Total eyes shale oil for growth in Argentina on concern of low gas prices


Total eyes shale oil for growth in Argentina on concern of low gas prices

Total, the second-largest producer of natural gas in Argentina, plans to focus on its oil assets there on concerns that an oversupply of gas could drive down prices to unprofitable levels.

The French company has slowed its development of Fenix, an offshore block in the far south with capacity to produce 10 million cu m/d, and is holding off on developing blocks in the dry gas window of Vaca Muerta, the country’s biggest shale play, Dominique Marion, director general of Total’s upstream unit in Argentina, said late Thursday.

“We have a portfolio of oil projects, and today we are focusing on that,” Marion told S&P Global Platts on the sidelines of the Argentina Oil and Gas Expo in Buenos Aires. “We certainly see less risk today going into oil development than going into gas.”

Argentina’s gas production surged 27% to a record 144 million cu m/d in July from a 16-year low of 113.7 million cu m/d in 2014, according to data from the Energy Secretariat. The growth, which the secretariat said this week notched up another 7.7% year-on-year increase in August, without providing the raw data, has returned the country to a surplus. Argentina’s average gas consumption was 123 million cu m/d in 2018, fluctuating between 100 million cu m/d in summer and 150 million cu m/d in winter, according to data from the Enargas, the federal gas regulator.

The oversupply has forced producers to shut wells during the summer, while a transport bottleneck out of Vaca Muerta is starting to slow production growth. While producers have increased exports to a combined 7 million cu m/d this year to Chile from less than 1 million cu m/d in 2018 and started selling small amounts of LNG as well as building underground storage, the huge production potential of Vaca Muerta is raising concerns about future prices.

“We want to see at what level the price will stabilize,” Marion said. “We have seen in the United States that gas can go to a negative price. We want to wait to see what the price of gas will be in Argentina because it could fall to negative prices.”

Argentina’s gas prices have been running between $2.77/MMBtu and $4.66/MMBtu so far this year, according to the Energy Secretariat. The breakeven price for shale gas is above $3/MMBtu, most companies have said.


With the tight margins and the pipeline bottlenecks, there has been a shift in development to the oil window from the gas windows.

Still, Total’s pace of drilling in the oil window may be subdued for two reasons, Marion said.

The first is that a government-imposed freeze on crude, diesel and gasoline prices for 90 days from mid-August to November 14 has driven down the local price of crude to around Brent ICE minus $20/b, according to most private estimates. That has taken Vaca Muerta light crude to around $45/b, which is only a few dollars above the breakeven price that is averaging $40/b.

Marion said it is “a bit early” to say when Total could enter into the full-development stage on any of the three blocks — La Escalonada, San Roque and Rincon La Ceniza — that it operates in Vaca Muerta that are prone to oil.

“The freeze of the oil price is certainly not a favorable condition to launch an oil development,” he said.


The second factor holding back its oil investment is the uncertainty of how much associated gas will be produced by companies in the Vaca Muerta oil window, such as BP-backed Pan American Energy, Shell and YPF.

“If there is a lot of associated gas, it will be good for consumers because the gas will be very cheap,” Marion said. “But it will not be good for the investors in gas.”

Total is not alone. On Tuesday, Daniel Gonzalez, CEO of state-backed YPF, Argentina’s biggest gas producer, said his company is focusing on its shale oil projects for the same reasons. “Until the future of the gas market in Argentina is clearer, our investments in shale are going to be more focused on oil than gas,” he said at the same energy conference.

Gonzalez added that he expects the company’s gas production to rise nonetheless because of the output associated with oil. The associated gas proportion of total output is 10% in the company’s three core oil blocks, he added.

Marion said that the production of associated gas varies across the oil window, and so it will wait for more information on production levels before it increases investment.

“We are looking at how the market will evolve and how much associated gas there will be,” he said.

Even so, he said the benefit of associated gas is that it can be sustained by profits on sales of oil and natural gas liquids even if the gas price drops below breakeven.

“The economy will come from the liquids and the gas will be a byproduct,” he said.

Total produces about 36 million cu m/d of gas in Argentina, or a quarter of the national total, and 10,000 b/d of crude, or less than 2% of the 500,000 b/d national total, according to data from the Argentina Oil and Gas Institute, an industry group.

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