Daniel Ridelener – CEO, Transportadora de Gas del Norte (TGN), Argentina
The CEO of TGN discusses the key role of gas transportation companies in the economic development of Argentina, the impact of the current presidency on TGN’s operations, and the future of the gas transportation industry in the context of the vast potential of Argentina’s unconventional resources.
TGN was created in 1992 as a result of the privatization process of Gas del Estado. How would you describe the company’s mission and purpose today?
TGN plays a key role in transporting natural gas to different economic centers of the country.
TGN’s main purpose is to support the economic development of the country, considering that natural gas consumption has reached more than 50 percent of the Argentinian energy matrix. And we can expect natural gas to be the relevant energy product for a long time. Therefore, TGN plays a key role in transporting natural gas to different economic centers of the country. TGN had an important expansion between 1992 and 2001 when it increased its transportation capacity from 22 to 52 million cubic meters per day as a result of a substantial investment effort supported by our shareholders at that time.
What are your key current assets?
The key asset of TGN is the whole transportation system, which is mainly composed of the northern pipeline, the center-west pipeline and its compression stations. Our pipeline’s network connects the basins of North Argentina as well as the ones from Bolivia and Neuquén.
In my opinion, the Neuquén basin will increase its production in the upcoming years and will gain more importance than the others, mainly due to its huge potential in unconventional resources—tight gas as well as shale gas. Indeed, the northern basin has decreased its level of production as a result of its conventional reserves decline. As a matter of fact, in 2003 our total transport volume consisted of around 22 million cubic meters of gas per day from the Argentinian northern basin in contrast to today, where it only accounts for around six million cubic meters of gas per day, with the rest of our capacity used for the transportation of Bolivian gas.
Since you assumed the position as CEO of TGN in 2008, what have been your main challenges?
I took the CEO position at the beginning of 2008 and the company was facing several financial constrains as a result of frozen gas tariffs since 1999 and accumulated inflation and its consequent impact on costs. Therefore, TGN was declared in default at the end of 2008 because it did not have enough financial strength to pay the debt loans ensuring the operations and the maintenance of its assets; it was the second time that TGN was defaulting.
It was a tough decision, but we decided to allocate all of our resources to the maintenance of our operations, as TGN has a key role within the Argentinian energy supply. I had to deal with government and financial institutions, and as a result they nominated a public auditor— ENARGAS— to monitor and control our operations and management decisions. I am proud to say that TGN has been able to overcome this situation and continue with its operations ensuring the gas supply.
The current president Mauricio Macri is highly committed to the improvement of the energy industry. How has the recent election affected TGN’s operations?
It has positively affected us and it has already had impact on our business due to the new gas tariffs policy. TGN was in a very delicate financial situation as a result of the aforementioned factors but we have perceived some improvements in the revenue line of our profit and losses statement. Nevertheless, the last tariffs adjustment should not be the last one, since companies like TGN are still running their business without profits. Expanding on that point, it is important to consider that Argentina has an accumulated inflation of 1700 percent since 2001 and the gas tariffs increase has been of 800 percent; there is still a long way to go in order to align the gas tariffs to the accumulated inflation.
The recent increase in the gas tariffs has to be in pair with investment commitments. What are the current and future investments in TGN’s pipeline?
TGN has to agree with a mandatory list of investments that the government imposes, which is more than USD 65 million for 2016. This investment is tailored to ensure the safety and integrity of the current infrastructure system as well as to upgrade its technology. The aforementioned investment is not destined to increase the current capacity of the system but, in my opinion, once Neuquén starts to increase its gas production, TGN will have the opportunity to increase its pipelines capacity.
How will the aforementioned investments be financed?
The investment is going to be financed by our own operational revenues, which will be positively impacted by the tariffs increase. Therefore, we don’t need to go to the financial markets to finance the mandatory investments, which should be finalized at the end of the first quarter of 2017. In comparison to other industries, it is quite easy to predict our revenues since all our capacity is sold under firm capacity contracts and the government determines the tariffs, consequently allowing us to forecast our investment capacity easily.
Considering that natural gas contributes more than 50 percent of the Argentinian energy matrix, how would you describe the collaboration between the central government and the gas transportation companies in order to ensure the gas pipelines of the country?
I personally expect that the interaction with the current government will be more productive than the one we had with the former executive power. The current government expresses a different approach to our industry and they want to ensure that companies like TGN will receive fair revenues, which enable investments to enlarge the industry’s capacity. Indeed, there is a law that ruled the fair revenues for the gas transportation companies; however it has been put aside during the former government’s mandates.
I personally expect that the interaction with the current government will be more productive than the one we had with the former executive power.
The gas pipelines are part of the core-skeleton of the energy consumption in Argentina. How do you assess the current level of infrastructure to arrive to all citizens and where do you identify vulnerability in the supply system?
As a result of the financial challenges we had in the past, the main topic in our agenda was securing the safety and integrity of our facilities. Today there is still a lot to be done, especially in technology upgrades needed in our compression facilities and in the existing pipelines. Industry-wise the challenge is to catch up with the needs of a 21st century gas industry.
Studies on the ground demonstrate that there are enough unconventional resources to satisfy the national demand and bring back Argentina to the exporter status. To what extend is TGN prepared to embrace this new potential era of gas?
We are well geographically positioned and we already have all the knowledge needed to satisfy the transportation needs which may arise in the unconventional exploitation development.
As the result of TGN’s involvement in all export contracts signed with Chile, Brazil and Uruguay in the 90’s, we already have the infrastructure developed and integrated to transport gas to those countries. Therefore, the infrastructure is already there and the big challenge ahead will be the regulatory framework. In the past TGN was fully capable to sign contracts, build and develop infrastructure and fulfill the demand. TGN is very well positioned when the new era of gas becomes a reality.
How do you foresee the role of TGN and its contribution to the gas distribution in Argentina evolving in the future?
The last seven years have been fierce as a consequence of the lack of financial resources and the inflation’s pressure. I expect that TGN will reach a solid balance sheet having the chance of distributing dividends to our shareholders. I foresee a positive outlook for TGN, which will be able to enlarge its capabilities whilst ensuring the safe and sustainable operations of the current assets. I am optimistic that more investment into Argentina will also impact our operations.