Argentina will allow the price of natural gas produced by state-run YPF at new wells to more than double and will do so for other suppliers as it seeks to revive production.
The government has signed "a contract with YPF for which we are going to pay $7.50 for all the new gas" produced by the company, Argentine President Cristina Fernandez de Kirchner said at an industrial forum Wednesday in Buenos Aires. "We have decided to give incentives for the production of gas," she said.
The increase is from an average of $2.30/MMBtu for gas supplies from existing wells and $4-$5/MMBtu for new supplies. The president said the price of existing streams of gas will remain at $2.30/MMBtu, adding that the higher price will only kick in for supplies beyond current production levels.
The government will apply the $7.5/MMBtu "to the rest of the market" for new gas, Fernandez de Kirchner said, adding that in response her administration will demand that those companies that benefit boost "investment and production."
The government has kept a tight lid on gas prices since 2002 to limit inflation, a policy that led to a plunge in exploration and production as the private companies that dominate the sector reined in spending as profits dipped.
The production of gas, which meets 50% of the country's energy needs, has dropped 16% to 120 million cu m/d this year from 143.1 million cu m/d in 2004, spawning shortages as demand now surpasses 130 million cu m/d.
To plug the deficit, Argentina has turned to Bolivia for gas and the global market for liquefied natural gas. Energy imports surged 110% in 2011 on the year, led by diesel, fuel oil and gas.
The ballooning imports were a main reason behind the state takeover of YPF in May from Spain's Repsol.
The price hike for new gas appears to be a sign that the president wants to retool her energy strategy to focus on stepping up domestic production, including of shale gas resources thought the third largest in the world after China and the US.
"Between paying $3.5 billion for imported gas and paying $3.5 billion to produce gas here, we are generating new jobs" by investing in Argentina, Fernandez de Kirchner said. "It is a question of intelligence."
The president this and other policies to "reduce or make disappear the energy deficit."
The gas price hike also is a latest sign of the government's efforts to help YPF rebuild its own production after a decade of declining at 6% annual.
Argentina took YPF under state control in May by seizing 51% of the shares from Spain's Repsol. Now under new management, YPF plans to invest $37.2 billion through 2017 to increase oil and gas production by 32%, financing 70% of this out of its pockets.
To boost cash flow, YPF has been raising diesel and gasoline prices, while the government has authorized an increase in the price of compressed natural gas for vehicular use and reduced biodiesel feedstock prices for refiners.
YPF produces 24% of the country's gas, while France's Total produces 30%. Other leading producers are China's CNOOC-backed Pan American Energy, Brazil's Petrobras, Argentina's Pluspetrol and Tecpetrol and US-based Apache.
