Argentina's biggest shale play, Vaca Muerta, has potential to more than triple the country's oil and natural gas production over the next 20 years, but a continued decline in global crude prices could pose a challenge for attracting the investment to make this happen, analysts said Thursday.
Management consultancy Accenture said that if Vaca Muerta is put into development, national oil production could surpass 1.8 million b/d in 2035, up from 550,000 b/d this year.
Over the same period, gas output could go above 317 million cubic meters/d compared with 114 million cu m/d this year, Accenture said in an emailed statement.
Vaca Muerta, in the southwest of the country, is gaining attention for its geological comparisons to the prolific Eagle Ford shale play in the US.
Argentina's state-run YPF was the first to start producing from Vaca Muerta, in a partnership with Chevron, and output now averages 20,000 b/d of oil equivalent.
BP-backed Pan American Energy, ExxonMobil, Shell, Total, Wintershall and other companies are testing the play for pilot production projects, and Malaysia's state-owned Petronas is poised to start a pilot with YPF. Russia's Gazprom is eyeing opportunities.
If the projects come about, Accenture expects that Argentina could reach self-sufficiency in oil around 2020-2025 and for gas by then or soon after.
The expected production would allow Argentina to export surplus supplies, with gas likely going to neighboring countries, Accenture said.
The forecast comes after Argentina's Congress approved a reform of the oil sector to help attract fresh investment after a decade of dwindling production. The reform provides longer field licenses and incentives to help make it easier for companies to develop shale as well as conventional and offshore resources.
OIL PRICE FALL A CONCERN
A challenge, however, is the direction of global oil prices, Ecolatina, an economic consultancy in Buenos Aires, said in a statement.
West Texas Intermediate, the international reference price followed in Argentina, has dropped 24% to about $81/b from around $107/b in June on growth in US production coupled with falling demand in China, Europe, India and Japan, and concerns about supply disruptions stemming from violence in the Middle East.
The price decline could stymie the development of Vaca Muerta by discouraging investment, Ecolatina warned.
Indeed, Ecolatina said that based on YPF's calculations, WTI must be between $80 and $100/b for Vaca Muerta projects to be viable.
The government last week stepped in to try to encourage Vaca Muerta projects despite the price decline by cutting export taxes if prices decline further.
The Economy Ministry said the withholding tax on exports of oil and derivatives would fall to 13% if WTI drops below $80/b; to 11.5% if it goes below $75/b; and to 10% if it falls to less than $70/b. Since 2007, the tax had been at a fixed 45% on exports if WTI was less than $60.9/b and an increasingly greater rate when above that.
