Natural gas production in Argentina decreased by 10% year/year in June to 126 million cubic meters/day (MMm3/d), or 4.45 Bcf/d, according to the latest report by the IAE Argentine Energy Institute.

Analysts attributed the drop to restrictions in place because of the coronavirus pandemic and “a level of demand notably different from the same month last year.” Argentina has had one of the strictest lockdowns in place globally since the pandemic began to spread in March. 

June’s production was up marginally from May, when production was 4.39 Bcf/d.

Electric power demand in Argentina rose by 1% in June to 358.3 GWh/d. Thermoelectric power, principally from natural gas, has accounted for 62% of power generation in 2020, according to the report.

So far in 2020, the prolific Vaca Muerta shale formation has accounted for roughly 25% of all natural gas production in the country.

June natural gas production in Vaca Muerta was 31.6 MMm3/d, or 1.12 Bcf/d, compared with 32.8 MMm3/d, or 1.16 Bcf/d, in June 2019. Gas production out of Vaca Muerta in June rose slightly compared to May, when production was 29.4 MMm3/d, or 1.04 Bcf/d.

The largest producers in June in Vaca Muerta were Argentina’s Tecpetrol SA (437 MMcf/d), followed by state oil firm YPF SA (261 MMcf/d), and the local subsidiary of France’s Total SE (170 MMcf/d).

In response to the demand destruction and adverse market conditions, the Argentine government has instituted a $45/bbl oil price floor for producers to try to motivate exploration and production. It’s expected that new laws on natural gas pricing will ensue, with a price figure of around $3.50/MMBtu being studied.

These policies, while propping up upstream activity, mean rising government subsidies in the sector. Accumulated energy subsidies were $2.6 billion in the first half of 2020, double the same period last year, according to the IAE report.

This week the Argentine government also announced it had reached a preliminary agreement with its biggest creditors to restructure $65 billion in foreign debt. The government said the agreement will allow creditor groups to support Argentina’s debt restructuring proposal and “grant Argentina significant debt relief.”

If the deal goes ahead, along with another debt agreement pending with the International Monetary Fund, Argentina will regain access to foreign capital markets, which is seen as key to lifting an economy that is now in its third straight year of recession. 

Earlier this year, the vice president of the Argentine Energy Institute, Gerardo Rabinovich, told NGI that the renegotiation of the country’s foreign debt was also key to the government of Alberto Fernández establishing energy policy for the upcoming four years.