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ECONOMY | 27-04-2021 22:09

Argentina’s shale industry rattled by social unrest in Patagonia

Roadblocks near Vaca Muerta shale fields are about to enter their fourth week, with health workers on the frontline of the coronavirus pandemic demanding higher wages.

Roadblocks to Argentina's vast shale fields in Patagonia are set to enter their fourth week, as health workers on the frontline of the coronavirus pandemic demand higher wages to keep pace with one of the highest inflation rates in the world.

Local hospital workers are preventing oil crews and equipment from getting to drill sites in the Neuquén Basin, home to the vast Vaca Muerta shale patch, just as winter sets in and Argentina's demand for natural gas surges, which will force the cash-strapped government to import more fuel. The blockades are also disrupting transportation routes with Chile.

Argentina’s government will mix supplies by pipeline from neighbouring Bolivia with imports at its two floating facilities for liquefied natural gas and purchases of other liquid fuels for power generation to make up for the shortfall as cheaply as possible, Energy Secretary arío Martínez said in a statement.

Currently, natural gas production in Neuquén has fallen about 10 percent from usual levels, but the real impact will be felt in the coming weeks as drilling stoppages cause steeper drops in the line. Seventy rigs operating drilling rigs and hydraulic fracturing fleets are unable to work. That’s nearly all the crews in Neuquén, according to the Instituto Argentino del Petróleo y del Gas (Argentine Oil & Gas Production Chamber).

The blockades are reducing Argentina’s capacity to supply natural gas this winter by 25 million cubic metres a day, the group said. Production in June, the start of winter, has averaged 133 million cubic metres a day in the last three years.

Buying replacement fuels will weaken Argentina’s trade balance by about US$200 million, with that figure rising for every day the protests extend and new wells can’t be drilled, according to company estimates. The government needs trade surpluses to jump-start an economy that has been in recession for three years and support the peso, which continues to weaken, contributing to inflation.

After a 21-day blockade, there was good news on Tuesday for shale drillers, including state-owned YPF SA, Chevron Corp and Royal Dutch Shell Plc, as a group of protesters agreed to wage rises, though non-unionised workers are yet to do so.

Curtailed production in Vaca Muerta, the world’s second-biggest shale gas formation, showcases how damaging Argentina’s inflation problem is becoming, with the negative impacts spilling over from macroeconomics to commodities as periodic strikes over pay by a slew of trade unions – from soybean processors to tugboat pilots – also hamper the country’s influential agriculture industry. Inflation hasn’t dropped below 36 percent annually since August 2018.

The blockades point to the broader challenges that Argentina faces in Vaca Muerta, where the government wants to mimic the US shale boom. Output before the dispute with the health workers was still just 316,000 barrels a day. In the Permian Basin, drillers are expected to produce 4.6 million barrels a day of crude alone next month.

 

by Jonathan Gilbert, Bloomberg

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