Camila Fontana: Hello everyone. Welcome to Market Talks, the weekly Argus podcast on the commodities and energy sectors. I am Camila Fontana, deputy bureau chief of the Argus office in Brazil. And again, I will chat with João Scheller, who covers the crude markets in Colombia, Ecuador, Argentina, and Guyana.
João attended the Argus Rio Crude Conference in late May at the historic Copacabana Palace, and he is here to share the highlights of that event, such as news from Vaca Muerta in Argentina, Brazilian production increases, and much more.
João, thank you for being here again with us. Though the event was held in Brazil, I think we will start with Argentina with a lot of buzz around the Vaca Muerta development.
What were the main topics that were discussed about this development in Rio?
João Scheller: Well, thank you, Camila, for having me here. There is a lot of talk about Argentina's Vaca Muerta, and I will probably point out the investment to start with. The investment in the area has been huge around $10 billion in 2024. The same amount is expected to be invested there in 2025.
There is a big increase in investment area brought by the great amount of crude oil and the great volumes that can be drilled from there. There is a whole shift to unconventional oil drilling in Vaca Muerta. Most of the new capital flowing there is for unconventional production. And we can point out for example YPF, which is a state-owned oil company in Argentina, has already publicly announced that it is shifting its investments to Vaca Muerta.
You see that it is the main bet in the country for reaching huge levels of crude production and becoming one of the biggest players in the region, which already is but increasing even more. We also have seen recent economic reforms which are designed to attract and sustain energy investments. That is also given investor a signal that there is room for more investments into region and for more drilling, more opportunities. And that is all being coordinated by record output.
We have seen Argentina hit 717,000 barrels a day in 2024, which was already a record output and there is more to come, and the country expects to reach 1.5 million barrels a day by 2030. There is a lot of buzz, as you said, around Vaca Muerta.
CF: But along with the buzz, there might be challenges as well.
JS; As always, yes. Well, I think we should probably highlight the bottlenecks regarding infrastructure.
There is a lot of issues with that in Argentina to make their production marketable in different markets to reach different continents, different countries. More investment has been done and still needs to be done to allow larger vessels to be loaded and more volumes to be loaded, more volumes to be marketable.
We have seen ongoing work at Puerto Rosales, which would allow producers to load larger tankers such as Suezmaxes, but that was expected to be done by now. There have been some delays regarding that, probably take a few more weeks, if not months. They will all finally be able to load partial Suezmaxes, which will allow producers to, of course, get better discounts, better differentials for the crude.
That is something that is being expected there. This work in Puerto Rosales, but also there is another project which is called Vaca Muerta Sur, which is a pipeline that will bring oil from Vaca Muerta down to Rio Negro and will allow producers to again have a different port for exporting the crude, which is another alternative. And also, at that port, be able to load VLCCs, which are larger tankers which will again allow them to reach different markets.
For example, producers in Argentina expect to be able to load VLCCs and take their Medanito crude to Asia, for example, perhaps China and then be an alternative for light type crude to Asian markets. That is an expansion in terms of marketing that will only come if those infrastructure projects finally get finished. And besides that, I think it is good to point out that is something that is obviously current prices changed all the time.
But the crude oil prices have been near the $60 range and that brings some challenges because breakeven prices for Vaca Muerta shale oil projects are somewhere between $40 a barrel and $60 a barrel. It is getting very close to that number and that perhaps can make some projects non-profitable or not profitable enough. That can perhaps slow down new investments in some of those areas.
So that is something we have been watching closely. There is obviously some problems and some challenges, but the general outlook is positive.
CF: Moving from Argentina to Brazil, what were the highlights discussed among the participants of the conference?
JS: Well, Brazil together with Argentina are the two biggest producers in the region and together also with Guyana.
But the main topic about Brazil is how its potential of new oil projects and new output will bring a lot of opportunities to a lot of players. The Brazilian crude oil market is historically very closed and has welcomed a lot of new participants in the past few years. The milestones are coming now that we have new participants in new different projects.
For example, in March, Brazil reached 3.6 million barrels a day of crude oil production, which is a record. And a record especially in pre-salt fields. Almost 2.9 million barrels a day out of those 3.6 are from pre-salt fields. We have growth in those projects which are the main bet for Brazil as Vaca Muerta is for Argentina. And we also have different projects coming online anytime in the next few years.
We have Gato do Mato, for example, which is a project that is led by Shell, for instance. We have the Bacalhau oil field which will start its new output soon. We have a new crude oil grade being marketed. There is a lot of excitement, there is a lot of new projects. And we have also seen some players, some talks about the drilling and the exploration at the Foz do Amazonas area. That would be a new oil frontier for Brazil, which could eventually lead to more production besides what we already have in the country.
Currently, Brazil is expected to reach 5.3 million barrels a day by 2030 and with new projects that could increase even more.
CF: You just gave an overview of Brazil the situation here of the crude industry, but there is a lot of talk about the upcoming auction of PPSA. What is at stake?
JS: Right. Well, PPSA first of all is the company that markets the government share in the pre-salt fields. Basically, it is the barrels from the government that are being marketed by this company PPSA, the state-owned company. And the auction they will hold on the 26th of June. By the time we are recording this episode, this has not happened yet, but it will be the biggest auction from PPSA.
It is their fifth auction, and they are selling or seeking to sell 78.5 million barrels. A lot of that is Mero crude oil grade. About 60 million barrels of those are from Mero, which is reflecting a production surge in Mero field. And we also have other types of crude oil, but I think the biggest point with this PPSA auction is showing how the crude production in Brazil is growing and there is room for more.
We do not see producers skeptical about this and it reflects the biggest auction in terms of volume. We have a lot of optimism in Brazil and when we talk about PPSA's auction we kind of have a very solid reflect of that.
CF: Thank you, João. Thank you again for being here with us. Thank you to our listeners. Stay tuned for more Argus content on the commodity sectors in Latin America and elsewhere. See you next time. Bye-bye.
