Non-conventional hydrocarbons: After China, Argentina opts for the production of shale gas

When China followed up the United States and Canada on the exploitation of non-conventional hydrocarbons, it is the turn of Argentina to follow the movement and try to attract the capital and technology owners to exploit its huge reserves of shale gas.

In Argentina, the acceleration process took place in 2017 with the commitment of a French oil company, Total. According to the statistics of the U.S. Energy Information Administration, Argentina detains the second reservations of shale gas in the world after China and before Algeria that is classified Third. The United States has the fourth place.


If historically the United States of America and Canada have pioneered in the exploitation of non-conventional hydrocarbons, China is new among the very confined group of countries that operate in these hydrocarbons. The exploitation of shale gas reserves go back to the beginning of 2010, it is only in 2015 that China has publically shared its statistics. According to the official data, the production would have increased by 258.5% compared to the previous year, to reach 4.47 billion cubic meters. Previously an outreach work has formally been directed toward the United States with an aim to benefit from the American experience. In November 2009, a strategic agreement is signed by the Presidents of the two countries, the President Obama and President Hu Jintao who announce the "New U.S. China Shale Gas Resource Initiative". The agreement deals with the technological cooperation and investment in the production of shale gas in China by American companies.


    8 billion cubic meters in 2016 for China


Thereafter, several agreements have been signed with the Majors who gained experience on the American mining field, such as BP, Shell and Total. According to a report of the information agency of the U.S. Department of Energy made public at the end of the second semester of 2015, it has been established that during the last two years, that is to say in 2013 and 2014, China had drilled more than 200 wells. This shows the need for a progressive approach in the exploration before the operation and the production of the shale gas deposit. A balance sheet drawn up in China by the Chinese Ministry of Land and Resources for the year 2016 has considered that China had become the third largest producer of shale gas in the world after the United States and Canada. According to the review, the production of natural gas of shale has reached the 8 billion cubic meters in 2016, an increase of 76.3% compared to 2015 y during which the production had reached 4.47 billion cubic meters.



                     Argentina is embarking on shale-based energy


Argentina is the fourth country to launch into the production. After the resumption of natural gas prices on the international market in 2017, with the price recovery of crude oil, the exploitation of shale gas is once again topical. The giant deposit of shale gas of Vaca Muerta, a perimeter of 30 000 km2 located in Patagonia attracts a lot of investors. In Argentina, the government relaunched at the beginning of 2017, the production of shale gas by lobbying American companies in Houston, the oil capital, and by announcing an incentive program for the companies specialized in the development of shale gas. This program enacted in March 2017 and entitled "The Incentive Program for the investments in the production developments of natural gas of non-conventional Reservoirs "guarantees prices which would allow the recovery of the gas production until 2021. Concretely and according to a study resolution promulgated by the Government, the initiative aims to stimulate the development and production in the basin of Neuquina on tanks of unconventional natural gas, a basin which holds important resources. A fixed incentive program for prices that the government guaranteed until 2021 to companies that hold leases located in the basin of Neuquina. For 2018, the price has been set at $7.50 MMBTU (Million Btu),for 2019, to $7 Mmbtu ,for 2020,to $6.50 The MMBTU and for 2021 ,to $6 MMBTU. The government will pay the incentive price when the actual sales price of the unconventional gas is lower than the incentive price set by the program. However, the market price will be applied to the following year, that is to say in 2022 which will mark the end of the subsidy policy.


   The lobbying in the United States


Following the promulgation by the Argentinian Ministry of Energy and Mines of the "Simulation program for the development of unconventional gas" which guarantees the level of recovery of the gas until 2021, French groups announce by the end of April 2017, their commitment in the development unconventional resources of  Vaca Muerta. Total announces the approval of first phase of the permit for Aguada Pichana Este operated by the Group and located in the non-conventional giant training of Vaca Muerta, in Argentina. On the same occasion the Group announces that it will increase its participation in the permit of 27.27% to 41%. According to Total, the production of gas from the project will be handled by the existing plant of Aguada Pichana which will operate at full capacity, with a production of 16 million m3/day (100 000 barrels equivalent per day). The commitment of the Total Group relaunches the exploitation of unconventional resources in Argentina and particularly to Vaca Muerte. The increasing participation of the Group in the Eastern part of Aguada Pichana concession is explained by the fact that the first wells drilled, in the framework of a pilot project, have shown excellent results. An agreement had been signed with all partners  (Total Austral S.A. 27.27%, YPF S.A. 27.27%, Wintershall Energia S.A. 27.27% and Panamerican Energy LLC 18.18%) of the concession of Aguada Pichana to allow Total to carry its participation of 27.27% to 41%. In July 2017, the press in Argentina had announced that the four oil companies will jointly invest with 1,150 billion dollars in the region of Vaca Muerta. According to local press, the oil companies YPF, Total, Pan American Energy (EAP) and Wintershall have signed an agreement to invest 1 $150 million in the production of unconventional gas in the regions of Aguada Pichana and Aguada de Castro in De Vaca Muerta until December 2021. The authorities had then estimated that "in three or four years, energy self-sufficiency will be ensured again and there will be exports of gas through the extraction of oil in the region. This investment is in response to the first investment of $500 million which has been achieved between 2014 and 2016 and on the outcome of the incentive government through the resolution of the Minister of Energy which has extended the benefits of the plan gas in the basin of Neuquén. In fact, the government has subsidized the production of hydrocarbons to help stimulate the production including that of liquids which gets more revenue than the natural gas. According to the local press, "Since 2013, the State has paid more for hydrocarbons that their real cost in order to stimulate the production.". The French Group Total is affirmed as the main investor in the non-conventional hydrocarbons in Argentina. Total is seen as a historical partner of the Argentina where it is "Present for nearly 40 years and operates approximately 30% of the gas production of the country.". Its share of production is amounted to 78 000 barrels of oil equivalent per day in 2016.


                             An investment stimulation program



Last November, the Argentinian government has continued its assistance policy to the stimulation of investment in the unconventional gas by extending the incentive program to another basin, that of the Austral after having extended to the southern province of Chubut. The incentives are the same as those granted in the basin of Vaca Muerta, considered as one of the largest shale zones in the world. The objective is to accelerate the development and production of gas based on the decision of the authorities with a guarantee of current price up to 2021, with $7,50MMBtu in 2018 to decrease to 6 dollars in 2021.The return to market price will be in 2022 with an average of $4 MMBtu (which is also the current average) according to the estimations of the government. The market price at that time should be consistent with the current average of 4 $ / MMBtu, according to the Analysts and the estimates of the government. The incentives introduced in Neuquen basin where drilling activity on shales brought investment to 7 billion dollars and it is estimated that they reach $20 billion in 2019 based on official data which mark the shift from pilot projects to mass development in the deposits for companies such as ExxonMobil, Shell, Total, Wintershall and YPF. The objective for the authorities is to revive the production of natural gas after a decline that lasted a decade. The production should be scope to 185 million cubic meters per day in 2025 against 122 million cubic meters per day in 2017, an increase of 20 billion cubic meters approximately per year of natural gas. With these data, Argentina will reduce imports of LNG and will be able to export gas. While it is true that the United States produced at the beginning of 2017 about 4.5 million barrels per day of oil shale and 380 billion cubic meters of shale gas per year, it is way ahead in comparison to other countries which have significant reserves. China and Argentina, however, seem to have taken a serious option for developing of their potential. Argentina had already produced 2 billion cubic meters of shale gas and 50,000 b/I of oil shale per year during the same period. For China, the production is estimated at about 10 billion cubic meters of gas per year with the objective of achieving 30 billion cubic meters in 2020.


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