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Vaca Muerta, the Argentine oil jewel that does not finish taking off

2020-10-27T13:39:10.317Z


The Government of Alberto Fernández returns to bet on millionaire gas subsidies to stop the decline in production


A worker on the platform of a well in Vaca Muerta, in January.AGUSTIN MARCARIAN / Reuters

Vaca Muerta is one of the few consensuses in the divided Argentine society.

Economic policies vary greatly depending on the government in power, but the exploitation of unconventional gas and oil in this 30,000 square kilometer formation in Patagonia has been a priority without exception since its inception in 2012. Argentina, with a chronic deficit of currencies, then saw the opportunity to stop importing hydrocarbons to become a major exporter.

Almost a decade later, that goal has not yet been met and the Alberto Fernández Executive has just announced a new multimillion-dollar gas subsidy plan to halt the drop in production.

The drop in international prices, the lower demand due to the covid-19 pandemic and the lack of clear rules have complicated the development of the hydrocarbon jewel of the South American country.

"Vaca Muerta has a lot of potential, but it is not the salvation of Argentina or it is not the only salvation", admitted the Secretary of Energy, Darío Martínez, in a meeting with foreign correspondents last Wednesday.

Martínez stressed that the best year was 2015, under the presidency of Cristina Fernández de Kirchner, when 80 drilling rigs were on the ground.

“It was a record with a very important [stimulus] scheme, but also with a different international price,” Martínez explained.

Today, international gas and oil prices are much lower, and also in Argentina "contradictory decisions were made that generated distrust in the industry and if the industry is suspicious, do not invest because the investments are in the medium and long term, you are not investing for months, ”argued the secretary.

Another obstacle is the infrastructure deficit, such as the lack of gas pipelines that allow the resource to be transferred from Vaca Muerta to new destinations, such as southern Brazil.

Martínez stressed that the new plan to promote Argentine gas production seeks to return predictability and recover investments.

It aims to replace 18,000 million cubic meters of imported gas with its own production within three years.

According to official estimates, the new scheme will mean savings in foreign currency of about $ 5.6 billion, of which $ 1.172 billion will be fiscal savings.

The plan calls for a competitive auction scheme for 70 million cubic meters per day with a maximum price of $ 3.7 per million BTUs.

The Government trusts that this value, about 1.5 dollars above the average price, represents an incentive for companies, since the one that offers the lowest price will be "the first for firm export contracts to countries like Chile ”, According to Martínez.

“We are starting up the hydrocarbon economy again by promoting gas production and I am sure that we are going to understand how important it is for the State to take the lead when the economy is paralyzed and to partner with businessmen, workers to turn all this into the dream of living in Argentina that we deserve ”, highlighted President Fernández when announcing the three-year plan.

The fiscal cost is approaching $ 4 billion.

Fourth reserve of unconventional crude

Thanks to Vaca Muerta, Argentina is the second country with the most shale gas resources and the fourth in unconventional oil.

Large oil companies such as Shell, ExxonMobil, Chevron, Total, Petronas, Tecpetrol and Vista Oil & Gas operate in it, but they all paralyzed activity due to the pandemic.

In April only four work teams remained.

In May, they went up to ten.

In July there were already 13 and currently 42 are working. Covid-19 struck a great blow, but the crisis had started earlier: companies were concerned about the Argentine recession that began in mid-2018 and halted their investments a year later, when the Mauricio Macri's government cut the scope of Resolution 46/17 due to the impossibility of paying the subsidies promised for the gas oversupply.

Tecpetrol, the energy subsidiary of the Techint group, one of the most powerful in Argentina, was the great beneficiary of this resolution: it made the Fortín de Piedra gas field the most productive in the country, going from zero to 17 million cubic meters daily in a year through the

fracking

technique

(water is injected with sand and additives under pressure to break the rock and extract the embedded crude).

Tecpetrol made a large investment because the Government offered it a guaranteed price per million BTUs of 7.5 dollars in a decreasing scheme until 5 until 2021.

But the macrista plan was truncated.

In August 2019, in return for the bailout of 57,000 million granted by the IMF, Macri applied a fiscal adjustment plan that included gas subsidies.

The production covered by the subsidized price was reduced and led to a lawsuit by Tecpetrol against the State and a brake on the investments of the other companies.

Today they welcome the new proposal.

“There is a slight reactivation and this is a positive sign.

Vaca Muerta is still attractive today and it is an opportunity that we cannot miss.

There is not much margin to make a scale development, it is in a window between 10 and 20 years, but there is consensus that it is key for Argentina to become a net exporter ”, says an industry source.

"Very high quality"

The companies demand "predictability and stable and durable rules of the game" to invest, assures another source.

“Vaca Muerta, from the geological point of view, has international class, it is of the highest quality.

The challenge is how to extract this resource competitively ”, he remarks.

Costs have been declining, but they are still much higher than those of other unconventional oil and gas operations, such as the United States.

This cost, which requires subsidizing production, and the growing environmental awareness that is pushing for an energy transition towards renewables feed critical views towards Vaca Muerta.

“For seven years we have been subsidizing Vaca Muerta (more than 10,000 million dollars sunk in that well) and it did not even begin to repay,” Ignacio Peña, energy consultant and brother of the former Macrista Cabinet chief Marcos Peña warned.

"If we dedicate our energy to renewables we will have a much better result," he said.

“Sometimes I hear that in Vaca Muerta there are 20 Argentine GDP locked up, but how do you get them out?

That confusion was used on purpose to promote, to get an optimistic speech.

There was no political rift in this, all the governments did the same ”, says Julián Rojo, director of the technical department of the Instituto Argentino de la Energía General Mosconi.

“It is important not to use dollars to import gas, but the problem is at what cost do you do it?

Because if you get 10 billion dollars, you don't save that much, "he adds.

In line with the complaints from environmental NGOs such as Greenpeace, Federico Ponce, former general manager of the waste treatment company Comarsa, denounces that one of the ways to reduce costs in Vaca Muerta has been to relax environmental regulations, especially "avoid treatment of hazardous waste by depositing it without treatment directly in security landfills. "" Vaca Muerta is a mirage.

Strategically it was out of time and place, ”Ponce sentenced.

These voices, still minority, are disavowed by the industry and the Argentine authorities, in search of foreign exchange.

"The time has come to start putting everything in order in the midst of a global crisis that the pandemic has generated," said President Fernández in Vaca Muerta.

The state company YPF, leader in Argentina, has raised seven teams since the announcement, according to Secretary Martínez, who is confident in the success of the stimulus program: “If YPF invests, it is likely that the other players will also invest.

YPF is the one that sets the course ”.

Source: elparis

All business articles on 2020-10-27

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