Page 5 - LatAmOil Week 33 2019

LatAmOil COMMENTARY LatAmOil
 If Fernandez’s Justicialist Party can maintain support at this level, it will win the presidential election on October 27. (Under Argentinian law, candidates can win in the rst round of voting with a plurality, so long as they garner at least 45% of all valid votes cast.)
And if he wins, he is likely to roll back at least some of Macri’s market-oriented policies. is would probably cut into enthusiasm for new investment projects, though it might not have much impact on companies that have already signed and begun to implement contracts with the national oil company (NOC) YPF.
The policies
Current investors may face trouble on another front, though. Speci cally, one of Macri’s most recent e orts to bring the economy to heel has sparked concern among oil company executives.
Last week, the government declared a 90-day freeze on gasoline and diesel prices. (See: “Argentina freezes fuel prices, shrugging o oil companies’ concerns,” Page 9.) It took this step in response to data showing that in ation lev- els had topped 55%, saying it wanted to protect consumers of basic commodities such as food and fuel.
In the short term, residents of Argentina could reap some reward for artificially low motor fuel prices. Likewise, operators of Argen- tinian oil re neries will see their feedstock bills drop, since the fuel price cap e ectively lowers the price that downstream operators pay for crude from $59 per barrel to $40-42 per barrel.
But upstream operators, especially those working within the Vaca Muerta Basin, will see no such bene ts. On the contrary, they will probably lose money or see their pro t margins shrink drastically, since they cannot break even unless they sell their production for at least $40 per barrel.
Macri’s government said last week that the price cap was temporary and would only remain
in place for 90 days, until November 15. But this interval is long enough to put a short to medi- um-term dent in the nances of upstream oil operators, especially those that have no down- stream assets to make up their losses. As a result, it could also curb potential investors’ appetite for projects in Argentina in the long run.
The possibilities
Meanwhile, the data analytics and consult- ing rm GlobalData has suggested that some of the excitement about Vaca Muerta may be overstated.
In a report published earlier this week, GlobalData stated that the shale basin had driven most of the growth in Argentina’s gas output in recent years, noted that Vaca Muerta elds now accounted for nearly a quarter of total production. It acknowledged this upswing was an achievement, but it also pointed out that the country was still not extracting enough gas to cover domestic consumption in full.
is indicates that Argentina may remain a net importer for some time, even as unconven- tional gas yields continue to rise, the consul- tancy said. Pilot projects and the rst shipment of super-chilled gas from the Tango facility have shown that the country can export LNG pro ta- bly, it commented, but Vaca Muerta still does not produce enough on its own to cover domestic demand while also enabling large-scale exports.
GlobalData’s conclusions, along with Macri’s grim election prospects and oil companies’ con- cerns about fuel price caps, indicate that Argen- tina’s economy may be heading for a rough patch. is may not have a signi cant e ect on oil and gas operators that are already well estab- lished in Vaca Muerta, but it could certainly discourage new investors from venturing into the shale basin. As a result, industry observers should prepare to revise their forecasts for the South American country’s hydrocarbon output downward. ™
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excitement about Vaca Muerta may be overstated
VENEZUELA
CNPC subsidiaries cancel
Venezuelan crude cargoes
August-loading cargoes left stranded as a result of changes in US sanctions policy
Som
TWO subsidiaries of state-owned China National Petroleum Corp. (CNPC) have report- edly dropped plans to take delivery of several cargoes of Venezuelan crude oil in light of the US government’s decision to impose harsher sanctions on Caracas.
Sources with knowledge of the matter told Bloomberg and Reuters anonymously last week that PetroChina and ChinaOil had been slated to pick up about 5mn barrels of Venezuelan oil in the month of August. ey then decided
against loading the crude a er the administra- tion of President Donald Trump widened the scope of restrictions on trade with Venezuela, they said.
Reuters quoted one source as saying that the Chinese rms were reacting to the shi in US policy. “Trump’s executive order gave a directive for the follow-up sanction measures that shall be announced by the US Treasury ... CNPC is worried that the company is likely to be hit by the secondary sanctions,” he commented.
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Week 33 21•August•2019 w w w . N E W S B A S E . c o m
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