Argentina’s cash-strapped government says it can find US$ 5.1 billion to give to natural gas drillers in a bid to resurface the country’s Vaca Muerta shale patch and prevent a jump in imports of the fuel.
The four-year subsidy program that was announced last week will cost Argentina more than US$ 1 billion annually, including US$ 1.5 billion in 2021, at a time when the government is struggling to recover investor confidence following a debt restructuring and hasn’t posted a monthly fiscal surplus in a year.
Drillers may be wary after previous subsidy programs saw producers encounter difficulties in receiving payments and confusion over the rules. Energy Secretary Dario Martinez said spending on subsidies is still better than the alternative of buying cargoes of liquefied natural gas, even though LNG is cheap at the moment.
“We’ve done the analysis and we really benefit from doing this,” Martinez told reporters in Buenos Aires. The government incorporated the LNG slump into its calculations and estimates it will still save US$ 2.6 billion from 2021 to 2024 by subsidizing drillers instead of importing fuel.
Vaca Muerta in Patagonia is the world’s second-biggest shale gas formation. Production there was floundering even before Covid-19 roiled markets because of supply gluts and pipeline restrictions. Soaring gas output from Tecpetrol SA, a unit of billionaire Paolo Rocca’s Techint empire, came just as Argentina’s economy began to shrink, slashing prices and putting the brakes on drilling.
The latest subsidy program hopes to lure US$ 5 billion of investments and a dozen drill rigs, Martinez said. Companies that compete in an auction next month for three-year supply contracts can receive a maximum of US$ 3.70 per million British thermal units, with the government covering the difference between the winning bids and prices currently paid by consumers of US$ 2.30. Other natural gas basins, not just Vaca Muerta, are eligible.
State-run YPF SA will probably be one of the biggest beneficiaries, and the government has also held talks with Pan American Energy LLC, Total SA, Cia General de Combustibles SA and Pampa Energia SA,
Martinez said. It is also in discussions with Tecpetrol since it’s unclear whether the company will be able to take part while it pursues a legal battle to receive a better rate under a previous program. Tecpetrol says it is waiting for full details of the new program to be published to know where it stands.