YPF shelves plan to expand LNG exports

Argentina's state-controlled YPF is quietly shelving plans to expand LNG exports in a market with scant appetite for the liquid fuel.

"Very few investment ideas survive in this context that we're going through now," YPF board chairman Guillermo Nielsen said this week. "Certainly in LNG…we don't see room for that to fly."

Flush with shale gas reserves and hamstrung by domestic bottlenecks, YPF had been exploring the possibility of installing a 20mn m3/d liquefaction complex at Bahia Blanca after starting small-scale exports from there last year through the 2.5mn m3/d Tango liquefaction barge, which it chartered from Belgium's Exmar under a 10-year lease. YPF has exported five LNG cargoes from Tango since mid-2019.

But those plans are now on hold. Argentina will remain an LNG importer, particularly during the southern hemisphere winter when heating demand surges.

But thanks to the Vaca Muerta shale formation, the country will continue to ship pipeline gas to Chile and Brazil, which had been cut off for years after Argentina curtailed exports in favor of the domestic market in 2004.

Addressing the Institute of the Americas La Jolla energy conference on 19 May, Nielsen said the LNG imports and pipeline exports will remain the preferred model for now. "It's easier to get to our neighbor's markets through pipelines," he said.

The executive's subdued tone marks a shift from last year, when then-chief executive Daniel Gonzalez said "we clearly need a liquefaction plant" to absorb rising domestic production that was forcing the company to shut in wells during periods of low demand. Sergio Affronti succeeded Gonzalez late last month.

Other companies, including US firm Excelerate in partnership with gas transportation company TGS, also analyzed the possibility of installing a liquefaction plant in Argentina.

Argentina's 2019 natural gas production increased by 5pc year on year to 135.2mn m3/d (4.8bn cf/d), according to data from the energy secretariat.

Domestic barrel

Nielsen expressed skepticism about a new decree this week that mandates a minimum domestic crude price of $45/bl until the end of 2020.

"You cannot create demand by decree," Nielsen said, referring to the collapse in consumption triggered by a national lockdown designed to check the spread of Covid-19.

YPF is unlikely to pay the minimum price anyway, because the plunge in demand means it has excess crude of its own.

"The way things look today we can forget about YPF purchasing third-party oil for the rest of the year," Nielsen said.

YPF normally buys about 20pc of the crude it processes at its refineries.

In addition to the pandemic-related slowdown, Argentina is currently locked in acrimonious debt negotiations and appears headed toward its ninth sovereign debt default in its history.