In June, a major milestone was hit. Argentina exported its first-ever cargo of liquefied natural gas through its state oil firm YPF with the assistance of Cheniere. A light oil cargo, from Vista Oil & Gas, soon followed. But not only is it the first ever LNG sale for the country, it is also the first commercial output from the Vaca Muerta shale play – one of the world’s largest shale formations and a potential game changer for the hobbling Argentine economy.
Known as the ‘Argentine Permian’, Vaca Muerta was discovered as long ago as 1918, when it was recognised as the source of petroleum for formations in the prolific Neuquén Basin. In 2010, YPF (which was then Repsol-YPF) made a significant shale oil discovery and is now currently producing 45,000 b/d of light oil. Several other discoveries have since been made, with its potential labelled as ‘vast’. The Argentine government estimates that, if development proceeds smoothly, Vaca Muerta could double the country’s oil production to 1 mmb/d by 2023 and lift natural gas production to 260 cbm/d. The US EIA goes even further, estimating that the Vaca Muerta formation holds recoverable resources of up to 16.2 billion barrels of oil and 308 trillion cubic feet of natural gas, which would make it the largest hydrocarbon basin in Argentina, surpassing the Neuquén Basin.
But despite this potential, exploiting Vaca Muerta has proved challenging. Since the initial discoveries around 2010, drilling and development has commenced but the first tangible results are only starting to emerge. In the wider context, Argentina has been battling government changes and an economic malaise which has led to high costs, regulatory uncertainty and insufficient infrastructure despite billions in investment from supermajors. A currency crisis from last year is still impacting the economy, and with elections due in October, a U-turn in policy is a possibility. This has so far hampered efforts to build pipelines to connect Vaca Muerta – a 30,000 sq km formation about 600km from the nearest coastline – to necessary LNG facilities. But despite these hurdles, international oil firms such as ExxonMobil, Chevron, Shell and Total are still holding on to acreage positions in Vaca Muerta.
In Vaca Muerta, YPF is currently the leading producer, with output of 71,000 boe/d in Q119 from three projects – Loma Campana, La Amarga Chica and Bandurria Sur. Not far behind are its international rivals. Shell has announced that it is moving on to the development phase of the Sierra Blances, Cruz Lorena and Coiron Amargo Sur Oeste blocks with a projected output of 70,000 boe/d by the mid-2020s. ExxonMobil has announced plans to drill 90 wells, with first production of 55,000 b/d expected by 2024. Total is working on its Aguada Pichana Este licence while Chevron has plans to drill up to 2,000 wells in the El Trapial, Loma de Molle Norte and Narambuana deposits. Unlike the Permian, which was powered by small, nimble independents, the supermajors got into Vaca Muerta early and hold a significant position. But commercial interest also extends beyond these giants; private equity firms Riverstone and Southern Cross Group have invested in creating a midstream Vaca Muerta player called Aleph to boost pipeline infrastructure that will be necessary if Argentina is to continue growing its light oil exports from a projected 70,000 b/d in 2020 and boost LNG sales.
The potential is there, particularly since peak output in the southern hemisphere’s summer coincides with deep winter in northeast Asia, during which spot demand from China, Korea and Japan has spiked in recent seasons. Shipping costs would be lowered as well, since Argentine shipments could avoid tolls at the Panama Canal to provide a competitive alternative to US exports. Vaca Muerta might mean dead cow in Spanish, but it is giving new life to Argentina’s upstream industry. The wait has been long and it will just take a little longer
The Vaca Muerta Shale Basin:
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Headline crude prices for the week beginning 16 September 2019 – Brent: US$69/b; WTI: US$63/b
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