News
Argentina to Invest $5.1 Billion to Boost Shale Industry
Recently, the Argentine government introduced a fiscal stimulus plan for the shale industry for the next four years, providing subsidies for the development of Argentina's domestic shale gas and conventional natural gas, with the total amount expected to reach US$5.1 billion.According to the plan announced by the Argentine government, this fiscal stimulus plan for the shale industry will last for four years. The Argentine government is expected to invest $1.5 billion in 2021 and at least $1 billion each year thereafter to provide subsidies to companies involved in local shale development.
It is understood that the Vaca Muerta resource area in Argentina is the second largest shale gas reservoir in the world. Over the years, the Argentine government has provided a number of support policies for the development of this area. In the past four years, the Argentine government has provided billions of dollars in subsidies for shale oil and gas development in the region. However, due to the fact that global natural gas supply has been in a state of oversupply in recent years, the low natural gas prices have severely hit the development enthusiasm of enterprises. At the same time, the pipeline construction in the region is limited and the development costs are high, resulting in the natural gas production in the region always hovering at a low level. Since the beginning of this year, the spread of the new crown pneumonia epidemic has further slowed the pace of shale gas development in the region.
In the view of Argentine Energy Minister Dario Martinez, the latest subsidy policy introduced by the Argentine government may bring a turning point to the above problems. He pointed out: "The latest subsidy policy is expected to attract more than $5 billion in investment to the Vaca Muerta region, and the number of oil and gas drilling in the region will increase significantly."
According to statistics from the Argentine government, during the period of 2021-2024, even if global LNG prices continue to fall, the amount of money the Argentine government uses to subsidize the shale industry will still be far less than the direct purchase of LNG. The difference is expected to reach $2.6 billion. There are also estimates that once Argentina completes its shale development goals, this field is expected to bring more than $2.525 billion in tax revenue to the Argentine government.
In a recent public speech, Argentine President Alberto Fernández emphasized: "Subsidies for the shale industry are particularly important. The plan launched this time will guarantee Argentina's natural gas production. This is not a fiscal expenditure, but an investment."
In addition, the Argentine government also stated that this subsidy plan will also increase local employment, and Argentina's oil service industry will also usher in good news.
It is understood that the Argentine government plans to launch a new round of shale bidding in November. The bidding contract will last for 3 years, and the natural gas contract price can reach up to US$3.7/MMBtu. The current natural gas end-user price is about US$2.3/MMBtu. The Argentine government will make up the difference. In addition, this subsidy rule is not only for shale gas development, but also for the development of other natural gas resources in Argentina.
According to market research firm Argus, Argentina will also pay more attention to natural gas export projects and provide more favorable contracts for companies with natural gas export businesses.
According to Dario Martinez, as of now, the Argentine government has held talks with multinational companies such as Total and Pan American Energy, hoping that more companies will participate in the country's shale development.
At the same time, Argentine state-owned energy company YPF SA, as Argentina's largest oil and gas producer, has announced that it will fully participate in shale development. The company said: "We hope to ensure Argentina's medium- and long-term natural gas development, which will also bring more investment to the company's natural gas business." Bloomberg analysis believes that the company is expected to be the biggest beneficiary of this subsidy policy.
In addition, according to Bloomberg, the Argentine government has also begun drafting a plan to further stimulate investment in the crude oil sector. Oil Price Network wrote that the number of drilling and development in the Vaca Muerta region has recently rebounded, which is a sign that Argentina's shale oil and gas industry has improved overall, and the Argentine government hopes to use the oil and gas industry to achieve economic recovery.
However, despite the good news for Argentina's shale industry, the tight fiscal situation of the Argentine government itself has always been a concern for the industry. Bloomberg reported that before this, the Argentine government had proposed to provide subsidies for the shale industry, but due to unclear subsidy rules and other issues, it has been questioned by many shale companies. In addition, in the past year, the Argentine government's monthly fiscal report has not yet shown a surplus.
