Argentina could become player in global gas market: analysts

Buenos Aires (Platts)--5 Dec 2017 417 pm EST/2117 GMT

Argentina could become a player in the global natural gas market by developing its giant Vaca Muerta shale play, but a number of challenges must be taken on including finding new outlets for the rising production, analysts said Tuesday.

"Argentina has huge potential in gas," Daniel Montamat, an advisor to the Argentinian Energy Ministry, said at the Latin American Energy Organization's Forum on Regional Energy Integration in Buenos Aires.

The country has proved oil and gas reserves of 4 billion barrels of oil equivalent and probable reserves of 9 billion boe, whereas the shale oil and gas resources total 170 billion boe, of which nearly 80% is gas, Montamat said.

The size and quality of the resources have attracted companies like BP, Chevron, Dow Chemical, Total and others that, along with Argentina's state YPF, are starting to develop resources in Vaca Muerta. The play has gained comparisons to the Permian Basin in the US.

Shale oil and gas production rose 26% to 75,700 boe/d in August in Neuquen, home to most of the play, according to the latest data of that province's Department of Energy, Mining and Hydrocarbons.

The projects are expected to increase the Argentina's total gas output to 142 million cu m/d in 2023 and 185 million cu m/d in 2025, according to energy ministry forecasts. That would be up from 122 million cu m/d this year, its data show.


The big challenge going forward is to find outlets to underpin a mass development of the resources.

"Argentina must decide if it wants to play in the South American Cup or the World Cup," Montamat added in reference to the popular soccer tournaments. "We have to decide if we want to develop the resources for the domestic market or the regional market, or if we are going to become a player in the world gas market."

If the aim is to reach national gas production 140-150 million cu m/d, then supplies must be exported in South America, Montamat said.

If the country wants to ramp up production to 190 million-200 million cu m/d or even 250 million cu m/d, it would have to sell gas by boat on the global market, he said.

Montamat recommended targeting the global market.

"We have to think big," he said.


How to get to the higher production levels, however, is a major question facing the industry.

Argentina is starting to pull out of a production decline that left it with a 25% gas deficit, but the conditions for doing business in the country are not yet stable enough for a rapid deployment of capital. Inflation is running at 23%, according to government data, and labor costs remain high, largely because of strong unions.

Roberto Ferreira da Cunha, a director of research firm IHS Markit, said foreign capital is coming in slowly because of the high cost of doing business in Argentina. This means that the country will continue to have to import gas, probably for the next 10 years.

Another challenge for expanding production is to build pipelines to handle the growth, and to find storage capacity to handle the volatility in local demand.

Argentina's gas consumption surges in the winter for heating and plunges in the summer, meaning that without storage capacity companies would have to shut down wells for eight months of the year, a deterrent to investing in Vaca Muerta.


A third challenge is to bring down the cost of developing Vaca Muerta so it is more competitive against imported supplies.

"If it is cheaper than LNG, shale in Argentina could absorb demand otherwise met by LNG," Ferreira da Cunha said.

Mauro Chavez, a senior research analyst at Wood Mackenzie, said the target should be to produce Vaca Muerta gas at $3/MMBtu. That would be down from the average price of between $4/MMBtu and $5/MMBtu this year.

Progress is being made to boost well productivity, he said.

In blocks like Dow Chemical and YPF's El Orejano and Tecpetrol's Fortin Piedra, the horizontal wells drilled over the past few months "have productivity in line with the best plays in the United States," Chavez said.

If the cost of frac sand and logistics can be brought down, then the breakeven price for production will get closer to $3/MMBtu, he said.

In terms of selling the increasing output, Chavez said short-term solutions include reducing imports from Bolivia -- a supplier of about 20 million cu m/d -- in the summer, freeing up more of the market for Vaca Muerta gas. The other would be to export more gas to Chile, he said. Chile imported as much as 20 million cu m/d as recently as 2004, but has since installed two regasification terminals, limiting the potential sales from Argentina in the future, Chavez said.

Even so, he said finding more outlets for Argentina's gas could determine the future production of Vaca Muerta.

"If the companies see that the production is not going to have a market, this could stall investment," Chavez said.

--Charles Newbery,

--Edited by Richard Rubin,

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