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Argentina oil producers put focus on carbon neutralization as they boost output

Highlights

Vaca Muerta has ample room for oil growth

But companies warn that the export window is shortening

Gas will be the next focus, then clean alternatives

Buenos Aires — The biggest oil producers in Argentina are taking steps to reduce or neutralize carbon emissions as they seek to boost output from the Vaca Muerta shale play before a decline in demand, as natural gas gains in the transition to zero-carbon energy, executives said

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Argentina's biggest oil producer and second leading gas producer, state-backed YPF plans to focus on upstream projects with low carbon emissions and also reduce the emissions of its operations, Pablo Iuliano, vice president of unconventional upstream, said at a Diario Rio Negro energy seminar earlier this week.

"This is a driver of our growth plan," he said.

The decision comes as YPF seeks to ramp up oil production by developing Vaca Muerta, one of the world's biggest shale plays, while transitioning to gas for future growth.

"We are going to grow in oil," Iuliano said. "We know that gas is the fuel of the energy transition and we know that renewable energies are going to continue to increase, but we also know that it is necessary to produce fossil fuels because they will be in demand for a long time. We need to do it responsibly and with environmental sustainability."

YPF is not alone. More companies are looking at how develop Vaca Muerta's wealth of crude oil resources efficiently to keep down emissions.

Juan Garoby, chief operations officer at Mexico City-based Vista Oil & Gas, the second-largest oil producer in Vaca Muerta, said at the seminar that his company is avoiding gas flaring as well as using pipelines for moving water to the fields for fracking and crude out to markets instead of using trucks, which produce more emissions.

"We want to do things well from the start and always," he said of Vista's strategy for developing Vaca Muerta.

Vista wants to keep emissions stable even while it takes steps to boost output by 40% this year from 2020, Garoby said, and then cut emissions by 2025, 2030 and then 2050 to levels that are "much less than we have today," he added.

Short window of opportunity

The efforts come as pressures increases on the oil sector globally to reduce emissions in an effort to slow climate change, posing a challenge for the development of Vaca Muerta.

The play is leading a recovery in oil production as producers take advantage of its large resources and high international prices to export supplies. Crude production rose 12.7% to 512,485 b/d in May from 454,755 b/d in the year-earlier month, led by 62% growth in Vaca Muerta, according to report by Regional Investment Consulting, an energy consultancy in Buenos Aires.

The growth in production coupled with some 360,000 b/d in existing or in construction pipeline capacity has brought forecasts that crude output could reach 520,000 b/d before the end of the year, 550,000 b/d by the end of 2022, 800,000 b/d in 2030 and surpassing 1 million b/d by 2040, according to Ecolatina, a consultancy

Ricardo Markous, CEO of Argentina's Tecpetrol, one of the biggest gas producers in Vaca Muerta, said the play's oil resources must be developed before global demand begins to decline.

While the pace of decline in fossil fuel demand is uncertain, "there clearly will be a reduction in the consumption of crude in the future and then later of gas," he said at the seminar.

"We have to hurry" to develop the large oil and resources of Vaca Muerta, he said. "If not, we will miss the opportunity."

Tecpetrol has created an energy division for projects in lithium production, renewable power and carbon capture for business growth after this window of opportunity closes.

How long do companies have?

Sebastian Regis, manager of operations for Shell in Argentina, another big oil producer in Vaca Muerta, said it could be "10 years, not more."

Transitioning to gas

This means that companies will have to start thinking of transitioning to gas before then focusing on clean energies, while at the same time reducing carbon emissions in Vaca Muerta, he said.

Danny Massacese, upstream managing director of Pan American Energy, a venture of BP and Argentina's Bridas, believes the window could be even shorter.

"We are racing against time," he said, estimating that there are two or three years to ramp up development of Vaca Muerta as well as the country's largely virgin offshore resources. "The energy transition is speeding up, so if we don't react quickly as an industry and as a country we will miss the opportunity."