Argentina gas producers line up to resume exports

Germany's Wintershall has become the fourth company to request permission from the Argentinian government to export gas to Canada's methanol complex Methanex in neighboring Chile.

France's Total, BP-controlled Pan American Energy (PAE) and local firm CGC also requested permission to export natural gas from Argentina to Methanex.

Argentina opened the door to resume pipeline gas exports to Chile for the first time in more than a decade last month, reflecting a recovery in domestic production, driven by the Vaca Muerta shale formation in Neuquén province. Argentina began to restrict pipelines gas exports in 2004 amid soaring demand and shrinking supply. The move mainly affected Chile, and in the following years, Argentina and Chile installed two regasification terminals apiece to fill the gaps in their markets. But the damage was extensive, leading Methanex in deep southern Chile to partially dismantle its complex in favor of the US Gulf coast, awash in cheap shale gas.

A key part of Argentina's new gas export regulation states that sales abroad cannot affect domestic supply. Any company interested in exporting gas has to apply for permission, opening a period of five business days for any potential domestic purchaser to express interest in buying the gas.

Wintershall's five business-day period began on 11 September, whereas the other three companies have already passed the period since their requests were issued on 28 August, with no domestic market option on the table.

All four companies are seeking to deliver a maximum of 750,000 m3/d (26.5mn cf/d) and a total 479.25mn m3 for the length of the proposed interruptible contract with Methanex that runs until 1 June 2020.

The firms set a minimum price of $3.45/mn Btu and a maximum of $4.50/mn Btu, although the formula to calculate the price on delivery will take into account the methanol price in Asia from the month prior to the export of the fuel.

Chilean buyers remain cautious of their politically volatile neighbor. A main question is how the emerging gas sales will be affected by an export levy imposed by Argentina's austerity-minded government earlier in September. The new export tax that was unveiled in the middle of a currency crisis amounts to four pesos per dollar on sales of primary products and services, and three pesos per dollar on other exports.

CGC's gas will come from the Austral basin in southern Santa Cruz province, while Total, Wintershall and PAE will supply gas from their offshore operations off Tierra del Fuego, Argentina's southernmost province. A cross-border pipeline, one of several built during Argentina´s late-1990s heyday of gas exports, already connects Argentina´s southern gas fields to southern Chile´s Magallanes region.

None of the Argentinian gas earmarked for export will come from Vaca Muerta, where these same companies are participating in the rising production.

Argentina's gas production increased by 7.1pc year on year to 132.1mn m3/d in July, while output from unconventional operations rose 42.3pc to 46.9mn m3/d, according to the latest official data from the energy secretariat. The increase has sown optimism in Argentina, but gas production is still shy of a 2004 peak of more than 140mn m3/d.

The proposed gas export contracts are only likely to take effect during the southern hemisphere summer that gets underway soon. Argentina's gas demand peaks in the winter months in response to heating needs.

During cold months, Argentina supplements imports of pipeline gas from Bolivia with purchases of LNG through two terminals in Buenos Aires province. Chile has supplied LNG-derived gas to Argentina over the past three winters.