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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Big Legal Move Could Render Argentina Unattractive For NatGas Drillers

Vaca Muerta

Argentina has been shaping up as one of the best places on Earth for oil and gas exploration. With high and rising government-mandated prices helping to spur big investments in exploration and development.

But those plans hit a major hitch late last week. When the country’s Supreme Court stepped into the regulation of commodities pricing.

Argentina’s highest judges moved last Thursday to suspend planned price hikes for natural gas. Which Argentina’s new government had previously promised would fix natgas rates as high as $7.50/MMBtu — an elevated level that would have given producers and explorers in the country a big leg up.

But the courts ruled that forcing Argentina’s gas consumers to pay more is unconstitutional. With judges saying that the government must first hold public hearings on the proposed price increases — before finalizing the measures and cementing higher prices for producers.

That puts the future of natgas pricing across Argentina in limbo. Making it look like the current, lower-price regime will stay in place for at least the next several months, while the government prepares its next moves. Related: Merger Of Libya’s Rival Oil Companies Meaningless Without Control Over Oilfields

Officials in the government of new president Mauricio Macri did speak out against the court ruling. Saying that delays in raising prices will hamper the investment Argentina badly needs in order to ensure oil and gas production.

Overall however, this looks to be a brewing standoff between public sentiment and project economics. With the complicated dynamics here representing a critical wrinkle in Argentina’s plans to modernize its oil and gas sector.

Government representatives said they plan to appeal the Supreme Court suspension order — watch for the outcome of this key legal case over the coming months, and for other strategies the government might try in order to incentivize petroleum exploration.

Here’s to finding a way.

By Dave Forest

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  • JHM on July 12 2016 said:
    Apparently, natgas drillers can't compete in a free market, but require captive customers to pay premium per government fiat.
  • Hernan on July 13 2016 said:
    "Argentina has been shaping up as one of the best places on Earth for oil and gas exploration. "

    Such folly. Corrupt Argentina for many years has been one of the worst places to start up any sort of business operation. It is never more than a few months away from either a massive default, unthinkable inflation, major economic crisis, nation-wide work stoppages, and/or a return to the populism of Peronism.

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