Argentina to launch subsidized natgas tenders

Argentina is preparing to kick off a new subsidy scheme aimed at stimulating natural gas production through a four-year tender program starting in October.

The initiative is Argentina's latest effort to attract upstream investment, with a special focus on the Vaca Muerta shale play that has failed to live up to initial expectations. Buenos Aires is hoping to get a fresh start after striking a deal in early August with three groups of creditors to restructure around $65bn in sovereign debt.

The still-unofficial tender program, which was outlined to gas companies last week, would supply around 70mn m3/d to distributors and power generators through Cammesa, the state-controlled electricity wholesaler, below a government-set price cap of around $3.4/mn Btu. The gas volume to be tendered would increase by around 20pc during peak-demand winter months.

The government plans to pay the difference between the price obtained in the auctions and what is paid by users in an effort to provide "medium-term predictability", said Juan Jose Carbajales, deputy hydrocarbons secretary at Argentina's energy secretariat.

The gas in the program would receive priority for exports, and the government would allow companies to sign firm pipeline export contracts for up to 11mn m3/d.

The amount to be tendered cannot represent more than 70pc of the production of all companies in the sector, implying that producers would have to inject a minimum of 100mn m3/d in the national pipeline system by May 2021.

Each producer would offer a price that it will receive for the next four years, a move intended to stimulate long-term investment. All producers that want to take part in the tenders would have to commit to maintain or increase production from a May-July 2020 baseline, a period in which output was lower-than-normal because of the government's Covid-19 restrictions.

The tenders would be divided by basin, with shale-rich Neuquen allocated the largest share with 47.2mn m3/d, followed by Austral basin with 20mn m3/d and Northeast basin with 2.8mn m3/d.

Producers that do not inject the amount of gas they had pledged in the winter months would face a financial penalty. And failure to meet commitments for six straight months would result in a ban on participation.

Not surprisingly, Argentina's state-controlled YPF, the country's largest oil and gas producer, said it plans to participate. "We expect to be able to secure long or medium-term prices that should support further investment into our natural gas business," YPF chief financial office Alejandro Lew said yesterday.

Argentina's gas production declined by 5.7pc in January-June, on the year, to 125.3mn m3/d, according to energy secretariat figures.

By Daniel Politi