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Houston — Argentina will become an active shale light crude exporter in the second half of 2019 as domestic refineries reach maximum utilization rate amid booming output at the Vaca Muerta Basin, Argentina's energy secretary said this week.

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"This is something that never happened in Argentina as we have historically been an exporter of heavy crude," Gustavo Lopetegui told S&P Global Platts on Tuesday on the sidelines of CERAWeek by IHS Markit.

Last year, YPF made an international shipment of Vaca Muerta's light crude after being unable to allocate production locally.

The secretary could not say which markets might be interested in Argentina's shale oil in the midst of growing exports of US Bakken and Permian light crude.

"Vaca Muerta's light oil quality is excellent, and we have to find which refiners could benefit from it, something private companies are currently doing," he said.

It will take some time before Argentina becomes a global competitive LNG player, Lopetegui said. New gas production from shale projects coming online will first offset the country's LNG demand in the winter and then supply Chile, he added.

Argentina began supplying gas to Chile last year for the first time in decades, offsetting some LNG imports. However, Vaca Muerta's gas production is not yet high enough to steadily supply Chile year-round, sources told Platts, especially in May and September. According to Chilean energy consultancy Systep, Argentinian gas has been sold in Chile at $6/MMBTu, including transportation costs.

REACHING CRITICAL MASS

Gas prices in Argentina have fallen to $4.50/MMbtu, which is still too high for the country to become a competitive LNG exporter. "However, these prices are attractive enough to continue the development of new projects," Lopetegui said.

It is a matter of time for Argentina to continue decreasing production costs, Lopetegui said. The country recently achieved the milestone of operating 1,000 shale wells. "Once we reach 3,000 wells, we will see an inflection point in the increase in the productivity and efficiency," he added.

With this landmark achieved, drilling equipment and infrastructure will be fully utilized, based on experiences in the US shale operations. This will allow for higher efficiency levels and lower costs in Vaca Muerta, Lopetegui added.

Argentina's gas production is limited by market access, Daniel Gonzalez, CEO of state-owned oil company YPF, said Tuesday at CERAWeek.

"YPF could increase gas production by 50% over the next four years if we had the markets to supply, [something] we don't have domestically," Gonzalez said. If Argentina wants to fully develop its shale resources, it has to find customers abroad to supply, he added.

LOW OIL PRODUCTION COSTS

In February, the first Floating Liquefaction Unit (FLNG) in Latin America arrived in Argentina at Bahia Blanca, the Tango LNG facility. YPF contracted the unit, which is expected to generate over $200 million/year in export revenue, the company has said.

Tango LNG can store 16,100 cu m/d of LNG and liquefy 2.5 million cu m/d of gas. It is expected to be operational during the second quarter of 2019, YPF previously told Platts.

However, Argentina has been able to reach its full potential in producing liquids faster than in natural gas, Gonzales said. "This year we went from being a prospective play to become a reality," he added.

Oil cost productions in Vaca Muerta are currently easily under $40/b, Gonzalez said. In the case of Loma Campana, YPF's flagship project, production costs are $35/b, he added.

Lopetegui said oil production costs in Vaca Muerta have fallen by 60%. However, there are still many lessons Vaca Muerta can learn from the US to further reduce costs.

ExxonMobil has said this month it can have a return of 10% from its shale oil production at the Permian Basin with oil prices at $35/b.

-- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- Edited by Jennifer Pedrick, newsdesk@spglobal.com