Page 4 - LatAmOil Week 10 2020

LatAmOil COMMENTARY LatAmOil
Development of Vaca Muerta fields is set to slow down (Photo: NotiTDF.com)
Argentina reacts to oil price dive
The downturn in world crude markets has raised questions about the country’s plans for developing Vaca Muerta fields and restructuring its debts
WHAT:
Argentina’s economic outlook is becoming more uncertain, as low oil prices undermine the case for tapping the Vaca Muerta shale formation.
WHY:
Without the hope of
an uptick in energy revenues, Buenos Aires will have a harder time restructuring its debts.
WHAT NEXT:
The current presidential administration will come under pressure if it cannot deliver on its promises of economic recovery.
WORLD crude oil markets have been in uproar since March 6, when Russia upended the three- year-old OPEC+ deal by refusing to approve further reductions in output quotas.
Prices for Brent and WTI, two of the most important benchmark crudes, tumbled by around 30% over the weekend. They have since regained some ground, but there is certainly room for them to go lower, since Saudi Arabia and other OPEC members are now preparing to join Russia in producing as much as they pos- sibly can.
The consequences of these developments for Latin America are not fully clear yet. This essay will offer a snapshot of the first reactions from one of the region’s oil and gas producers: Argentina.
Vaca Muerta
One question for Argentina is how recent events might affect plans to exploit unconventional reserves in the Vaca Muerta shale formation.
Officials in Buenos Aires have been hop- ing that Vaca Muerta projects will help reduce dependence on imported fuels and generate an exportable surplus, thereby relieving strain on the country’s finances. This hope has not yet been dashed entirely, but it seems safe to say that exploration and development will move forward much more slowly than anticipated.
On the one hand, prices are too low now
to make most Vaca Muerta projects attractive. Unconventional oil and gas projects tend to have higher production costs than their conventional counterparts, and Daniel González, the CEO of the national oil company (NOC) YPF, recently acknowledged that point, saying that shale fields could not turn a profit if Brent crude remained below $50 per barrel.
“We are having low break-even with new drilling in already developed blocks, but it is dif- ficult to make investments in new blocks with international prices below US$50,” he said at his annual conference with Wall Street investors.
Policy approach
The administration of President Alberto Fernández appears to be hoping that policy measures will help the domestic oil sector ride out the bear market.
India’s Economic Times reported on March 11 that Argentina’s Ministry of Production and Labour had decided to restrict imports of crude oil and gasoline. Would-be importers will now have to obtain non-automatic licences, which will take at least 60 days to approve.
According to a source inside the ministry,
this measure is designed to prevent domestic operators from drowning in a flood of cheap imported fuel. “The objective is to guarantee national production and employment,” the Eco- nomic Times quoted him as saying. 
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w w w . N E W S B A S E . c o m Week 10 12•March•2020