Argentina wants energy firms to invest some US$5 billion to boost hydrocarbon production and generate jobs in the country’s prized Vaca Muerta shale deposits, as well as to bring in much-needed foreign currency.
The plan, unveiled by President Alberto Fernández on the spot in Neuquén on Thursday, aims to substitute natural gas production for imports, savings some US$5.6 billion while netting some US$2.5 billion in tax revenue, welcome relief in the light of the 12 percent economic contraction forecast for this year.
Fernández will grant an 85 percent price hike to energy producers in a new effort to incentivise development.
"This plan means more work, and the generation of gas that Argentina needs to live and produce," Fernández said. "It means to stop thinking about importing gas."
Vaca Muerta, one of the world’s largest reserves of shale oil and gas, has languished over the past year with Fernández repeatedly seeking to blame his predecessor, Mauricio Macri, for the shortfalls although annual gas output grew from 42.9 to 49.35 billion cubic metres between 2015 and 2019. The plan will permit exports beyond winter if justified by lower domestic gas demand, as well as more flexible pricing without actually announcing an increase.
A glut of gas around the world, coupled with a recession and strict containment measures to combat Covid-19 in Argentina, has caused fuel prices to plummet and drilling activities to all but halt.
The government expects to spend an estimated US$1.5 billion on subsidies next year under the new maximum price of US$3.70 per million British thermal units (BTUs), according to Energy Secretary Darío Martínez.
Local prices are currently between US$2 and US$2.50. Drilling firms in Argentina, such as state-owned YPF SA, have focused on oil and finding ways to store gas underground due to the collapse.
Without the subsidy, the expectation was that Argentina would increase purchases of liquefied natural gas to prepare for the winter between May and August.