Argentine energy minister sees $50/b oil supporting shale growth

Crude oil prices around $50/b are providing Argentina with a strong opportunity to push expansion of its nascent shale industry, which would ultimately help to improve the efficiency of its oil and gas sector, Minister of Energy and Mining Juan Jose Aranguren told S&P Global Platts Friday.

“What these new price scenario is giving the whole oil and gas sector is the opportunity to improve our efficiency to be more competitive even at this low price,” Aranguren said in an interview on the sidelines of the Japan-Argentina Economic Forum in Tokyo.

“Of course if you have a higher price, you can have more opportunities, but in this particular case, I think the Argentine sector is adjusted to this price scenario,” said Aranguren, who was accompanying Argentine president Mauricio Macri with other cabinet ministers.

“At $50/b, companies are telling me that if we manage to improve productivity in the country, particularly labor productivity, they can cope with this price scenario.”

Argentina has among the largest shale oil resources in the world, which have started to come into production and are expected to offset dwindling conventional oil production at maturing fields.

Although Argentina’s oil production is falling to less than 500,000 b/d from an average of 511,000 b/d in 2016, Aranguren said: “It will be the balance between local production and opportunities to import crude.”

NOT PARTICIPATING IN OPEC/NON-OPEC TALKS

Argentina is not concerned about the current $50/b oil price, and is more concerned about gas prices because of its higher exposure, Aranguren said.

“Honestly, we are more concerned about natural gas prices than oil prices,” Aranguren said. “Of course we are producing oil, but you need to take into account that our energy mix in Argentina is dominated by natural gas –54% of our primary energy mix is gas.”

“In the case of oil, we are importing few cargoes per year so we are not so concerned,” he said.

Argentina currently imports LNG with a reference to US Henry Hub or UK Brent crude prices, Aranguren said.

“Currently, we are importing at around $5.50-6/MMBtu, when Henry Hub is at $3/MMBtu,” he said.

Taking into account liquefaction, transportation and regasification costs, Aranguren said: “So in the particular case of Argentina, marginal prices are higher. That’s a reason why we have some incentives for local companies to increase production.”

Asked to comment on whether Argentina is attending a meeting between OPEC and non-OPEC producers in Vienna about coordinating production cuts on May 25, Aranguren said: “Argentina is not participating in this type of gathering.” “In fact, honestly we do not believe in this type of situation where the pricing results should be a consequence of market interaction — market forces — supply and demand,” he said.

RISING INVESTMENTS IN VACA MUERTA

Despite the low oil price investments, Aranguren said Argentina expects to see a rise in investments in Vaca Muerta, the country’s biggest shale play, in the next few years.

“We reckon that in the case of Vaca Muerta this year will be around $3.5-4 billion, and next year will be around $10 [billion],” said Aranguren, adding that investments are expected to rise further to around $15 billion-$20 billion/year in a six-year period from 2019.

Investments in Vaca Muerta are set to rise to $20 billion/year in 2019 as more companies bet on the production potential, Argentina Minister of Production Francisco Cabrera said on May 10.

Investment started to rise in Vaca Muerta this year after the governments of Argentina and Neuquen province reached a deal with producers and unions designed to cap tax pressure, reduce labor costs and improve worker productivity to make drilling for shale and tight resources cheaper and more competitive.

In order to boost shale production, Aranguren said Argentina needs to build infrastructure, adding that the country has plans in place.

“We need companies, Japanese companies like Mitsui and Marubeni that are prepared to invest in midstream,” Aranguren said. “In order to develop gas pipelines, early production facilitates, railways in order to bring sand, pipelines and water to the area where we produce shale oil and shale gas.”

Commenting on Argentina’s planned launch of its first offshore bidding round since the early 1990s by year-end, Aranguren said: “We are taking some early steps to make sure that by the next decade we will have a plenty of projects in the pipeline in order to satisfy the country’s energy needs.”

JAPAN, ARGENTINA TRADE, INVESTMENT ROADMAP

Japan’s Ministry of Economy, Trade and Industry and Argentina’s Ministry of Production, meanwhile, agreed Friday on a roadmap for bilateral cooperation to enhance trade and investment.

Following the agreement, Argentina’s MOP and the Argentina Investment and Trade Promotion Agency will formulate and implement an action plan to promote Japanese investment in Argentina in sectors including energy, infrastructure and oil and gas in fiscal year 2017, according to a statement.

Courtesy SPGlobal