October 2018 – @alvaroriosroca – Anything can happen in Argentina. No one can say with certainty where the country will be at the end of the current government. The IMF has launched an aid package until December 2019, just so that President Macri doesn’t have to “leave by helicopter” earlier than expected.
It is so complex what has happened for decades and is still happening in terms of macroeconomics, inflation, subsidies to services, millions of Argentinians paid without working, rampant corruption and the main thing, shortage of dollars in the economy. Any Argentinian wants pesos. So much so, that if you take 1,000 USD to Argentina, change them to pesos (38,000) and open a fixed-term deposit, the bank pays 85% annual interest. Spooky.
Going into the energy issue, today, we ca see that while the economy goes aimlessly, the energy sector is getting a great impulse, based on with what is happening in Vaca Muerta with new investments and a significant increase of natural gas and oil production.
The truth is that Vaca Muerta has been a wordy enough and world-class shale, with excellent geological and petrophysical properties. This allows to obtain fairly high productivity when drilling and breaking the rock properly. Having scale in factory drilling was essential to achieve lower production costs and be competitive. Vaca Muerta production, developed by a couple of dozens of companies, mainly Tecpetrol in the Fortín de Piedra block, is growing very quickly.
Fortín de Piedra, is the first factory drilling development with horizontal drilling for gas that has really raised production, productivity and reduced production costs. There are several other blocks with pilot wells that could soon enter into factory drilling massive development of both oil (due to current high price) and natural gas and perhaps at even much lower costs. The learning curve has reached a good maturity level.
Natural gas production in Argentina fell in 2014 to 114 MMMCD average, its lowest point. In June 2018 production reached 135 MMMCD thanks to the stimulus and new production of shale and tight gas. A notable increase that has left some production without market due to lack of infrastructure from Neuquen.
In this context, producers based in Argentina are looking for domestic and export markets that accompany the development of Fortín de Piedra and other new gas projects in Vaca Muerta, that, as we said before, have significantly reduced their costs and can easily compete with imported LNG (7 to 9 USD / MMBTU) and with gas from Bolivia that is between 6 and 7 USD / MMBTU (oil 60 to 70 USD / Barrel).
In 2018, gas exports from Argentina to Chile are being negociating, with prices between 4 to 4.5 USD / MMBTU for these summer months. It is also been studied restart gas exports to Brazil and even electricity exports. The closure of Bahía Blanca LNG regasification terminal has been announced, and LNG imports in Escobar terminal will probably be further reduced to be used only for winter peaks after aditional infrastructure required is developed.
Argentinian Secretary of Energy talks about the potential of Vaca Muerta to generate exports and the much-needed dollars for the country in all his public appearances. He projects that in 2030 it can be reached a natural gas production of 400 MMMCD, cover the domestic market and generate several LNG export projects, in addition to doubling the current oil production. A vision that seems too optimistic, but that is his role today.
To create long-term exports, we consider that Argentina will have to develop first, new infrastructure and new projects such as Tecpetrol’s to replace more expensive imported gas. Will Argentina soon propose to gradually reduce imports from Bolivia and leave the LNG terminal in Escobar only for the winter peaks? Whatever outcomes in the next three to six months will be crucial.
An important milestone for natural gas is to compliance with Resolution 46 that give good gas prices to producers. However, anything can happen in Argentina and Vaca Muerta gas production can stop, if this Resolution is not complied.
* Former Hydrocarbons Minister of Bolivia and Current Managing Partner of Gas Energy Latin America.