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Argentina’s Shale Gets Another Boost with Dow Investment

Argentina’s Shale Gets Another Boost with Dow Investment

The state-owned Argentine oil company YPF issued a joint announcement with Dow Argentina – a subsidiary of Dow Chemical Co. – to invest $500 million in shale gas exploration for 2016.

That comes on top of the $350 million that the companies have already invested in a joint venture, and the two entities said the total sum could rise to $2.5 billion over the next few years. Dow and YPF jointly produce about 750,000 cubic meters per day, which they say will rise to about 2 million cubic meters per day in 2016.

So far, they have drilled 19 wells in the Vaca Muerta, a vast shale formation in central Argentina. The joint venture has plans to drill an additional 30 wells in 2016, and they hope to drill more than 180 wells in the coming years. Related: A $14 Billion Mega-Deal For This Leading International Shale Nation

The announcement also comes on the heels of an historic Argentine election in which business-friendly candidate Mauricio Macri swept out 12 years of leftist rule, marking a shift in Argentina’s political trajectory. It is unclear how Macri will handle energy issues specifically, but the industry is hopeful. He has promised to loosen capital controls, which will make investment easier. He also appointed a former executive of Shell Argentina as his energy minister, a sign that he will be favorable to oil and gas drillers.

The EIA ranks Argentina second globally in terms of the size of shale gas reserves with over 800 trillion cubic feet. That puts it second worldwide, behind only China. Related: Gazprom Rapidly Losing Grip On European Markets

At this point, although progressing slowly, Argentina represents the only country outside of North America with a vibrant shale gas industry. Other companies are also putting in significant investment. Chevron, along with YPF, has invested $3.5 billion to drill shale wells, a figure that could rise to $16 billion by 2030.

Meanwhile, on December 14, ExxonMobil also received the go-ahead from Neuquén province to drill in the Vaca Muerta. ExxonMobil plans on drilling five wells along with the cooperation of Gas y Petroleo del Neuquén, a provincially-owned company. After the handful of wells are drilled, the companies are expected to move forward with plans to drill several hundred horizontal wells, investing $13.8 billion. Related: Fed Rate Hike Bad Timing for Crude Oil

What gives Argentina a leg up in the current low pricing environment is its system of regulated prices, which keeps natural gas prices at $7.50 per million Btu and crude oil prices above $70 per barrel. That has companies much more interested in drilling than they otherwise would be.

The forthcoming investments from YPF, Dow, ExxonMobil, Chevron, and others will likely help Argentina grow its shale industry. Wood Mackenzie predicts that shale output in Argentina will double by 2018.

By Charles Kennedy of Oilprice.com

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