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GLNG COMMENTARY GLNG
climate over the coming years, the country’s energy industry has also been cautioned over the prospects for LNG exports. In late August, research rm GlobalData said Argentina was unlikely to become a large-scale LNG exporter, as output would not be enough to meet domestic demand.
This will be compounded by the fact that Argentina is currently intending to reduce sub- sidies for shale drilling from $7.50 per million British thermal units ($207.45 per 1,000 cubic metres) to $6.00 per mmBtu ($165.96 per 1,000 cubic metres) by 2021. ere are no subsidies planned for beyond this period, and higher drill- ing costs would likely discourage investment in new unconventional wells.
“Vaca Muerta requires commitment in investment from upstream producers and LNG developers, which, in turn, requires macroeco- nomic stability, additional infrastructure and enough local equipment and service providers,” a GlobalData senior upstream analyst, Adrian Lara, said in a note. “For Argentina, all of these conditions are, at best, being developed and, at worst, still challenging and uncertain,” he added.
And larger LNG export facilities would take years to build, requiring longer-term con dence in Argentina from developers. is is compli- cated by the fact that competition is intensifying in global LNG export markets, with the US and Australia racing to add new liquefaction capac- ity. is is creating a global glut of LNG and low- ering the price of the fuel.
Nonetheless, YPF remains hopeful that its location and its abundant resources will be seen as an advantage. Indeed, the company appears to be counting on generating revenue from a major export project.
“The LNG terminal will be a machine for
bringing in dollars,” YPF’s executive vice-pres- ident for corporate a airs, Sebastian Mocorrea, was reported by Bloomberg as saying this week. “Nobody in their right mind would meddle with it.”
Even if Fernandez wins the coming presiden- tial election, he is expected to keep supporting shale development, given Argentina’s need for export dollars to prop up the peso.
Fernandez has tried to assuage international concerns by saying he would not implement a closed-market, protectionist policy if elected. But many remain sceptical and anticipate that he will attempt to replicate the legacy of former president Nestor Kirchner. Indeed, Kirchner’s wife and presidential successor, Cristina Fernan- dez de Kirchner, is running for vice-president alongside Fernandez. And while she le o ce amid economic chaos in 2015, when Macri took the reins, she remains popular in certain areas. Yet Fernandez would be inheriting a very dif- ferent economic landscape compared to what there was when the Kirchner government took the reins, making it more di cult for him to succeed.
Nonetheless, Fernandez currently appears to be on course to win the election. Macri’s pol- icy reversal on capital controls may not save his re-election bid, but the president is scrambling to bring in policies that would go at least some way towards alleviating Argentina’s economic crisis.
All of this adds to the uncertainty around YPF’s planned LNG export terminal, however. e company will try to push ahead regardless of what happens to Argentina’s political landscape, but would-be investors can at the very least be expected to wait until the election has been held and the new government’s direction is clearer.™
Even if Fernandez wins the coming presidential election, he is expected to keep supporting shale development.
Argentina is preparing to start shipping cargoes from the Tango FLNG facility at the end of October.
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