Compressed natural gas is becoming trendy again in Argentina, as rising gasoline prices make it more economical, a shift that could help underpin development of the country's large shale gas resources and boost oil exports in the long term, an industry representative said Wednesday.
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More motorists are converting their cars to run on CNG this year after a three-year decline from nearly 240,000 in 2014, according to Enargas, the national gas regulator.
The number of conversions rose 30% to nearly 30,000 in the first quarter of 2018 from about 23,000 in the year-earlier period, its data showed.
The driver of the shift is the cost savings, said Pedro Gonzalez, vice president of the Chamber of CNG Retailers, an industry group.
"CNG is half the price of gasoline," he told S&P Global Platts.
Argentina liberated the oil market late last year after years of intervention kept down diesel and gasoline prices. In response, pump prices have been increasing this year on higher international crude prices and local biofuel prices, as well as a depreciation of the local currency against the dollar.
YPF, the country's state-owned energy company with a 55% share of liquid fuel sales, hiked its pump prices by 3% Wednesday, taking the rise to nearly 12% in the year. The rest of the refineries have been doing the same, which means that at a time when wage growth is lagging a painful 25% inflation rate, consumers are penny-pinching.
Add in the uncertainty of how much gasoline prices could still increase, and CNG is a more reliable option, Gonzalez said.
CNG prices are raised twice a year, in April and October, according to an Energy Ministry plan.
"People know there's not going to be another hike until October, but they don't know what is going to happen with gasoline," he said.
RISING GAS SUPPLIES
The other driver of the shift to CNG is an expected growth in supplies. Argentina's gas production is recovering from a 16-year low of 113.7 million cu m/d in 2014, led by the development of unconventional resources in plays like Vaca Muerta, one of the world's largest.
Production rose to 123 million cu m/d in 2017, and if investment continues to expand in Vaca Muerta, it could reach between 174-200 million cu m/d in 2030, according to an Energy Ministry forecast.
If demand rises to an average of up to 147 million cu m/d in 2030 from around 120 million cu m/d this year, as forecast, that means gas producers will have to find more markets if they are to reach the production targets.
A logical move is to export supplies by existing pipelines to Brazil, Chile and Uruguay; another is to export LNG.
However, the investment in a liquefaction terminal is complex and expensive, so it may take longer than expected, Gonzalez said.
While there is talk of LNG exports, attention is also on building the domestic gas market, including for greater use as a power fuel and a petrochemical feedstock -- and as a motor fuel.
CNG accounted for 5.7% of total gas consumption in 2017, compared with 39% for power plants, 28% for industry and 22% for homes, according to Enargas.
If the CNG market were to double from a current 1.8 million vehicles, that would increase its consumption to around 16 million cu m/d, helping to absorb an increase in shale gas production -- and at a higher price than other buyers, Gonzalez said.
"For gas producers, we are a good business," he said.
By regulation, CNG is more expensive than gas for homes and industry.
The government, which had considered CNG a problem in the past because of a 25% gas deficit, is now looking at the sector as an opportunity, Gonzalez said.
With more CNG consumption, Argentina can reduce local oil consumption and increase crude exports, which are easier to ship by boat than gas.
"It is preferable to have oil margins to export than gas," Gonzalez said.
The oil sector is looking at the possibility. At a business conference last week, Teofilo Lacroze, the head of Shell in Argentina, said the first step is to sell gas to power plants to replace diesel and fuel oil, something that could take years or decades. He also said ports need to be improved to handle more crude exports.
Another challenge for expanding CNG is to for carmakers to make vehicles to run on the fuel.
There are no indications when this could happen, Gonzalez said.
However, he said CNG cars make more sense in the medium term than electric vehicles, which are starting to be imports. This is because the infrastructure is in place to handle a ramp up in CNG sales, such as service stations. The first EV charging points were only rolled out last year, and are still far and few between.
"We have the gas and the networks," Gonzalez said. --Charles Newbery, firstname.lastname@example.org
--Edited by Kevin Saville, email@example.com