BUENOS AIRES, Oct. 9 -- Oil and gas industry executives in Argentina have warned of a shortfall in the country's natural gas supply-demand balance if wellhead prices don't recover soon.
They suggested that some tax relief is needed to alleviate the effects of last year's wellhead gas price collapse. Last year, following a sharp devaluation of the Argentine peso against the US dollar amid a deepening recession, Argentine wellhead gas prices plummeted to a record low annual average of 40¢/MMbtu vs. an average of $1.20/MMbtu in 2001.
Together with a new 20% tax on crude oil exports, the gas wellhead price collapse has withered upstream oil and gas investment in the country (OGJ Online, Aug. 27, 2003).
The comments came Oct. 7 during a roundtable discussion on local and regional gas markets at Argentina Oil & Gas 2003, a trade show and conference held every other year in Buenos Aires, in rotation with Brazil's top show, Rio Oil & Gas.
The panelists, in looking at gas reserves, production, and demand locally and regionally, contend agreed that billions of dollars in potential local and regional project investment will remain stalled until the situation in Argentina improves. Only until prices recover and stability returns to the market will upstream investment recover in Argentina, the panelists said.
Ernesto López Anadón, Repsol-YPF SA's general manager for natural gas development and marketing in Argentina, noted that Argentina has "abundant reserves to be developed, distributed, and exported," with the potential for investment of "about $9 billion to develop the gas infrastructure." Noting that the devaluation of the peso had slashed Argentine wellhead gas prices to the lowest in the region, he said, "investments will come only under the appropriate conditions and regulations that facilitate mechanisms for investments."
Bruno Kracher, Total SA's new businesses and development director in Argentina, spoke on behalf of gas producers in the Southern Cone of South America. He emphasized the growth in regional gas consumption and the maturity of the transportation system. Kracher stressed the benefits of regional energy integration that would include "promoting optimization of gas use, competition, supply in the long term, and private investment."
Kracher said that Argentine wellhead gas prices "must return to precrisis levels; the free play of supply and demand will have to be reflected and certainty in the transfer of prices to the end consumer to be shown."
Antoni Peris Mingot, general manager of Argentine gas distribution company BAN and president of Argentina's Gas Distributor & Transporter Association (ADIGAS), detailed the gas transportation sector's expansion efforts and tax burden.
He noted that from December 1992 to December 2001, cumulative total investment in this sector was $8.264 billion.
These investments enabled transmission and distribution companies to increase gas transportation capacity in Argentina to 115 million cu m/day from 67 million cu m/day while expanding the reach of the distribution grid by 53% and the number of customers by 32%
But Peris also noted that "25% of the total income of the sector went to the national [government] in taxes and dividends, totaling $5.8 billion" during the 10-year timeframe, while the tax portion of delivered costs grew 71% during that time.
Peris called for "a balance in the prices of the energy products in the Mercosur area to be achieved in the medium to long term, a fixed 'social tariff' for the smaller economic resource sectors, and a path of price recovery that make possible for the energy sector to accompany the growth in demand in. . .coming years with the economic and industrial recovery of the country."
Bolivia's Raúl Lema Patiño, president of state-owned Yacimientos Petroliferos Fiscales Bolivianos, noted the lack of market for much of that county's proven gas reserves base of 55 tcf. He estimated that 43% of his country's gas reserves remains stranded.
As a result, YPFB is pinning high hopes on plans by a group led by Repsol-YPF and Total to deliver gas from landlocked Bolivia to a proposed LNG export terminal on Chile's coast.