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Argentina's big energy hopes face reality

  • Market: Crude oil, Natural gas
  • 13/09/24

Argentina has the reserves, investor interest and now most of the regulatory framework to potentially triple its oil and natural gas output by the early 2030s, but ensuring success will require much more, producers in the country said today.

"Argentina has tremendous production potential," said Chevron's general manager of its Argentina upstream unit Jim Navratil, speaking at the 4th Shale in Argentina conference in Houston, Texas. But the country needs to give more assurances that contracts and investment regimes will be honored, and make it easier to move capital, he added. Chevron produces more than 100,000 b/d in Argentina.

The South American country is banking mostly on its Vaca Muerta unconventional oil and gas deposit that holds an estimated 308 trillion cf in natural gas and 16bn bl of oil reserves. Output from Vaca Muerta alone could rise to more than 1mn b/d from about 390,000 b/d now by 2030, the government and outside forecasts estimate. This comes after Argentina's overall oil output hit a 20-year high in July of 682,000 b/d and 151.7mn m³/d of gas, a 21-year high.

To further that increase, Argentina's government under President Javier Milei has passed massive changes to its financial and energy regulatory framework. The changes are aimed at ending the costly policy of energy sovereignty that "has hurt us" and instead making the system financially self-sustaining and open for investment, Argentina's energy minister Eduardo Rodriguez Chirillo said at the same event.

Not quite there

Optimism has grown, but more work is pending, producers say.

"We are supporting [the government's changes] and cheering, but we are still not quite there yet", Equinor's Vaca Muerta asset manager Max Medina said. Equinor has interest in one exploration license and one producing block in Vaca Muerta, with about 59,000 b/d of production.

Argentina should add more incentives for producers and those companies must place more attention on safety, emissions reductions and compliance as the basin expands, Medina said. Workforce development is also a challenge in Neuquen, the province where Vaca Muerta is centered, which has a population of about 700,000.

"The challenge to get to 1mn b/d [in Vaca Muerta] is going to be much more difficult, especially on the human resources side," Medina said.

Technological and cost constraints also present difficulties, said Pan American Energy's upstream managing director Fausto Caretta. The company hopes to triple its oil production in the Neuquina basin asset and in the Neuquen province in coming years, from 6,000 b/d of oil now.

But restrictions in Argentina on importing needed technology have also delayed needed improvements, Caretta said, although rules are easing. This has contributed to well drilling costs in the Vaca Muerta region being about 20pc higher than in the Permian basin in Texas, to which it is often compared, and completion times remain about 30pc more.

Financing multiple proposed infrastructure projects will also be key.

"The challenge is how to get that oil to markets," said Julian Escuder, country manager for Pluspetrol, which produces about 21,000 b/d of oil in Argentina. "We need infrastructure."

Despite the hurdles, Argentinian officials are assuring investors that changes are here to stay, unlike recent abrupt shifts in energy policy in Colombia and Mexico to focus on state-centered models.

Neuquen governor Roland Figuero assured attendees that energy policy is stable in his province. "That has been the same for years," he said, adding that Vaca Muerta "is the last big opportunity that Argentinians have to do things well" in energy.


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07/10/24

Africa seeks trillions in climate finance at Cop 29

Africa seeks trillions in climate finance at Cop 29

Africa faces the heaviest economic burden from climate change, and the most uncertainty over funding, writes Elaine Mills Cape Town, 7 October (Argus) — A key priority for African countries at the UN Cop 29 climate talks in Baku next month is to secure a new climate finance goal for developing countries. But as well as serious commitments on an amount, the continent wants increased accessibility and cheaper funding. Regional alliance the African Group of Negotiators (AGN) is seeking a climate finance commitment from developed countries of $1.3 trillion/yr by 2030, under a new climate finance goal currently being negotiated — the so-called new collective and quantified goal (NCQG). The NCQG is the next stage of the $100bn/yr target that developed countries agreed to deliver to developing countries over 2020-25. It was met for the first time in 2022, according to the OECD, but some countries in Africa have complained that the money never reached them. The AGN wants to steer clear of the old target, contesting whether it has even been met. The group says it wants lessons to be learned, especially regarding the quality of the finance and the difficulties countries have had in accessing it. Uganda asks that the new goal avoids "political statements that are not implemented", referring to uncertainties over how the finance was counted and accessed. African states want the funding to come mostly from public sources, largely in the form of grants and highly concessional loans. This should improve borrowing costs and ease debt burdens, which are forcing countries to make trade-offs with critical development needs. The group does not want market-based loans to be counted as climatefinance — the majority of multilateral climate loans were market-based in 2016-22. Most African countries face an unsustainable debt situation that has been worsened by higher global interest rates, AGN chair Ali Mohamed says. "Our focus is on agreed obligations within the multilateral climate process and the need to improve investments to unlock the continent's potential to tackle the climate crisis, which is paralysing most economies," he says. Africa receives only 2pc of total global climate finance, according to think-tank Climate Policy Initiative. The new NCQG must create the right conditions to push that share to at least 30pc, "otherwise it is a failed process", a South Africa negotiator said last month. The heaviest price The first global stocktake at Cop 28 in Dubai last year acknowledged the world is off track in meeting the Paris Agreement's goals, with significant ambition and implementation gaps in mitigation and adaptation, as well as loss and damage, Mohamed says. African countries submitted ambitious nationally determined contributions, but there has not been corresponding financial and technical support for their implementation. "We lack clarity on the amount of current and future funding, capacity building and technical support," Kenya's cabinet secretary for environment, climate change and forestry, Aden Bare Duale, says. This vagueness undermines transparency of support under the Paris accord, and addressing it should be prioritised in the forthcoming negotiations, he says. African countries lose 2-5pc of their GDPs annually and many divert up to 9pc of their budgets responding to climate extremes, according to the State of the Climate in Africa 2023 report by the World Meteorological Organisation. The report serves as a stark reminder of the urgent need for climate action in Africa, where extreme weather events disproportionately impact the continent's socio-economic development, Zambian environment minister Mike Mposha says. "It is African nations who pay the heaviest price," Simon Stiell, head of UN climate body the UNFCCC, says. "But it would be incorrect for any world leader — especially in the G20 — to think ‘It's not my problem'. The economic and political reality — in an interdependent world — is we are all in this crisis together." Climate finance flows and needs in Africa Bilateral climate finance loans in 2016-2022 Multilateral climate finance loans 2016-2022 Multilateral climate finance loans 2016-2022 Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Nigeria starts local currency crude sales to Dangote


07/10/24
News
07/10/24

Nigeria starts local currency crude sales to Dangote

Lagos, 7 October (Argus) — Nigeria's state-owned oil firm NNPC began selling crude to the country's 650,000 b/d Dangote refinery in the local currency on 1 October, as planned, the Nigerian government said. Co-ordinating minister of the economy Wale Edun said he has conducted "a post-commencement review" of the programme, where downstream regulator NMDPRA, NNPC and Dangote officials confirmed the start of sales in naira. "From 1 October, NNPC will commence the supply of approximately 385,000 b/d of crude oil to the Dangote refinery, which will be paid for in naira," Edun had said previously. The programme will also involve Dangote supplying gasoline and diesel of "equivalent value to the domestic market to be paid for in naira". The crude and product sales will be valued in dollars at prevailing international market prices, but financial settlements will be completed in naira at a fixed exchange rate that has so far not been disclosed. Maritime and port regulatory costs for coastal deliveries of crude and products under the programme, which are normally collected in dollars, "will also be paid for in naira", Edun said. The Nigerian Ports Authority's managing director, Abubakar Dantsoho, previously confirmed the set-up of a "one-stop shop that will co-ordinate service provision from all regulatory and security agencies", listing Nigerian ports, maritime, customs and tax authorities and the navy as participants. Dangote will sell diesel volumes under the programme "to any interested offtaker", the government said, but gasoline will only be sold to NNPC. "NNPC will then sell to various marketers for now," according to the government. "Since gasoline is still subsidised by the government, using discounted foreign exchange [available] only to NNPC, prices at wholesale and retail are still considerably below the market. That is why only NNPC can buy Dangote's gasoline today," said Bob Dickerman, the chief executive of local oil trader Pinnacle. Nigeria's diesel market has been deregulated since 2003 but efforts to remove the country's longstanding gasoline subsidy have stalled. Dangote started sales of gasoline to NNPC on 15 September under an older contract in which the national oil company pays the refiner in dollars. Argus tracking shows Dangote's crude receipts rose by 5pc on the month to 195,000 b/d in September. Dangote said it is aiming for a run rate of 350,000 b/d in its first phase of operations but has fallen short of that level in every month this year except for June. By Adebiyi Olusolape Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Biden urges Israel against Iran oil strike


04/10/24
News
04/10/24

Biden urges Israel against Iran oil strike

Washington, 4 October (Argus) — President Joe Biden today suggested that Israel should not strike Iran's oil facilities, a day after confirming that such an attack was being discussed. "If I were in their shoes, I'd be thinking about other alternatives than striking oil fields," Biden said. He added that "Israelis have not concluded what they're going to do in terms of a strike that's under discussion." Biden's comments on Thursday lifted crude futures out of concern over the damage of a potential Israeli strike and the Iranian response that could follow. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Global bio-bunker demand to pick up, US left behind


04/10/24
News
04/10/24

Global bio-bunker demand to pick up, US left behind

New York, 4 October (Argus) — Tightening vessel carbon intensity indicator (CII) scores and looming 2025 FuelEU marine regulation are expected to raise biodiesel demand for bunkering, but non-competitive US prices should continue to weigh down on US bio-bunker demand. Houston B30, a blend of used cooking methyl ester (Ucome) and very low-sulphur fuel oil (VLSFO), in September averaged at $821/t, a $45/t premium to B30 sold in Amsterdam-Rotterdam-Antwerp, and a $55/t premium to B24 sold in the west Mediterranean hub of Gibraltar and Algeciras (see chart) . Houston B30 was also priced at $115/t and $61/t premium to B24 sold in Singapore and Guangzhou, China, respectively. The price premium would continue to incentivize ship owners with global, ocean-going fleets to pick Asia first for their biodiesel bunker purchases, followed by northwest Europe and western Mediterranean. US demand for biodiesel for bunkering would continue to stagnate unless the US passes a legislation allowing Renewable Identification Number (RIN) credit under the US Renewable Fuel Standard (RFS) program be used by ocean-going vessels fueling with biodiesel in US ports. The legislation could level US' price playing field. Two bipartisan bills were put forward in support of renewable fuel for ocean-going vessels, one in the US Senate this year and one in the US House of Representatives last year, but they are currently dead in the water. Conventional marine fuels are priced cheaper than biodiesel and green varieties of LNG, ammonia, methanol, and hydrogen. But tightening International Maritime Organization (IMO) and EU regulations are forcing the hand of ship operators to consider green fuels to avoid hefty penalties and having their vessels suspended from trading. Ship owners whose vessels are outfitted with LNG-burning engines, are poised to have the lowest marine fuel expense heading into 2025, as fossil LNG is currently ship owners' cheapest low-carbon fuel option. But retrofitting a vessel to burn LNG could range from $5-$35mn, depending on the size of the vessel. Biodiesel, a plug-and-play fuel that does not require a vessel retrofit, is the second cheapest low-carbon fuel option after fossil LNG. IMO's CII regulation came into force in January 2023 and requires vessels over 5,000 gt to report their carbon intensity, which is then scored from A to E. The scoring levels are lowered yearly by about 2pc, so even a vessel with no change in CII could drop from C to D in one year. If a vessel receives a D score three years in a row or E score in the previous year, the vessel owner must submit a corrective actions plan. E scoring vessels could be prohibited from entering some ports' territorial waters, but this penalty is yet to be imposed on any E vessels. In 2023, the IMO reported that 40pc of the vessels scored A or B, 27pc scored C, 19pc scored D or E and 14pc were unresponsive. The EU's FuelEU maritime regulation will require ship operators traveling in, out and within EU territorial waters to gradually reduce their greenhouse gas (GHG) intensity on a lifecycle basis, starting with a 2pc reduction in 2025, 6pc in 2030 and so on until getting to an 80pc drop, compared with 2020 base year levels. It imposes a penalty of €2,400/t ($2,629/t) of VLSFO equivalent energy for vessel fleets exceeding its GHG limits. By Stefka Wechsler Biodiesel blends* Houston less global ports $/t Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Mideast crisis puts Iran’s energy facilities at risk


04/10/24
News
04/10/24

Mideast crisis puts Iran’s energy facilities at risk

Dubai, 4 October (Argus) — Iran's large-scale missile attack against Israel on 1 October pushed the Mideast Gulf region another step closer to all-out war, with Israel vowing to retaliate hard for what it saw as "a severe and dangerous escalation." But unlike previous exchanges, which have largely targeted military assets, critical energy infrastructure including oil facilities appear this time to be in Israel's crosshairs. President Joe Biden on 3 October said the US and Israel are discussing possible strikes on Iranian oil facilities as part of consultations on a response. The Biden administration would not provide any details and the only objection it has voiced publicly is against the prospect of an Israeli strike on sites associated with Iran's nuclear programme. The escalating conflict in the region, which began with a surprise cross-border attack by Gaza-based Hamas militants on Israel almost one year ago, has had a limited impact on oil prices, because the effect on physical supply has been almost non-existent despite the scale of the fighting and destruction in Gaza, northern Israel and southern Lebanon. Attacks by Iran-backed Houthi militants in Yemen on oil tankers in the Red Sea rerouted some oil trade without affecting global supply. That could change if Israel makes good on its threat to directly target Iranian oil infrastructure and, especially, if Iran retaliates — as it did in 2019 to a US attempt to cut off its exports — with indiscriminate attacks on oil tankers and infrastructure in the Mideast Gulf. But the extent of the effect on global supply and price will ultimately depend on Israel's intentions, and what kind of facilities are hit. "If the objective is to hurt the country economically, then the most obvious target would be Iran's oil export terminals," said Vortexa senior oil risk analyst Armen Azizian. Despite US sanctions, Iran continues to be a major crude producer — the third biggest in Opec — and a notable exporter. Oil exports averaged around 1.55mn-1.6mn b/d in the first half of this year, rising to 1.65mn-1.7mn b/d in July-August. Early indications suggest September exports were higher still. Iran has several terminals from where it exports its crude and condensate, all on its Mideast Gulf coast. But one, on Kharg Island, dwarves all others in terms of importance. "About 90-95pc of Iran's oil exports typically come out of Kharg, with the other 5-10pc coming out of considerably smaller terminals, such as Soroush, Sirri or Lavan," Azizian said. "Hitting one of those smaller streams wouldn't impact Iran too much, operationally. But if they decide to take Kharg offline, we're talking about a hit of around 1.5mn b/d to its export capacity." Knock-on effects When Iran was struggling to sell its oil because of sanctions the US imposed in 2018, it had upwards of 60mn-70mn bl in floating storage. But these have fallen to just shy of 40mn bl, which would only sustain exports of about 1.3mn b/d for a month, Azizian noted. Iran has onshore storage, but many of the biggest tanks are at Kharg, which could be at risk of damage should the terminal be targeted. An attack on Kharg Island would strike at the heart of the Iranian economy, given how big a chunk of Iran's foreign exchange revenues come from the sale of its oil. Nearly all Iran's exports are absorbed by refiners in China's Shandong province. But the effect of potentially removing 1.5mn b/d from global supply would be felt far beyond Iran and China, as global markets would be forced to adapt. Crude futures moved higher this week on the prospect of Israeli strikes against Iran. The Biden administration for the past year has worked to keep the conflict from escalating, in part because of the potential knock-on effects on oil prices — a key consideration in the US election campaign where Biden's vice-president, Kamala Harris, is facing former president Donald Trump. If the confrontation results in an Iranian outage, avoiding a price rise would require a co-ordinated move by the US and other large consumers and, possibly, by the wider Opec+ group, to ensure supplies can be brought to the market. Opec+ is holding back close to 6mn b/d of production under a series of formal and voluntary cuts, which it could bring back sooner than currently planned. But doing so in response to an attack on Iran could stoke tensions within Opec and between Iran and its Mideast Gulf Arab neighbours, which improved relations with Tehran in recent years. The US would be hard pressed to again guarantee the security of key oil infrastructure facilities across the region. The tepid initial US response to a 2019 attack on Saudi state-controlled Aramco's Abqaiq complex and to a 2022 attack on UAE energy facilities prompted regional producers to consider Washington's military security guarantee as falling short. Kpler senior oil analyst Homayoun Falakshahi sees the the probability of an attack on Kharg Island as low, given China's relations with Israel and Iran. "I imagine China will put as much pressure on Israel not to target Iran's exports," Falakshahi said. Refining plans Alternatively, Israel could opt to target one or more of Iran's 10 oil refineries or condensate splitters that are largely concentrated in the west of the country. Discussion at an industry conference in Fujairah this week about a possible Israeli retaliation centred on Iran's largest refinery, the recently expanded 630,000 b/d capacity Abadan in Khuzestan province. Targeting Abadan was seen as a less provocative move, while still providing a warning to Tehran that energy installations are ‘in play' and hitting Iran's domestic products supply. A hit to Abadan would be significant, but not impossible to navigate for Iran, according to Falakshahi, who notes it produces mostly fuel oil, a product primarily consumed domestically with some exported to Fujairah in the UAE, China and Singapore, among other destinations. Abadan produces other products such as gasoline, which Iran has recently had to begin importing again to meet demand, but output is only enough to meet around 12-13pc of consumption. "It will primarily impact the local market, but little else," Falakshahi said. "But not to the same extent as if, say, the 360,000 b/d Persian Gulf Star condensate splitter was targeted, as that alone delivers enough to meet around 20-25pc of local gasoline demand." Gasoline is a politically-sensitive issue in Iran, with even minor changes in the price of the road fuel sometimes sparking charged demonstrations and riots. More than 200 people were killed in riots in November 2019 triggered by a sudden cut to subsidies that resulted in a sharp increase in gasoline prices. Israel has so far not given any public hints as to when it plans to retaliate or how. But with tensions in the region already at the highest they have been for some years, Iran will be on high alert, and upping security where it can. A trading source told Argus that Iran's state-owned NIOC has in recent days moved many of its empty tankers away from Kharg Island. By Nader Itayim Iran’s oil refineries and terminals Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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