Argentina’s LNG export aspirations may soon be a reality as Exmar, the Belgian shipping firm, has entered a 10-year charter with YPF to deploy a floating LNG liquefaction vessel at Bahia Blanca, about 400 miles south of Buenos Aires. Operations are scheduled to start in Q2-2019, for the first cargo to set sail before year-end. The Exmar FLNG barge is expected to be a quicker route-to-market for excess production from the prolific Vaca Muerta shale gas field than a rival FLNG venture, under evaluation by Transportadora de Gas del Sur (TDS) and Excelerate.
Striving for a ‘fast-track monetization’ of shale gas reserves, the Argentine government said the goal is to start exporting 40 million cubic metres per day, equaling 14.6 Bcm per year of LNG in 2023, and gradually increase that to 120 mcm per day, or 43.8 Bcm/y by 2025.
Exmar’s FLNG barge, dubbed Tango FLNG, is envisaged to export 500,000 tons of LNG per year with up to eight cargoes meant to be produced over the ten-year period starting from winter 2019. The rival Excelerate/TDS project, in contrast, is still at an evaluation stage with the two project partner still studying the technical and commercial viability of liquefying and exporting excess shale gas during the summer season.
If realized, the Excelerate/TDS project will be built and operated under a 25-year license.
The ultimate aim is to reduce Argentina’s gas imports, which are getting increasingly expensive amid a weakening Peso. But to reach this goal YPF would need to strike a binding agreement with Exelerate, and intensify efforts raise financing e.g. through a public-private partnership.
Critics are skeptical of Argentina’s energy policy goals. “The government wants to attract as much investment as possible and feels it has to move quickly and drum up interest as long as interest rates are low. YPF cannot do it alone, especially with the Peso being so weak and Argentina’s credit history. Hence they are essentially copying the US model on shale oil and gas production,” said LNG Unlimited analyst Alex Wilk. “Ultra-low interest rates are vital for sustained tight hydrocarbon production,” he stressed; “But investors likely want to see opportunities for monetisation beyond the domestic market, where prices tend to be capped, and their banks presumably want a risk premium, hence the view to LNG exports.”
Seasonal LNG exports of excess shale gas supply
The idea is to initially use the new LNG export plant mainly during the summer months to export Argentine gas that is not needed in the domestic market. This way, production growth of Argentina’s prolific Vacca Muerta shale gas play could be sustained and expanded.
Peak gas demand in Argentina occurs during the Southern Cone winter, and in recent years the country heavily depended on spot LNG imports to meet its rising energy needs. But the Argentine government is keen to boost domestic production to reduce import dependency. Imports of spot LNG cargoes used to be mainly handled via a floating storage and regasification unit (FSRU), installed at Bahia Blanca in 2008 when Argentina started LNG imports. That very facility may now be converted into a liquefaction and export terminal.
Timeline for LNG exports may not be realistic
Observers doubt whether TDS and Excelerate’s ambitious timeline can be realized. “Construction seems only scheduled to start in 2020, if investment is found and regulatory approval is granted,” Wilk said, adding; “No contracts have been signed yet – neither with developers nor with buyers. “
Completion is envisaged by 2023. “If exports are done by converting an FSRU that timeframe looks realistic, but only if works start by 2020/21 and sufficient pipeline capacity from producing areas exist or is being built,” he cautioned. Excelerate’s next FSRU newbuild is understood to be already chartered to Gunvor, and there is a rumour that YPF will use its chartered GNL Escobar terminal, which could potentially free up FSRU capacity. The facility’s initial capacity is advertised to be 40 million cbm/d – seemingly, “quite steep” and a bit too much given that a significant proportion of feedgas stems from volatile unconventional gas supply.
Aiming to become self-reliant on energy and fast-track LNG exports, the President of Argentina Mauricio Marci has courted the Emir of Qatar who came on a state visit in October. Assessing the status quo, Macri said: “From Qatar’s perspective, things moved really well, as they are exporting to us an approximate value of $450 million, basically fuel.” Argentina, in contrast, exported an approximate value of $20 million over the past few years, with around 70% related to agriculture and the rest in various industries.
“We are happy with this relationship,” Marci told Tamim Bin Hamad Al Thani but noted Argentina is trying to limit LNG imports and become an energy exporter. To that end, the government imposed measures that will halt LNG imports and rely on domestic resources instead. Technically recoverable shale gas reserves are estimated at 308 trillion cubic feet, and supply is targeted to start flowing in large quantities from the Vaca Muerta area by 2022.
Qatar Petroleum, the Emirate’s state-owned oil company, is keen to get involved in international oil and gas project beyond the Arab Gulf region and has been quick to purchase 30% of the hydrocarbon licences for seven blocks in the Vaca Muerta play, held by ExxonMobil. In 2017, Exxon started an exploration project in the area that involves the staged development of 300 horizontal wells with possible production of 11 million cubic metres per day. Plans to develop the Los Toldos I South Block were approved by the Neuquen regional government under a 35-year unconventional exploitation concession.
For Qatar, the purchase of part of Exxon’s stake at Vaca Muerte is its first significant foray into unconventional oil and gas resource and its first investment in South America.
High hopes of replicating U.S. shale gale
Analysts assume Argentina might experience a boom in unconventional oil and gas, similar to the shale gas in North America. But for this to happen, Argentina would have to substantially step up exploration efforts to achieve some more significant volumes.
Output from Vaca Muerta is steadily rising and helps offset the falling supply from Argentina’s maturing conventional gas fields. A staggering 243% jump in shale gas production to 25 million cubic meters per day (Mmcm/d) has pushed up Argentina’s overall output of natural gas to 132 Mmcm/d in 2018. Technically recoverable shale gas reserves are estimated at 308 trillion cubic feet, and supply is targeted to start flowing in large quantities from the Vaca Muerta area by 2022.
But Argentina’s shale industry is still in its infancy. Daily shale gas output in the U.S. is more a thousand times the volumes seen in Argentina. U.S. dry natural gas production is forecast to average 83.2 Bcf/d, or 2.36 Bcm/d in 2018, up 8.5 Bcf/d in 2017, according to the Energy Information Administration (EIA). So, there is still a very long way to go until Argentina’s unconventional gas production will become anything like the American shale oil and gas revolution.