Buenos Aires — Argentina has put on hold policies and incentives for ramping up oil production from the Vaca Muerta shale play as a global glut of crude supplies curbs export opportunities, Production Minister Matias Kulfas said.
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"Vaca Muerta has huge potential, but is an issue that will have to wait because of the international situation," Kulfas, the country's chief energy strategist, said late Tuesday in reference to a plunge in global oil demand.
Speaking in an interview on the Argentinian cable news network TN, Kulfas said that economic shutdowns to contain the spread of the coronavirus around the world have cut global oil demand by 30%, making it harder for Argentina to export.
At the same time, he said a plunge in international oil prices has reduced the potential returns on sales, meaning that if the government is to promote anything, it would make more economic sense to support agriculture exports.
"The entire agro-industrial complex exports $30 billion [per year]," he said. "The energy sector exports $3 billion, which is 10 times smaller."
The oil sector has been one of the worst sufferers of the COVID-19 crisis in Argentina, raising concerns of a slowdown in production.
While companies like Chevron, Shell and Argentina's state-backed YPF, among the biggest producers, have been exporting some crude, it has not been enough to offset a plunge in local sales.
Most estimates suggest that local demand is running at no more than 200,000 b/d, less than half the 450,000-500,000 b/d average. The decline is a response to a government-ordered shutdown of the economy from March 20 to April 26, possibly for longer, in a bid to slow the spread of the virus. With most of the country's 45 million population under stay-at-home orders, demand for diesel and gasoline has dropped by 80%-90%, according to most estimates.
Indeed, YPF, Shell-backed Raizen and other refiners have suspend operations, forcing producers to close wells early this month.
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Kulfas said he is aware of the impact on the oil sector and that he is in talks with oil producers and refiners as well as the unions and provincial governments to find solutions for the near term.
The idea "is to establish some scheme that allows the sector's production and employment to be sustained even at a low level," he said. "We must see how we can avoid a collapse in local production, which today is in excess in Argentina. The refineries are full, and it is necessary to avoid that the oil operating companies decide to suspend rigs because it will not easy to recover them later."
While he did not specify what the government could do, it is widely expected that it will establish a minimum price for oil.
A draft proposal was leaked a few days ago for creating a reference price of $45/b for refiners to buy crude from producers, helping to sustain production and limit a surge of imported crude and petroleum products.
Before the health crisis, Argentina's oil production had been recovering from a 28-year-low of 479,000 b/d in 2017, led by Vaca Muerta. It rose to average of 508,000 b/d in 2019 — and more than 516,000 b/d in February, according to the latest data from the Energy Secretariat.
The play, located in northern Patagonia, has potential to more than double national production to 1.1 million b/d by 2030, making it possible to ramp up crude exports to 500,000 b/d by then from around 60,000 b/d in 2019, according to estimates from the Energy Secretariat.