Argentina’s government has shown its willingness to boost domestic natural gas production, but an analysis by Wood Mackenzie suggested more might be needed to spur output from operators.

Argentina

In December the national government handed out 23 contracts for 67.42 million cubic meters/day (MMm3/d), or 2.38 Bcf/d, as part of a tender scheme called “Plan Gas 4.” Gas would be delivered through 2024. Winning companies included state oil firm YPF SA, Tecpetrol SA and Pampa Energia SA.

Wood Mackenzie analysts called the tender a success. However, it “does not guarantee that Argentine gas production capacity will grow over the coming years,” said Latin American analyst Mauro Chavez. 

Last year, natural gas production in Argentina declined 9%. Production from the vaunted Vaca Muerta play fell below 900 MMcf/d in December for the first time since October 2018.

In February, the government announced an additional tender to lock in natural gas volumes for the upcoming May-September period. The Energy Secretariat is also seeking a second floating regasification unit to secure supply.

“Plan Gas 4” aims to reduce artificial price mechanisms by “introducing competition into the market.” It also features long-term contracting, which “will work as a further incentive for gas exploration and production.”

Still, Chavez said, it is “worth noting too that the tender attracted conservative offers. This reflects caution from gas producers, as regulations may be amended with little warning… There is a concern too related to fulfillment of payments.”

[NGI’s natural gas price indexes have included trade data from both price reporters and the Intercontinental Exchange (ICE) since 2008]

Chavez said the end-user price policy is key for the future implementation of payment provisions, as the government still needs to define how much of the actual cost of gas and infrastructure will be passed on to end-users, and consequently, at what level subsidies will be set. To achieve this, there is a need for clarity from the government “about the future of the gas pricing policy and energy subsidies,” he said.

“Once these issues are resolved, the Energy Secretariat will have to set new tenders to secure new production capacity that will reduce the trade deficit.”

Wood Mackenzie analysts expect energy demand in Argentina to recover by 2022, at which stage the market would still be short of domestic gas supply, increasing reliance on imported gas and liquefied natural gas to meet the shortfall.

“As such, we should expect a Gas Scheme 2022-2025 and winter tenders jointly with transport capacity expansion. This means Argentina could make the most of its gas resources, considering the short timeframe that the energy transition imposes.”