Buenos Aires — Argentina's government is making advances on drafting a bill to provide incentives for ramping up the country's oil and natural gas production and exports, while more immediately seeking an agreement to end a protest stymieing activity in the Vaca Muerta shale play, Energy Secretary Dario Martinez said April 15.
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"It is a priority," he said of the bill in a live-streamed interview with the Oil Club, an industry group in Buenos Aires. "We are working very hard on the bill and we want to accelerate the process."
The bill is designed to provide the clear and stable conditions for companies to boost production to build a surplus of oil and gas, making it possible to halt imports — mostly of gas, ultra low sulfur diesel and 98 RON gasoline — and increase exports.
Argentinian President Alberto Fernandez announced plans May 1 to submit the bill to Congress this year.
Much of the focus of the incentives is on Vaca Muerta, a shale play so large that it can supply all of Argentina's energy needs and export the surplus. Light sweet crude from the play has been exported on occasion since late 2019, while some gas is going to Brazil, Chile and Uruguay. But the target is to sell more oil and gas, the latter as LNG to meet an expected rise in demand as an energy source for the transition from fossil-based to zero-carbon energy.
While the bill has gained wide acceptance in the oil industry, there has been wariness about it ever going before legislators, given that the president first announced the plans when he took office in December 2019.
Martinez said the bill was delayed last year by the coronavirus pandemic and a plunge in international crude prices, which forced the administration to focus on the more urgent issues of health and the economy.
With the economy now returning to growth, he said there is more time to focus on the bill.
A main target of the bill will be to spur the development of Vaca Muerta, one of the world's biggest shale plays. While the formation has been producing since 2012-13, less than 10% of the play is in full-scale development, only enough to offset declines in conventional output and make sporadic exports. That is largely because of the erratic regulatory conditions in the country.
Martinez hopes to change that.
"This is the time to create the necessary tools so that the development becomes massive," he said of the play. "We can make the jump from supplying the domestic market to having an exportable surplus."
As a condition of the eventual law, he called on companies to respond by "multiplying production and exports."
Rebuilding gas output
The law will be the latest incentive for the industry from this administration. In December, it created a system of auctions for long-term gas supply contracts with the goal of preselling 70 million cu m/d — half of the 140 million cu m/d of average consumption — of supplies each year to distributors and power plants, plus additional amounts during the cold months of May to September.
The program has lined up supply contracts for producers at between $3.50/MMBtu and $4.75/MMBtu, more than breakeven prices and the less than the $2.50/MMBtu they were getting in 2020.
Even so, producers are "working against the clock" to increase output to meet a surge in winter demand, which usually starts at the end of May, because the incentives only started in December, Martinez said.
"This is not going to be an easy year," he said.
Indeed, Argentina is lining up more imports of LNG, including by bringing in a second regasification terminal that' i due to go into service May 25.
This challenge to meet gas demand has been made harder by a protest by health workers and truckers, who have been blocking access to Vaca Muerta and other fields in Neuquen, the source of more than 50% of the country's gas, since April 7.
Martinez said the government is willing to hear to the demands of the health workers and truckers, adding that the goal must be to reach an agreement.
"We are going to collaborate in any way we can to reach a resolution," he said.
Despite the concerns about gas supplies this winter, Martinez said there will be more supplies in 2022, something that he said will bring another challenge: the need to increase pipeline capacity to sustain the production growth and widen exports to neighboring countries and then to the global market with LNG.
He did not say when the pipeline project could be offered at auction for building.
The government shelved a plan to build a third pipeline with 40 million cu m/d of capacity last year as the pandemic and plunge in oil and gas prices deterred bidders.
Martinez said the first step for production growth is to replace imports of LNG as well as of gas from Bolivia and alternatives like diesel and fuel oil in power plants.
To encourage export growth, he said the government is drafting a regulation that will allow companies to enter into long-term contracts to export fixed amounts of gas.