Argentina oil and gas output continues to fall; YPF reports a better performance
Despite all the efforts and new incentives implemented by the administration of President Cristina Fernandez, Argentina's oil and gas production to August compared to last year's eight months continues to decline although at a slower rate: 2.76% and 6.57% respectively, according to the latest figures released by the Energy Secretary.
Crude production is down to 20.77 million cubic meters, but the volume also hides another problem: the so called Medanito oil is the type that has bottomed most and it is the best blend for the country's refineries. This means Argentina will have to import Nigeria's Bony oil, a blend that will improve local output of petrol and diesel, which are dearer to import.
However when it comes to gas the situation is worse according to official stats. Production volume is down 29.680 million cubic meters in the first eight months of 2013, equivalent to a loss of 6.57% compared to the same period a year ago.
But since gas in Argentina supplies almost half its power demand, to address the deficit the country has increased imports from neighboring Bolivia and by sea in the form of liquid gas which is re-gasified in the ports of Bahía Blanca and Escobar. And this has become the main drain of much needed dollars for Argentina.
The strong decreasing tendency of gas production continues which for Argentina is the main energy component. The fall is persistent and continues since 2004. The 6.3% fall of the last period is more important than in previous years. Oil production loss is also among the highest in the declination average of the last fifteen years, points out Jorge Lapeña, a former Energy Secretary.
Summing up we are undergoing a chronic production decline and also extensive to both hydrocarbons. This coupled with growing demand for energy accelerates the growth of imports and the increase of energy subsidies.
However the performance of the different companies operating in Argentina is not homogeneous. While YPF under CEO Miguel Galuccio reported a minor 0.6% fall in gas production to August and in crude down 0.8%, other companies such as Pan American Energy and Petrobras have experienced greater declinations.
YPF last Friday announced 5% increase in crude production and 3.5% in gas compared to the same month a year ago. But YPF represents 35% of production, and while the nationalized company has ample government support, and financing, the same can't be said of the private sector.
In effect there is persistent uncertainty and fear of discretional intervention from government; there is over exploitation of existing reserves which means lower productivity, and if this is the path, it means reserves and global production will continue to fall, says Daniel Montamat another former Energy Secretary and ex president of YPF.
The government of Cristina Fernandez is desperately trying to turn the energy deficit tide, which she started with the seizure of a majority stake in YPF from Repsol claiming that the Spanish company had deliberately neglected exploration and increasing production of oil and gas in Argentina. Her administration also lifted the freeze on oil and gas wholesale prices at the well and allowed sustained increases at the pump, and promised the new investors that in five years a significant share of their production could be freely exported.
The energy bill is expected to cost Argentina anywhere from 7 to 9 billion dollars this year. Just a few years ago Argentina was a net exporter of crude and refined products.