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Argentina Bets on Natural Gas in Hydrocarbons Bill as Vaca Muerta Comes to Life
Argentina’s government has sent a bill to its congress to support the exploration and production of hydrocarbons in Argentina over the next 20 years.
One of the key elements of the bill is that the “process of energy transition involves primarily the general adoption of natural gas in the energy matrix.”
The bill includes price stabilization mechanisms, and guarantees that volumes produced for export will see preferential tax rates and access to capital markets. This would be in addition to current incentive programs in the sector.
“The mandate of the president and vice president is very clear and is to generate a legislative tool that allows us to first ensure self-sufficiency of hydrocarbons and then to go for an increase in production that allows us to generate exportable volumes,” said energy secretary Darío Martínez. “The fulfillment of these objectives will allow a sustained inflow of foreign currency, strengthening the position of the Central Bank of Argentina.”
Natural gas already makes up 58% of total energy consumption in the country, according to Buenos Aires-based IAE Argentine Energy Institute. Analysts there pointed out that Argentina’s switch to a gas-centered energy mix occurred in the 1980s and 1990s with the building of major pipelines and power plants.
What has changed since that period is the discovery and subsequent development of the Vaca Muerta shale formation in Neuquén province. Activity in Vaca Muerta has recently started to boom.
Natural gas output in Vaca Muerta grew sequentially every month from May through August and hit an all-time high of almost 1.6 Bcf/d in August, compared to 890-920 MMcf/d during the six-month period from November 2020 to April 2021, according to analysts at Rystad Energy.
“There is no doubt that an average development in the Vaca Muerta oil zone delivers significantly higher production rates on a barrel of oil equivalent basis than an average U.S. onshore tight oil well – with the Permian Delaware Basin being the only one that comes close to Vaca Muerta in this aspect,” said Artem Abramov, head of shale research at Rystad.
Significant progress also has been made in efficiency in recent years, and Vaca Muerta “has advanced rapidly on the global unconventional cost curve,” Rystad analysts said. They added that “a standard well in 2021 is already approaching the top quartile range seen in the Permian.”
The analysts at IAE, however, issued a statement criticizing the hydrocarbons bill. They argued it relies too heavily on unsustainable government subsidies and doesn’t do enough to prepare for the energy transition.
Presenting the bill to congress, Argentina’s President Alberto Fernández said that the bill aims to “provide certainty” so that “rules over the course of 20 years don’t change.” He added that this is an initiative “where everyone’s opinion has been heard.”
The push for certainty in natural gas development comes amid a global supply crunch that has seen record levels of liquefied natural gas (LNG) pour into the region. Neighboring Brazil is suffering from a historic drought and is importing LNG to keep the lights on.
In an unprecedented move, Argentina in late September agreed to re-export LNG it imports and pipe additional gas to Brazil. There has also been renewed talk of the construction of a natural gas pipeline from Vaca Muerta to southern Brazil.
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