Meetings with state-owned Yacimientos Petroleiferos Fiscales (YPF) led to a promise by President Fernandez to push for upstream-friendly regulation. “I will send a bill that will establish a regulatory framework to allow for the exploitation of conventional and unconventional hydrocarbons,” the Argentine leader vowed. To date, about 1,000 wells have been drilled in the Vaca Muerta Shale, out of which just 300 have been fracked.
Prolific gas resources at Vaca Muerta, spanning some 30,000 square kilometers, have attracted the likes of ExxonMobil and Chevron, Qatar Petroleum, Total and Equinor.
Striving to boost LNG exports
State-owned YPF last year commenced small-scale LNG production and export via a floating liquefaction facility, named ‘Tango FLNG’. Shortly after exports went into full swing, proposals were made for a pre-FEED design for a 5 mtpa onshore liquefaction plant, with the option to expand capacity to 10 mtpa.
Upstream costs, however, still need to come down significantly if Argentine LNG wants to become competitive on global markets, notably compared with LNG cargoes from the U.S. Gulf Coast.
Through productivity has improved as a result of increased fracking stages and longer laterals, production costs at Vaca Muerta shale are still deemed “too high for international markets. YPF in 2019 reported declining costs of $3.72 per million British thermal units, down from $4.65 per MMBtu a year earlier.
Investors sitting on their hands
Fresh investment is vital to overcome bottlenecks in gas transportation, as existing pipelines are running at limit. The government in late July 2019 launched the tender for a $2 billion pipeline from Neuquén province and the Vaca Muerta Shale. Now, it is a question of providing financial and tax incentives to attract international oil majors willing to invest in Argentine midstream gas assets.
The Argentine Minister of Energy has not clarified his policies when it comes to royalties for upstream companies, or fuel subsidies. Hence, some international investors have hence adopted a “wait-and-see” attitude.
Others are rethinking their strategy: Schlumberger, the world’s largest oil services and equipment manufacturer, is trying to sell its investments in Argentina. Shell and ExxonMobil executives openly spoke of the need for stable government policies, greater spending on infrastructure, and other incentives.