On August 11 2022, the Minister of Economy, Sergio Massa, announced a set of measures to boost investment in Vaca Muerta and advance in the construction of strategic infrastructure to evacuate the incremental production of the unconventional formation of the Neuquén basin.
What were the most relevant definitions left by Massa’s visit to Neuquén?
- Massa announced that he will shortly sign the extension of the Oldelval and Oiltanking-Ebytem concessions to support investments of USD $1.4 billion to expand the pipeline system from Vaca Muerta to Bahía Blanca, in order to double the capacity to transport crude oil to the refineries and the port of Buenos Aires.
- The Minister also announced that the companies TotalEnergies, Pan American Energy (PAE) and Wintershall Dea will invest USD $700 million to move forward with the construction of Fénix, an offshore project that will revitalize gas production in the Austral basin. For that, the initiative must be included under the umbrella of Law 19640, which created the industrial promotion regime of Tierra del Fuego and contemplates tax and fiscal benefits for companies that invest in the province.
- Regulation of Decree 277, which established a differential exchange regime for companies that increase their hydrocarbon production. As stated by Massa, “the regulatory decree will give the sector an enormous number of competitive advantages over the growth of the hydrocarbon supply from January 1”, given that “it presumes the free availability of foreign currency for those who invest to the extent that there is growth in production”. The producing companies hope to know the fine print of the rule to weigh the real dynamizing effect on disbursements in the upstream of hydrocarbons. It is estimated that free availability could be around 30% or 40% of registered exports from 2023.
- Uninterruptible gas exports. The Minister indicated that he will establish by Decree “a legal shield that generates credibility with the countries of the region” so that producers can sign firm natural gas export contracts.
- Green import channel. A special system will be created to speed up the import processes of equipment and supplies for the oil industry, so that production and service companies do not suffer delays in importing machinery and technology. As announced by Massa, “we want the value chain to have a more agile system. But at the same time we do not want a foolish state, so we are going to denounce from Customs companies that under-invoice or over-invoice imports. In fact, we are going to report a service provider company for overbilling. We are going to denounce it in the United States Justice”.
- Second stage of the Néstor Kirchner Gas Pipeline. The Minister stated that “we signed the construction contracts for the first stage of the gas pipeline, which if we do everything right, will allow us to save USD $2.2 billion next year in terms of gas imports”. But in turn, private financing will be sought to build a gas pipeline between Salliqueló and San Jeronimo, in order to replace gas imports from Bolivia (“which has been declining”) and also provide gas to regions that do not have gas, such as Corrientes. “In the long term we have to go find the Brazilian market,” he said. According to private sources, the initiative could be leveraged through a PPA contract with a state company (it could be Cammesa or Enarsa) similar to those used to expand the electricity generation park (RenovAr, Resolution 21 or 220). “At the same time, we are going to convene a joint table so that in the next three weeks a single gas sales contract model can be defined”.
- Finally, Plan Gas 5. Massa indicated that a table will be formed with the Undersecretary of Hydrocarbons, YPF and Enarsa to “design a model to extend the Plan Gas.Ar” in order to achieve the 11 million cubic meters per day that will be demanded by the Néstor Kirchner gas pipeline.
Carbon emission reporting at Vaca Muerta
On August 25 2022, the provincial Minister of Energy, Alejandro Monteiro, announced that production and special service companies will be asked to report their level of greenhouse gas emissions from 2016 onwards.
Just as the Ministry of Energy and Natural Resources of Neuquén tries to establish measures that contribute to reducing production costs in Vaca Muerta and facilitate the learning curve in non-conventional training based on the incorporation of technology and greater operational efficiency, one of the innovations it wants to begin to survey for the first time in the province and in the national hydrocarbon industry is the level of greenhouse gas emissions, mainly carbon, from producing companies.
As stated by Monteiro, “these measurements are planned for the different productive activities, mainly in the oil and gas sector, within the framework of a program that is carried out through the interministerial table for the articulation of public policies on adaptation and mitigation to climate change”.
Basically, what will be sought is to have a baseline of the level of emissions and also begin to reveal what are the strategies that each of the companies have. In order to establish that starting line, the idea is that companies measure and report their emissions, and those of the suppliers they hired from 2016 onwards. Although Monteiro admitted that the implementation of the new system will take time, information has already begun to be requested from the companies that work in the Neuquén basin.
LNG, Vaca Muerta and bilateral agreements
In September 2022 YPF and the Malaysian oil company Petronas will be announcing a joint development agreement that has, among other objectives, an export project for the production of Liquefied Natural Gas (LNG), which would require an initial investment of USD $10 billion, according to what sources from the industry and the national government are beginning to express.
The first details that began to emerge, prior to the formal announcement, is that the agreement for an initial investment of USD $10 billion contemplates the development of gas areas in Vaca Muerta, the construction of a new gas pipeline probably to the Port of Bahía Blanca and a plant to transform shale gas into LNG for transport by ship. Due to the magnitude of the project, it is assured that the announcement would contemplate stages for the next 10 years for an amount of USD $40 billion, according to national government sources. According to the original project, at the peak of development it could reach 125 million cubic metres per day, in a scalable process over a decade.
In this way, Argentina could join the league of LNG producing countries for the first time, a strategic input on a global scale in the midst of the supply crisis that became clearer with the war between Russia and Ukraine-NATO.
The 2nd Argentina Energy Summit 2022
On August 24 2022, Argentina’s official national energy event concluded its works, after successfully bringing together top representatives from the Argentine authorities, the energy industry, as well as local and international stakeholders and investors. As announced by Secretary of Energy, Flavia Royón, Keynote Speaker at the Summit, “Argentina has a privileged energy reality and its government will convert resources into wealth”.
During the 2nd Argentina Energy Summit, the Argentine Secretary of Energy, Flavia Royón highlighted the importance of the development of strategic works in Vaca Muerta that will make it possible to create foreign exchange savings and contribute to fiscal reorganization, as well as the importance of renewable energy developments throughout the country. The Secretary finalized her participation by highlighting the importance of working together with the private sector to generate the best natural gas investment, production and marketing schemes, announcing that “the Argentine government is committed to making a qualitative leap to generate energy security for Argentines in a world where energy has become scarcer and more expensive. It is key to developing a competitive energy sector in our country”.
Furthermore, Ricardo Rodríguez, Country Chair at Shell, mentioned that “Shell is committed to the development of the country, and during its almost 110 years in Argentina, the company has recognized and appreciated the quality of resources, including local content and its expertise, that the country possesse, and is very excited about its ongoing participation at Vaca Muerta where the company has been since 2012 and currently possess 7 blocks, 4 of which are operated by the company in partnership with GYP and YPF”. These interventions sum up the overall response received during the 2nd Argentina Energy Summit, which exemplifies the amazing potential Argentina possesses, specially in Vaca Muerta, and the exceptional future that lies ahead.
In addition to the aforementioned, Royón spoke about the country’s self-sufficiency and energy matrix, stating that “in terms of oil and gas, the strategic decision of the Argentine government is to create conditions to boost the activity and contribute to achieving energy self-sufficiency and strengthening the balance of payments. The country’s energy matrix must guarantee the economic and social development of the country, and be a crucial vector for Argentina’s competitive industrial development”.