LNG

Argentina purchased 28 liquefied natural gas cargoes for the Southern Hemisphere winter at average prices of $2.87 million British thermal units as natural gas production fell in the first half of 2020 amid long-term plans to start its own LNG exports from the Vaca Muerta Shale.

Argentina’s state-owned Integración Energética Argentina (Ieasa) purchased the LNG shipments to cover around 25 percent of the country’s natural gas needs during the winter season.

The Argentine Energy Institute (IAE) said in its latest report that natural gas production dropped by 9.2 percent year-on-year, or 4.39 billion cubic feet per day, to 124.4 million cubic metres per day.

Analysts said that movement restrictions in place because of Covid-19 led to the fall in output.

The IAE report said conventional gas production, which accounted for 57 percent of the overall fall, decreased by 10.6 percent in May while unconventional output from the Vaca Muerta Shale in the western Neuquén province fell by 7.2 percent.

Argentine natural gas output has been falling since March 2020 and in April was down by 11.3 percent from the same month in 2019 to 116.7 million cubic metres per day

Oil and gas services companies say that since the start of June there has been an increase in activity, particularly in the Vaca Muerta.

There were 196 hydraulic fracturing stages completed in the Vaca Muerta in June, still less than one-third of 2019 peak activity, compared with just 28 in May and none recorded in April, according to data compiled by Houston-based services company NCS Multistage.

The Argentine natural gas market is also going through a transition, specifically with regards to price formation.

While productivity had improved before the Covid-19 lockdown as a result of increased fracking stages and longer laterals, production costs at the Vaca Muerta are still too high for international markets.

The Argentine government has also been taking measure to stimulate the oil and gas industry, now considered vital for the South American nation’s economic future, by bringing in a $45 per barrel oil price floor for producers to encourage exploration and production.

Energy market reforms include a natural gas pricing structure with a benchmark start being considered of around $3.50 per MMBtu.

The IAE report added that the state-run Argentine Electricity Market Management Company (Cammesa), which purchases natural gas and ensures power supplies, paid subsidies in June amounting to about $2 billion.

The Vaca Muerta has attracted investment partners such as international majors ExxonMobil Corp., Chevron Corp. and Royal Dutch Shell as well as Total, Norwegian company Equinor and Qatar Petroleum.

They are being supported by Argentina’s state-owned energy company Yacimientos Petroleiferos Fiscales (YPF) as a full participant in properties.

Equinor, for example, is partnered with Shell and at the start of 2020 they expanded their acreage. They completed the joint acquisition of the 49 percent interest held by Schlumberger in the Bandurria Sur onshore block, with each paying $177.5M for their 24.5 percent stakes in 56,000 gross acres in the central area of the Vaca Muerta.

YPF is the operator of this project with a 51 percent interest and the block was in the late pilot phase of development before the March lockdown and has production estimates of around 10,000 barrels of oil equivalent per day.

The Argentine company said in a recent presentation that shale oil and gas production would soon account for 20 percent of its overall output.

YPF added that its average first-quarter 2020 natural gas price realizations were $2.80 per MMBtu, down from $3.70 per MMBtu in the same quarter of 2019 and from $4.80 per MMBtu in the first three months of 2018.

Argentine state-run energy company Integracion Energetica Argentina (IEASA), formerly known as Enarsa, has revealed the main winners of its latest LNG cargo tender with four companies chosen as the main suppliers.