BMI View: Argentina’s energy sector needs all the help it can get, so the resource upgrade at Vaca Muerta is highly encouraging. However, the fiscal regime needs work if Argentina is to secure adequate long-term investment and harness the country’s apparent potential. Otherwise, import volumes of both oil and gas will rise steadily and Argentina will miss out on an opportunity to achieve a high degree of selfsufficiency.
The main trends and developments we highlight in the Argentinean Oil and Gas sector are:
.. An audit carried out by US consultant Ryder Scott to assess potential of the Vaca Muerta formation in Argentina's Neuquén Province has led to a substantial increase in estimated reserves. The formation is now considered to hold prospective resources of 21.2bn barrels of oil equivalent (boe), contingent resources of 1.5bn boe and booked proven, probable and possible (3P) reserves of 116mn boe net to Repsol YPF – the company that commissioned the audit. This is a considerable increase on a November 2011 contingent resources estimate of 927mn boe.
.. Repsol-YPF estimates it would take US$42bn of combined investment from all partners, the drilling of 3,000 producing wells and the addition of 100 new rigs to develop Vaca Muerta's estimated 1.5bn boe of contingent resources. The company said it would take US$25bn per year to double the country's current oil and gas production
.. Until there is a firm commitment to shale project development, conventional oil volumes will continue to come under pressure and the production outlook will remain uncertain. Our current estimates assume oil output falling in 2012, but recovering in 2013/14. By 2016, we expect Argentina to be pumping an average 730,000 barrels per day (b/d), requiring net imports of around 3,000b/d should demand reach 733,000b/d.
.. Natural gas consumption had been rising at an annual rate of 5% before the global economic crisis, but demand stalled during the economic downturn. We now see demand picking up along with economic recovery, with consumption of an estimated 44.2bn cubic metres (bcm) in 2011 rising to 53.7bcm by 2016, requiring imports of 13.7bcm.
.. Oil export revenues are expected to turn around from an assumed net positive of US$3.4bn in 2011 to a net negative of US$102mn in 2016, subject to the extraction of shale volumes. Net gas import costs are set to rise to 13.7bcm in 2016, costing US$6.4bn. Combined oil and gas imports costs in 2016 could therefore be US$6.5bn – with the potential to double by 2021 without major progress in exploiting shale resources.
At the time of writing we assume an OPEC basket oil price for 2012 of US$99.38/bbl, falling to US$97.23/bbl in 2013. Global GDP in 2012 is forecast at 3.2%, up from an assumed 3.1% in 2011, reflecting a slowing growth in China and uncertainty with regard to the eurozone debt situation. For 2013, growth is estimated at 3.7%.

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