Unconventional Gas in Argentina

104 Pages·2016·11.15 MB·English

by  Gomes & Brandt

October2016
Unconventional Gas in Argentina:
Will it become a Game Changer?
OIES PAPER: NG 113 Ieda Gomes & Roberto Brandt
Thecontentsofthispaperaretheauthors’soleresponsibility.Theydonot
necessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyof
itsmembers.
Copyright©2016
OxfordInstituteforEnergyStudies
(RegisteredCharity,No.286084)
Thispublicationmaybereproducedinpartforeducationalornon-profitpurposeswithoutspecial
permissionfromthecopyrightholder,providedacknowledgmentofthesourceismade.Nouseofthis
publicationmaybemadeforresaleorforanyothercommercialpurposewhatsoeverwithoutprior
permissioninwritingfromtheOxfordInstituteforEnergyStudies.
ISBN978-1-78467-070-2
ii
October2016:UnconventionalGasinArgentina
Preface
Prior to the dramatic reduction in regional gas reference prices and global oil prices in 2014,
Argentina was viewed as one of the key ‘next best bets’ for successful shale gas development after
the remarkable success of shale gas in the US. Despite the handicap of a deteriorated upstream
investment framework under the Kirchner administration - hopes were rekindled for a more IOC-
friendlyenvironmentunderPresidentMauricioMacri.
Argentina clearly has a world-class shale gas resource and its ‘crown jewel’ is the Vaca Muerta play.
How such a resource might be developed and link to global gas trade flows in terms, for example, in
reducing Argentina’s LNG import requirements is a complex multi-vector issue. This paper by Ieda
Gomes and Roberto Brandt provides a comprehensive analysis of Argentina’s gas prospects based
onadeepcontextualunderstandingofthecountry’s hydrocarbonhistory,thechangingregulatoryand
political framework of oil and gas production and its changing attractiveness, or otherwise, for IOC
investment,andtheoutlookforthefuture.
Regional gas prices prevailing in 2016 are generally below the levels required to bring on major new
tranches of gas supply in a global sense. It is not surprising then that upstream activity in
unconventional gas in Argentina is currentlysubdued. As the marketrebalances over the next five to
tenyears,thispaperprovidestheinsightintohowArgentina’supstreamgasindustrymightrespond.
The OIES Gas Programme has a keen interest in understanding all the main moving parts on the
demand and supply side of the global gas system as this informs not only the likely regional and
globalpriceformationevolutionarydynamicsbutalsotheresultinggeo-politicalimpacts. Iam grateful
to the authors of this paper for providing such a comprehensive assessment of Argentina’s upstream
conventionalandunconventionalpotentialandthelikelyroleitwillplayintheglobalsystem.
HowardRogers
Oxford
September2016
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October2016:UnconventionalGasinArgentina
Acknowledgements
Theauthors wouldliketospeciallyacknowledgethefollowinginstitutions for thetimedevotedbytheir
representatives topersonal interviews or responses to questionnaires:Chevron Argentina, Fundación
Ambiente y Recursos Naturales (FARN/Argentina), Instituto Argentino del Petróleo y el Gas (IAPG),
Ministerio de Energía y Minería (MEyM/Argentina) - Secretarías de Recursos Hidrocarburíferos y de
Planeamiento Energético Estratégico -, Pluspetrol, Shell, Tecpetrol, The Nature Conservancy (TNC),
WintershallArgentinaandYPF.
They also express their gratitude to the following colleagues, for their inputs and feedback: Eduardo
Bobillo,GuillermoEstévez,JorgeNocciolino,FernandoPinoandLuisStinco.
Theauthors also wouldliketothank members of theOxfordInstitutefor EnergyStudies,in particular,
Howard Rogers and Jonathan Stern for insights and reviewing the paper, and Kate Teasdale and
JohnElkinsforthefinalformattingandediting.
About the Authors
Ieda Gomes is a Senior Visiting Research Fellow at the Oxford Institute for Energy Studies. Her
areas of expertiseinclude naturalgas andLNG marketfundamentals as wellas energypricing,policy
and regulation, particularly in developing countries in South Asia, the Middle East, Africa and Latin
America. Ieda’s career in the gas and energy industry spans more than 30 years. She worked for
nearly 14 years at BP plc as Vice President for new ventures and market development on several
international assignments and for 19 years at the largest gas distribution company in Brazil, Comgas.
She has been akeyparticipant and shaper of events inBrazil’s gas industry- from theintroductionof
natural gas supplies in Sao Paulo to the negotiation and signature of the domestic and Bolivian gas
supply agreements, the privatisation of Comgas and the establishment of the Brazilian Association of
Gas Distribution Companies (ABEGAS). Ieda is based in the UK and sits on the boards and advisory
councilsofseveralcompaniesandassociations.ShewritesabimonthlycolumnforBrazilEnergiaand
is asenior adviser of theBrazilianthink tank FGVEnergia.Iedaholds aBSc inChemicalEngineering
(University of Bahia, Brazil) and MSc’s in Energy (University of São Paulo, Brazil) and Environmental
Engineering(PolytechnicSchoolofLausanne,Switzerland).
Roberto Brandt is a senior international energyconsultant, with 38 years of experience in corporate,
public policy, consulting and academic activities. From 2000 to 2009 he acted as senior executive of
BG Group, with responsibilities in Argentina (as CEO of MetroGAS, the largest gas distribution
company of South America), Uruguay (as CEO of Gasoducto Cruz del Sur) and the United Kingdom
(as member of the Strategy team). Between 1988 and 2000, he was fully devoted to energy
consulting- withspecialfocusonoilandgasinLatinAmerica-,asPresidentofEcoenergía(first)and
Mercados Energéticos (later). From 1978 to 1988, Roberto performed as Advisor to the Energy
Secretary of Argentina - among other tasks, as Project Director of the 1986/2000 National Energy
Plan-andasHeadofthePricingDivisionandCommercialPlanningeconomistofYPF(theArgentine
National Oil Company). Roberto has an extensive record of accomplishment in international energy
organisations, including the International Gas Union (IGU), the World Energy Council (WEC), the
World Petroleum Council (WPC) and the Latin American Energy Organization (OLADE). He holds a
BSc degree in Economics (University of Buenos Aires, Argentina) and an MSc (DEA) in Energy
Economics(UniversityofGrenoble,France).
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Units
Arg$ = Argentinepesos
Bbl = Barrelsofoil
Bcf = Billioncubicfeet
Bcf/d = Billioncubicfeetperday
Bcm = Billioncubicmetres
Bcma = Billioncubicmetresperannum
boe = Barrelsofoilequivalent
Boe/d = Barrelsofoilequivalentperday
Btu = BritishThermalUnits
GJ = Gigajoule
GW = Gigawatt
GWh = Gigawatthour
m³ = Cubicmetres
m³/d = Cubicmetresperday
MMBtu = MillionBritishThermalUnits
MMcf = Millioncubicfeet
MMcf/d = Millioncubicfeetperday
MMm3/d = Millioncubicmetresperday
MTPA = Milliontonnesperannum
MW = Megawatt
MWh = Megawatthour
Tcf = Trillioncubicfeet
Tcm = Trillioncubicmetres
toe = Tonnesofoilequivalent
Tonnes = Metrictonnes
USD = USdollars
Conversion factors utilised
1GJ=0.94781712MMBtu
1cubicfeet=0.02832cubicmetres
1Tcf=28.32x109m3ofnaturalgas
109m3ofnaturalgas=35.351Bcf
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Glossary
ADIGAS ArgentineGasDistributors’Association
ARI AdvancedResourcesInternational
Asociación Argentina de Presupuesto y Administración Financiera Pública (Argentine
ASAP
AssociationofBudgetingandPublicFinanceAdministration)
Brent Brentcrudeoil-Benchmarkforinternationalpricing
CAF CorporaciónAndinadeFomento
CAGR CompoundAnnualGrowthRate
CompañíaAdministradoradelMercadoMayoristaEléctrico(ArgentineWholesaleElectricity
CAMMESA
MarketDispatchOperator)
CAPEX CapitalExpenditure
CIA USCentralIntelligenceAgency
CIF Cost,InsuranceandFreight
CNG CompressedNaturalGas
DCQ DailyContractedQuantity
DES DeliveredEx-Ship
DOE USDepartmentofEnergy
EIA USEnergyInformationAdministration
ENAP EmpresaNacionaldePetróleodeChile(ChileanNationalOilCompany)
ENARGAS EnteNacionalReguladordelGas(NationalGasRegulatoryBoard)
ENARSA EnergíaArgentinaS.A.(ArgentineState-ownedEnergyCompany)
FOB FreeonBoard
GDP GrossDomesticProduct
GNF GasNaturalFenosa
HH HenryHub(USNaturalGasReferencePrice)
IAPG InstitutoArgentinodelPetróleoyelGas(ArgentineInstituteofOilandGas)
IMF InternationalMonetaryFund
INDEC InstitutoNacionaldeEstadísticasyCensos(ArgentineNationalInstituteofStatistics)
LNG LiquefiedNaturalGas
LPG Liquefied(orliquid)PetroleumGas
Ministerio de Ambiente y Desarrollo Sustentable (Argentine Ministry of Environment and
MAyDS
SustainableDevelopment)
MEG MercadoElectrónicodelGas(ArgentineElectronicGasMarket).
MME MinisteriodeMinaseEnergia(BrazilianMinistryofMinesandEnergy)
MEyM MinisteriodeEnergíayMinería(ArgentineMinistryofEnergyandMines)
NGLs NaturalGasLiquids
NGO Non-GovernmentalOrganisation
OPEX OperationalExpenditure
RLI ReservesLifeIndex
Proppant Sandorman-madematerialsdesignedtokeephydraulicfractures
TELAM ArgentineNewsAgency
TGN NorthGasTransmissionCompany
TGS SouthGasTransmissionCompany
USA UnitedStatesofAmerica
VAT Value-addedtax
WTI WestTexasIntermediatecrudeoil–Benchmarkforinternationalpricing
YPF YPF(Argentina),formerlyYacimientosPetrolíferosFiscales
YPFB YacimientosPetrolíferosFiscalesBolivianos
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Contents
Preface..................................................................................................................................................iii
Acknowledgements.............................................................................................................................iv
AbouttheAuthors................................................................................................................................iv
Units.......................................................................................................................................................v
Conversionfactorsutilised..................................................................................................................v
Glossary................................................................................................................................................vi
Contents...............................................................................................................................................vii
Figures................................................................................................................................................viii
Tables.....................................................................................................................................................x
1.Introduction.......................................................................................................................................1
2.Briefcountryandenergysectoroverview.....................................................................................3
2.1Countryoverview..........................................................................................................................3
2.2Energysectoroverview.................................................................................................................7
3.CharacterisationofArgentina’snaturalgasmarket...................................................................12
3.1Institutionalframework,industrystructureandrelevantplayers.................................................12
3.2Overviewoftheregulatoryframework........................................................................................14
3.3Keyactivityindicators,pricingandsubsidies..............................................................................17
3.4NaturalgasandLNG:Importsupplyoptions..............................................................................34
3.5Unconventionaloilandgasexplorationandproduction:Currentstatus....................................42
4.Naturalgasdemandandsupplyoutlookfor2016/2030..............................................................55
4.1Keyassumptions.........................................................................................................................55
4.2Demandandsupplyscenarios....................................................................................................57
5.Unconventionalgasdevelopmentprospects..............................................................................62
5.1Investmentoutlookandproducers’plans...................................................................................62
5.2Keychallenges............................................................................................................................66
6.Keysuccessfactorstodevelopunconventionalgas.................................................................74
6.1KeyenablersandlessonsderivedfromtheUSAexperience.....................................................74
6.2Timinganddoability:TheArgentinecase...................................................................................80
7.Conclusionsandinsights..............................................................................................................83
7.1Mainfindings...............................................................................................................................83
7.2Keydriversforunconventionalgasdevelopment.......................................................................87
Bibliography........................................................................................................................................91
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Figures
Figure2.1.1Argentina:GrossDomesticProduct(GDP)bySector–2015............................................3
Figure2.1.2Argentina/SelectedCountries:ComparativeGDPEvolution–2000/2015......................4
Figure2.1.3Argentina:ShareofMercosurTradeZone-2014..............................................................4
Figure2.1.4Argentina:TopImportsandExports–2014(BillionUSD).................................................5
Figure2.1.5Argentina:ForeignTrade-2000/2015(BillionUSD)..........................................................6
Figure2.1.6Argentina:ForeignCurrencyReserves(1)–2000/2016(BillionUSD)..............................6
Figure2.2.1Argentina:NaturalGasContributiontotheNationalEnergyBalance-1980/2014(%of
totalenergysupply1)...............................................................................................................................8
Figure2.2.2Argentina/SelectedCountries:GasContributiontotheNationalEnergyBalance-20158
Figure2.2.3Argentina:ProductionandConsumptionofHydrocarbons–2000/2014(106toe).............9
Figure2.2.4Argentina:FuelsExportsandImports(1)–2000/2015(BillionUSD)..............................10
Figure2.2.5Argentina:PowerCapacity(1)–2000/2015(MW)...........................................................10
Figure2.2.6Argentina:PowerGeneration(1)–2000/2015(GWh).......................................................11
Figure3.1.1Argentina:GovernmentalAuthoritiesRelevantfortheGasMarket,inAugust2016.......12
Figure3.1.2Argentina:StructureoftheGasIndustry..........................................................................13
Figure3.1.3Argentina:KeyGasIndustryPlayers................................................................................14
Figure3.2.1Argentina:GasMarketRegulatoryFrameworkOverview,inAugust2016–Authorities.15
Figure3.2.2Argentina:GasMarketRegulatoryFrameworkOverview,inAugust2016-Regulation.15
Figure3.3.1Argentina:MainProductiveBasins...................................................................................18
Figure3.3.2Argentina:ProvedNaturalGasReservesbyBasin,asat12/31/2014.............................18
Figure3.3.3Argentina:ProvedNaturalGasReservesbyBasin-2000/2014(Tcf).............................19
Figure3.3.4Argentina:ProvedNaturalGasReservesbyOperator,asat12/31/2014(Tcf)...............19
Figure3.3.5Argentina:BasinscontainingShaleResources................................................................20
Figure3.3.6Argentina:EstimatedTechnicallyRecoverableShaleOilResources–2013(BillionBbl)
..............................................................................................................................................................20
Figure3.3.7Argentina:EstimatedTechnicallyRecoverableShaleGasResources–2013(Tcf).......21
Figure3.3.8Argentina:GrossNaturalGasProductionbyBasin-2015..............................................21
Figure3.3.9Argentina:GrossNaturalGasProductionbyBasin-2000/2015(Bcf)............................22
Figure3.3.10Argentina:GrossNaturalGasProductionbyOperator–2015(Bcf).............................22
Figure3.3.11Argentina:NaturalGasProvedReserves/GrossProductionRatiobyBasin-2000/2014
..............................................................................................................................................................23
Figure3.3.12Argentina:MainFacilitiesoftheNaturalGasTransmissionSystem,inAugust2016...24
Figure3.3.13Argentina:NaturalGasUtilisation,byDestination–1980/2014....................................25
Figure3.3.14Argentina:NaturalGasReserves,ProductionandDomesticConsumption–2000/2015
..............................................................................................................................................................25
Figure3.3.15Argentina:NaturalGasandLNG(1)Imports–2000/2015............................................26
Figure3.3.16Argentina:NaturalGasSupplybySource-2015...........................................................27
Figure3.3.17Argentina:NaturalGasExports–2000/2015.................................................................27
Figure3.3.18Argentina:DomesticandInternationalOilPrices,asatAugust15,2016......................28
Figure3.3.19Argentina:ProducerandImportGasPrices,inMarch2016...........................................30
(USD/MMBtu)(1).....................................................................................................................................30
Figure3.3.20Argentina:ProducerandImportGasPrices,inAugust2016(USD/MMBtu)(1).............30
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Figure3.3.21Argentina:RepresentativeNaturalGasEnd-UserAveragePriceStructureinBuenos
AiresCity,inMarch2016(USD/MMBtu)..............................................................................................31
Figure3.3.22Argentina:RepresentativeNaturalGasEnd-UserAveragePriceStructureinBuenos
AiresCity,inAugust2016(1)(USD/MMBtu)........................................................................................32
Figure3.3.23SouthernCone:ComparisonofRepresentativeEnd-UserPricesforNaturalGas,in
June2015(USD/MMBtu)......................................................................................................................32
Figure3.3.24Argentina:DomesticEnergySubsidies–2005/2014.....................................................33
Figure3.4.1Argentina:NaturalGasEntryPointsand2016AnnualisedImports.................................34
Figure3.4.2Bolivia:NaturalGasReserves,ProductionandDomesticConsumption–1999/2015....36
Figure3.4.3Bolivia:InvestmentinOil&GasExplorationandProduction–2000/2014......................37
Figure3.4.4Bolivia:GasAvailabilityforArgentina/Case1(Low)–2013/2026.................................38
Figure3.4.5Bolivia:GasAvailabilityforArgentina/Case2(High)–2013/2026................................38
Figure3.4.6Bolivia:GasAvailabilityforArgentina/Case3(HighBoliviaDomesticDemand)–
2013/2026.............................................................................................................................................39
Figure3.4.7Bolivia(YPFB)/Argentina(ENARSA):Contractedvs.ActualDelivery-2016.................39
Figure3.5.1Argentina:UnconventionalNaturalGasGrossProductionbyBasin-2010/2015(1)(Bcf)
..............................................................................................................................................................42
Figure3.5.2Argentina:UnconventionalNaturalGasGrossProductionbyTypeofReservoir-
2010/2015(1)(Bcf)...............................................................................................................................43
Figure3.5.3Argentina:UnconventionalNaturalGasGrossProductionbyOperator–2015(Bcf).....43
Figure3.5.4Argentina:Tight-SandsGasandShaleWellsCompleted(1)-2010/2015......................44
Figure3.5.5Argentina:Tight-SandsGasandShaleWellsCompleted,byOperator–2015..............44
Figure3.5.6Neuquén(Argentina):Tight-SandsDevelopmentbyYPF–LajasandMulichinco
formations..............................................................................................................................................45
Figure3.5.7NeuquénBasin(Argentina):ShaleOilandGasFormations............................................47
Figure3.5.8NeuquénBasin(Argentina)CrossSection:VacaMuertaandLosMollesShale
Formations............................................................................................................................................47
Figure3.5.9VacaMuerta(Neuquén/Argentina): AcreageDistributionbyCompany-2015...............48
Figure3.5.10VacaMuerta(Neuquén/Argentina):YPFGrossShaleOilandGasProduction(1)-
2014/2015.............................................................................................................................................48
Figure3.5.11VacaMuerta(Neuquén/Argentina):MainPilotandDevelopmentProjects...................49
Figure3.5.12VacaMuerta(Neuquén/Argentina):ShaleOilandGasWellsDrilled–2010/2015.......50
Figure3.5.13Argentina:DomesticGasProductionCostRangebyMainTechnologies,inAugust
2016......................................................................................................................................................51
Figure3.5.14Argentina:UnconventionalOilandGasExplorationandProductionInvestments–
2012/2015(MillionUSD).......................................................................................................................52
Figure4.1.1Argentina:GrossDomesticProductForecast–2016/2030...........................................55
Figure4.1.2WorldBankBrentOilPriceForecast–2016/2030.........................................................56
Figure4.1.3Argentina:Tight-SandsGasandShaleWellDrillingAssumptions–2016/2030...........57
Figure4.2.1Argentina:NaturalGasProductionForecast–2016/2030.............................................58
Figure4.2.2Argentina:TotalGasSupply/DemandBalance-BusinessasUsualScenario................58
Figure4.2.3Argentina:TotalGasSupply/DemandBalance-RenewablesandEnergyEfficiency
Scenario................................................................................................................................................59
Figure5.1.1PhasesofaShaleGasProject.........................................................................................63
Figure5.1.2Argentina:ProjectedNewTight-SandsGasandShaleWells–2016/2030....................64
Figure5.1.3Argentina:CAPEXEstimatetoDevelopTight-SandsGasandShale(1)-2016/2030.....64
Figure5.1.4USAvs.UK:UpstreamCAPEX-ShaleOilandGasDevelopment(1)(BillionUSD)......65
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Figure5.1.5Argentina:AverageCAPEXEstimatetoDevelopTight-SandsGasandShale,byTypeof
Well(1) –2016/2030..............................................................................................................................65
Figure5.2.1Argentina:KeyChallengesforUnconventionalGasDevelopment..................................67
Figure5.2.2VacaMuerta(Neuquén/Argentina):InfrastructureandLogisticsRequirementsfor
UnconventionalOilandGasDevelopment–2030Estimate................................................................73
Figure6.1.1USA:ShaleContributiontoNaturalGasandOilProduction–2004/2015......................74
Figure6.1.2Argentina(VacaMuerta)vs.USA:ComparativeOverviewofShaleFormations............76
Figure6.1.3Argentinavs.USA:VacaMuertavs.EagleFordPlayOil(1)andGasProduction–
2008/2015.............................................................................................................................................76
Figure6.1.4Argentina(Neuquén)vs.USA:ComparisonofNumberofOperationalRigs...................77
Figure6.1.5VacaMuertavs.EagleFord:EvolutionofOilandGasProductionafterStart-up............78
Figure6.1.6Argentinavs.USA:ComparativeUnconventionalOilandGasWellDrillingand
CompletionCostsQ32015...................................................................................................................79
Figure7.1.1Argentina:TotalGasSupply/DemandBalance-BusinessasUsualvs.Renewableand
EnergyEfficiencyScenarios.................................................................................................................84
Figure7.1.2Argentina:KeyChallengesforUnconventionalGasDevelopment..................................87
Figure7.2.1KeyDriversforUnconventionalGasDevelopment..........................................................87
Tables
Table3.4.1Bolivia-Argentina:GasSupplyAgreementDailyContractedQuantities(DCQ)................35
Table3.4.2Argentina:LNGDeliveriesEscobarTerminal–2016........................................................40
Table3.4.3Argentina:LNGDeliveriesBahíaBlancaTerminal-2016................................................41
Table3.5.1Argentina:ShaleOilandGasTechnicallyRecoverableResources,byBasin..................46
Table3.5.2USA:EvolutionofOnshoreDrillingCosts–CombinedHorizontalandVerticalWells-
2014/2015.............................................................................................................................................51
Table3.5.3YPFOperatedTight-sandsGasandShaleProjects:GrossCAPEXandCompletedWells
–2014/2015..........................................................................................................................................52
Table4.2.1Argentina:GasSupplyForecast,bySource-BusinessasUsualvs.Renewableand
EnergyEfficiencyScenarios.................................................................................................................60
Table6.1.1KeyExplorationandDevelopmentParameters-ShaleQualityandEconomics..............75
Table6.1.2ComparisonofVacaMuertawithUSShaleFormations...................................................75
Table6.1.3EagleFordvs.VacaMuerta:AverageHorizontalWellProduction...................................78
Table7.1.1Argentina:GasSupplyForecast,bySource-BusinessasUsualvs.Renewableand
EnergyEfficiencyScenarios.................................................................................................................85
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