Argentina is considering raising natural gas prices to boost production so that producers can sustain employment levels even as low global oil prices raise the threat of layoffs, a provincial governor said Tuesday.
Omar Gutierrez, governor of the gas-rich Neuquen province, said he is working on the plan for higher prices with Guillermo Pereyra, a national senator who also runs the Union of Private Oil and Gas Workers in the southwestern provinces of La Pampa, Neuquen and Rio Negro.
Gutierrez said they have taken the proposal to national Energy Minister Juan Jose Aranguren, and will meet with him again.
"Neuquen has a very significant opportunity to provide the larger gas supplies that the country needs," Gutierrez said in a statement. "We are working to achieve a higher average price."
The price for gas supplies from new developments, mostly of shale and tight gas production, is now at $7.50/MMBtu, while it runs between $2.70/MMBtu and $3.00/MMBtu for supplies from older, conventional gas wells.
Gutierrez said the idea is to increase the price to an average $5.80/MMBtu for supplies from older wells.
This increase would come in response to a national plan gradually to eliminate subsidies on electricity and gas rates. The move will lead to higher rates and wellhead prices from February, reducing the strain on public finances and providing more incentives to companies to ramp up exploration and production.
The higher price "will make new investments possible," the governor said.
Another benefit is that higher gas prices will help mitigate the impact of lower oil prices, he added.
At the start of the year, the national government reached an agreement with oil producers to cut domestic crude prices by 10% to $54.90/b for heavier crudes produced in the south and to $67.50/b for a light crude produced in Neuquen.
While domestic crude prices are still higher than the around $30/b international price, the 10% drop has put at risk investments in oil exploration and production, in particular for crude for export. 532,000 b/d crude production.
Neuquen, by comparison, produces 20% of Argentina's 532,000 b/d crude production and 47% of its 120 million cu m/d of gas, according to the Argentine Oil and Gas Institute (IAPG) industry group.
There is room to increase gas production because Argentina is running a deficit of 8% in gas supplies that peaks at 50% in the colder months of May to September. This has brought seasonal shortages that are partially plugged by importing an average of 30 million cu m/d of supplies from Bolivia by pipeline and from the global market via two floating regasification terminals.
Neuquen holds huge potential to increase gas output from shale and tight plays, including Vaca Muerta, which is starting to be brought into production by YPF, Chevron, Shell, ExxonMobil, Total and other companies.
