Page 5 - LatAmOil Week 08 2021

LatAmOil COMMENTARY LatAmOil

Structural challenges problems by narrowing outside investors’ range
According to Ruaraidh Montgomery, the head of opportunities for turning a profit on gas
of global research at Welligence Energy Ana- projects.
lytics, there are two broad structural issues that “The government definitely does not have
have undermined development work at Vaca the financial capacity right now to finance a
Muerta fields. He identified those challenges as project of such scale, and another problem for
inadequate infrastructure and investors’ con- private investment would be that midstream
cerns about Argentina’s financial stability and tariffs are controlled by the Ministry of Energy,”
pointed out that they were intertwined. he told LatAmOil. “So even if a private company
“Are there obstacles in Argentina to the devel- decided to go to Argentina to build a pipeline,
opment of hydrocarbons, including the Vaca they would not currently be able to set a tariff
Muerta? They’re all above-ground obstacles,” that would allow them to get a return on their
Montgomery said. “The resource in the ground investments. So this just adds to the list of Government
is good. Well productivity is good. It looks to be problems.”
a genuinely world-class shale resource. But there Henrique Anjos, a gas and power researcher policies have
are for sure obstacles to commercialisation. So, at the Wood Mackenzie consultancy, made a stymied Vaca
number one – and this is an ongoing issue – is similar point.
infrastructure.” “The main obstacles are the gas price con- Muerta gas
“The Neuquen Basin is remote from Argenti- trols imposed by the current administration,” he
na’s domestic markets, which are mainly around said. “By not updating the gas tariffs in local gas development
the Buenos Aires area, and pipeline capacity distribution companies and lowering the price
running from Neuquen to that main market caps for gas procurement for thermal power, the by narrowing
is pretty much full. If you want to continue to revenues received by the producers have dimin- the range of
develop and grow Vaca Muerta gas production, ished significantly to a point that does not cover
you need more export capacity from the basin. the cost of new wells.” opportunities for
Now, the problem you have is that building out
that new capacity requires a significant amount Domestic and export infrastructure earning a profit
of investment – $1-2bn [per pipeline project].” Montgomery highlighted the importance of
In turn, he told LatAmOil, Argentina’s Argentina’s domestic gas infrastructure, noting
long-standing history of macroeconomic insta- that the South American state would have diffi-
bility inevitably complicates efforts to secure culty reaching the more lucrative export markets
financing for such projects.“It’s really hard to in the long term if it did not build up its pipeline
find companies, especially from outside Argen- networks at home.
tina, that are willing to put up that capital, given “You need to find additional markets for
the rough profile of the country. And without that gas to really unlock the potential of this gas
that infrastructure to then give you access to a resource,” he said. “But a lot of that requires an
bigger part of the domestic market, without that enormous amount of investment. You could
access to capital, you’re just not going to get that build an LNG export terminal, though that’s
infrastructure built out.” even more expensive than building the pipeline
to get that gas to the coast, to the terminal. Who’s
Policy roadblocks going to stir up capital for that level of invest-
Enrique Gonzalez, a research analyst at Welli- ment? You need the export market. You need
gence, agreed – and pointed out that the Argen- to put the right infrastructure in place to export
tinian government’s policies had caused more gas.”

(Photo: Télam)

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