection conditions, corporate social responsibility, and other provisions. It is clarified that the model tender document must have three variants: offshore, conventional, and unconventional.
Furthermore, it is established that exploration permit holders and hydrocarbon exploitation concessionaires must submit annual information on proven, unproven, and contingent reserves, as well as projections for conventional and unconventional hydrocarbon production.
Regulations for the Articles Amending Law 26,045
Regime for the Export and Import of Liquefied Natural Gas (LNG).
The decree regulates the regime for the export and import of Liquefied Natural Gas, as provided for in Law 24,076, as amended by the Framework Law:
Declaration of Availability of Gas Resources in the Long Term. The Decree regulates the content of the Declaration of Availability of Gas Resources, which, in accordance with Article 3 bis of Law 24,076, will be prepared by the Secretariat of Energy. Among other aspects, it establishes that this declaration must contemplate: market operating conditions; projections of national production, exports, and demand; projections of impact on existing infrastructure and development of new infrastructure; projections of alternative sources based on international trade flows; and an estimation of technically recoverable gas resources, conventional and unconventional, in Argentina.
The Secretariat of Energy will update this study at least every 5 years or when a new LNG export application warrants it, considering the magnitude of its scale, the longer terms involved, and the larger investment amounts required.
Notification of LNG Export. This section regulates the procedure for exporting LNG, which begins with the submission of an Export Notification to the Secretariat of Energy by the interested party. The notification must certify, among other requirements:
-Projected availability, supported by investment plans or firm agreements with other producers of proven, possible, and probable reserves, prospective resources, and commercial production capacity to meet the volumes and conditions of the LNG export for at least 5 years from its certification. Exploration permit holders and hydrocarbon exploitation concessionaires must submit annual information on proven, unproven, and contingent reserves, as well as prospective resources of liquid and gaseous hydrocarbons in areas under their ownership, certified by external auditors.
-Technical and economic solvency.
-Maximum quantities of LNG to be exported, in annual, monthly, and daily terms.
-Technical consistency of the project, including existing or planned transportation, liquefaction, storage, and export facilities, location, and financing.
Objections.
The Secretariat of Energy may object to the export of LNG, either totally or partially, on a reasoned basis, due to technical and/or economic reasons, including:
-Lack of national natural gas availability, as determined by the Declaration of Availability of Gas Resources.
-Failure to certify capacity in any stage of the LNG export operation.
The deadline for raising objections is 120 business days, counted from the submission of the LNG Export Notification. Once this period has elapsed without any objections, the Secretariat of Energy will issue the Free LNG Export Authorization, specifying the start and end dates and the LNG export volumes. After this 120-day period, the Secretariat of Energy may not raise any objections to the export, and the LNG exports will be firm: (a) regarding the maximum total and annual, monthly, or daily quantities, in accordance with the terms and conditions of the Free LNG Export Authorization and (b) for a period of 30 years from the start-up of the liquefaction plant (onshore or floating) or its expansions or successive stages.
Subject to periodic certification of required availability (as detailed in 2.1.2), the exercise of the right to export LNG under the Free LNG Export Authorization, on a firm basis, implies continuous and uninterrupted export, without restrictions, reductions, or redirections, regardless of the cause and equal access to natural gas production and acquisition, as well as to transportation, processing, or storage capacity, as required for LNG exports.
Furthermore, any modifications or repeals of the LNG export regimes, gas supply, natural gas transportation or LNG, or their respective processing or storage, will have no effect on previously granted authorizations, unless these changes are more favorable to the holders of such authorizations.
Obligations of the LNG Exporter: The LNG exporter must, among other obligations: (a) maintain projected availability and (b) inform any modifications to availability, substantial changes to the information that led to the export, and information on LNG exports, including price and quantities. In the case of term contracts, a copy of the contracts must be provided.
Natural Gas Transportation and Distribution
This section modifies the regulations of Law 24,076, established in Decree 1738/1992, specifically:
-The service provider is entitled to request a single 20-year extension, in accordance with the modification introduced by the Bases Law to Article 6 of Law 24,076. It is worth noting that previously, the extension was for 10 years.
-Extension agreements will include contractual renegotiation agreements necessary to ensure the continuity of normal service provision during the license contract extension period. The previous regime did not establish any provisions regarding this matter.
Procedures, Jurisdictional Control, Contraventions, and Sanctions.
This section modifies the regulations of Law 24,076, established in Decree 1738/1992, specifically:
-The appeal provided for in Article 66 of Law 24,076 will be granted solely for devolutive purposes, whereas the existing regulations until now established that the appeal would have suspensive effects from the date of its filing. Additionally, it is stated that the deadline for filing the appeal is the one provided for in Article 25 bis of the National Administrative Procedures Law No. 19,549 (30 business days).
-Article 68 of Law 24,076 establishes two scenarios in which, prior to issuing a resolution, ENARGAS must convene a public hearing: (a) when the resolution refers to the convenience, necessity, and public utility of gas transportation and distribution services and (b) when the resolution refers to conduct contrary to the principles of free competition or the abuse of situations derived from a natural monopoly or a dominant position in the market. The new regulations now establish that, in these cases, ENARGAS may complement or replace the public hearing with a public consultation procedure, in accordance with the National Administrative Procedures Law No. 19,549.
Regulation of Article 163 of the Framework Law concerning the harmonization of environmental legislation.
The regulation establishes that, for the purpose of creating “harmonized environmental legislation” as provided for in Article 23 of Act No. 27,007, the Secretariat of Energy will identify the applicable regulations and the environmental aspects to be considered to ensure the development of hydrocarbon activities within the framework of appropriate environmental protection. The Secretariat will also establish a procedure to coordinate joint efforts and information systems with the provinces and the City of Buenos Aires.
Additionally, the regulation specifies the content that the regulatory framework must include, such as processes for granting environmental licenses, addressing environmental liabilities, well abandonment, waste management, and control of emissions and/or effluents, among other aspects.