Argentina’s planned natural gas subsidy of $3.5 per million British thermal units (MmBtu) is unlikely to boost domestic production, according to analytics company GlobalData.
The government has announced it will implement a new stimulus plan, offering producers a subsidy for both oil and gas production, in the face of the current Covid-19 crisis.
However, senior oil and gas analyst Adrian Lara believes that at this level the subsidy seems to be enough to just avoid a steep cut in production. It seems “insufficient for sustaining larger developments that require new drilling campaigns and associated infrastructure,” he said in a statement this week.
The $3.5/MmBtu subsidy plan for gas is good compared to the lows of international benchmarks in recent months, “but it is much less than what has been offered in previous plans, which reached values as highs as $7.5 for new production,” added Lara.
The government is expected to finalize the plan, which remains subject to changes, in a couple of months. Any new production to come from the incentive will be several months away, impacting the country’s ability to meet domestic demand this winter, Kallanish Energy reports.
The Covid-19 crisis is putting additional pressure on the sustainability of the country’s gas supply. Increased winter demand from June to August is set to be met by higher imports of liquefied natural gas (LNG) imports, despite Argentina holding the second largest unconventional gas resources in the world.
Lara said that producers have reduced their output by an unusual 490 million cubic feet per day at a time of high demand. Roughly 50% of this decline is in the unconventional Neuquina Basin.
“This situation is making additional imports of LNG a likely solution to complement domestic supply. How large in volume and permanent these LNG imports will become will depend on the sustainability of domestic supply levels,” he said.
Argentina’s YPF has recently declared force majeure on its Tango floating LNG plant, halting shipments to buyers and payments to service providers. The pandemic is expected to not only force Argentina back into imports of gas but could potentially delay the full development of its unconventional resources “by another decade,” Lara warned.
This post appeared first on Kallanish Energy News.