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August 7, 2019

LNG production in Argentina driven by wells in Vaca Muerta

Argentina’s domestic gas production has increased, driven by production from wells of the Vaca Muerta formation during the past five years.

By GlobalData Energy

Argentina’s domestic gas production has reverted its previous decline and increased mainly driven by the higher production from unconventional wells of the Vaca Muerta formation in the Neuquen Basin during the past five years, according to a recent GlobalData report.

However, domestic demand could potentially be met with domestic production only during the October-May period. From June to September, there is a supply deficit which is alleviated through imports via pipeline and liquefied natural gas (LNG).

Over the short-term, seasonal gas imports will continue but the Argentinian government is trying to reduce the volume imported, given the continuous growth and outlook for domestic unconventional production.

Currently the Argentinian government is trying to incentivise the substitution of LNG imports with additional production from Vaca Muerta. A new pipeline project to transport gas from the Neuquen Basin to main consumption hubs in the capital and the northern area is expected to incentivise additional developments but to date no operator has committed any volume.

Vaca Muerta’s current and future development will require government support via policies aimed at liberalising prices and fostering related infrastructure development. However there is only so much the government can do to accelerate the pace of development in both upstream and downstream LNG.

A sustained growth in domestic demand of natural gas or adequate LNG exporting capacity will take time to build. In the meantime, a small floating LNG unit in Bahia Blanca with 0.5 million tons per annum (mtpa) of processing capacity (approximately 66 mmcfd) effectively started exporting Vaca Muerta gas in June 2018.

A ten-year contract between YPF and shipping operator Exmar was signed as a relatively quick solution in dealing with the surplus gas available during the summer months. This can be seen as the beginning of an eventual large scale LNG exporting activity from Argentina, yet for this to become a reality more fundamental agreements between LNG developers and upstream producers will be needed.

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