In a surprise development, there are indications that the economically strife-torn country of Argentina will emerge as a major regional energy player. The exploitation of the 7.5 million Vaca Muerta shale formation has delivered an unconventional hydrocarbon boom for Argentina, a fiscally fragile nation once dependent on oil and gas imports. After a decade of development, the geological formation, which has been compared to the prolific U.S. Eagle Ford and Permian shales, is now responsible for nearly half of Argentina's oil output and 60% of natural gas produced. There is growing speculation that the successful exploitation of the Vaca Muerta will see Argentina pumping at least one million barrels of oil per day by the end of the decade, but threats, including political and economic risks, abound.
Data from Argentina's Ministry of Economy shows hydrocarbon production is soaring, with rising unconventional oil and gas output as the key driver. After a March 2023 record high of 631,103 barrels daily, Argentina's oil production has declined, with the country lifting 616,801 barrels per day for July 2023, which, while 0.6% lower compared to a month prior, was nearly 7% greater year over year. Financially crucial natural gas production in Latin America's third-largest economy is also soaring. Since pumping a record 4.996 billion cubic feet per day during August 2022, output declined to 4.877 billion cubic feet per day for July 2023, which was also 0.5% less month over month and 1.5% lower than a year earlier.
The proportion of hydrocarbons being lifted from the Vaca Muerta is rising at a steady clip. For July 2023, shale oil was responsible for 48% of Argentina's total petroleum output, while shale gas comprised 60% of total natural gas output. Those volumes will continue growing, with the Vaca Muerta attracting considerable interest from foreign energy investors, while Argentina's national oil company, YPF, has prioritized development of the geological body. After YPF, which is responsible for roughly half of Argentina's petroleum output and a quarter of gas production, the two largest oil producers are BP-controlled Pan American Energy and Vista Energy Argentina.
Activity in Argentina's energy patch continues growing. The August 2023 Baker Hughes International Rig Count shows 56 active drill rigs at the end of that month, which, while two less than a month earlier, is three more than for the same period in 2022. For June 2023, when Baker Hughes reported 58 operational drill rigs in Argentina, 78 wells were completed, which was 15 higher than a month earlier but five less than the same period in 2022. The volume of fracking completions in the Vaca Muerta is also rising. Data from NCS Multistage (Spanish) shows for the first eight months of 2023, the number of fracking stages completed rose nearly 18% year over year. According to industry analysts, if that trend continues, then a new fracking completion record will be set during 2023.
Investment in Argentina's hydrocarbon sector is soaring. It is projected that the total 2023 investment will grow by 18% year over year to at least $10.7 billion, with an estimated 70% of that capital earmarked for the Vaca Muerta. State-controlled YPF plans to spend $5 billion on operations during 2023, with $2.3 billion earmarked for shale oil and gas in the Vaca Muerta. Argentina's national oil company believes this will lift shale oil production by 30% when compared to 2022 and shale gas by 15%. During June 2023, it was reported U.S. supermajor Chevron will invest $500 million in developing the Trapial Block in the NeuquÃ©n Basin with five horizontal wells with up to 46 frack stages each to be drilled. Those investments will drive further production growth.
Significant infrastructure investments are also being made in the Vaca Muerta, with a lack of takeaway capacity and processing facilities posing the greatest risk to the shale formation's massive oil boom. The first phase of the Nestor Kirchner gas pipeline was inaugurated in July 2023. The pipeline, which will ultimately have a capacity of 1.4 billion cubic feet of natural gas per day, connects Vaca Muerta shale fields to a processing plant near SalliquelÃ³, a town west of Buenos Aires. The start-up of the first phase was responsible for record amounts of gas from the Vaca Muerta being injected into Argentina's pipeline system. The completion of the second phase will significantly boost gas supply to the domestic market, leading to a substantial reduction of Argentina's $5 billion energy deficit, thereby improving the balance of trade.
The Vaca Muerta with its tremendous unconventional oil and gas potential, is key to Argentina's burgeoning oil boom, with successive governments in Buenos Aires viewing the formation as a silver bullet for the country's many economic afflictions. The geological formation's development is key to boosting oil and gas production to the point where Argentina will be pumping one million barrels per day by 2030, or potentially more. That will not only see Latin America's third-largest economy become a top regional oil producer and exporter, it will also provide considerable relief for the crisis-prone economy, where inflation is running in triple figures. Government coffers will also receive a substantial boost at a crucial time, with Argentina having recently avoided yet another sovereign debt default.
By Matthew Smith for Oilprice.com
Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located… More
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