Decree to freeze fuel prices in Argentina threatens oil extraction in Vaca Muerta

Congelación de precios del combustible

Argentina imposed a 90-day price freeze on diesel, a move that lowered crude prices by around 30%, even after oil companies warned it will hinder investment projects like shale oil extraction in Vaca Muerta.

The maximum price will come into force immediately, according to the Official Gazette of the Republic of Argentina, the printed media used by the State to communicate its legal rulings and other public pronouncements.

The downstream sector must maintain
the price at the levels recorded on August 9 at all points of sale. The measure
includes both wholesale and retail and will be enforced until December 15,
according to the decree.

As a result, the final price for crude sales between producer and refiners fell from $59 per barrel to $40-$42, the local press reported.

A deadly strike to Vaca Muerta

Guillermo Pereyra, senator and Secretary General of the Private Oil and Gas Union of Rio Negro, Neuquen, and La Pampa, said the measure is a “deadly strike for Vaca Muerta”. The legislator warned that “State interventionism” would delay the continued growth of investment in this formation, one of the world’s largest shale oil deposits.

Jorge Sapag, former governor of Neuquen – the region that holds the largest part of Vaca Muerta – said the decision “threatens” the development of the shale program and could trigger layoffs.

“If the price of our crude is below international market indicators and the government changes the rules of the game once again, where do they think investments will go?” he wrote on Twitter.

The impact has yet to be seen. But many warn that a lower investment will delay government goals of doubling O&G production by 2023.

The Secretariat of Energy had established this goal for 2018, arguing that the immense resources at Vaca Muerta will enable to increase production to one million barrels per day and 260 million cubic meters of gas by 2023. This would raise exports to 500,000 bpd and 80 m3/d, respectively.

Companies announce production cuts

Vista Oil & Gas confirmed that, following the decree to freeze crude and diesel prices for 90 days, it gave the order to hold drilling activities at Bajada del Palo Oeste. This number could increase if the measure is not reversed.

Furthermore, the oil company announced it plans to appeal the court’s decision to freeze fuel prices.

Sources in the oil sector indicated that Tecpetrol could follow suit, although the company chose to neither confirm nor deny the information.

For its part, the Private Oil and Gas Union of Rio Negro, Neuquen, and La Pampa, called an Assembly of Delegates in Neuquen to evaluate measures.

In this context of growing tension, Secretary of Energy Gustavo Lopetegui will meet with the directors of 17 oil companies and province representatives to try to calm the waters.

Even state-run company YPF anticipated investment cuts following the official decision.

High potential for production

Vaca Muerta is the main shale oil formation in Argentina, with great potential stemming from its geological characteristics and geographical location.

It is located in the Neuquen Basin, in the southeast region of the country, with a surface covering 30,000 km2.

YPF assures that the results obtained confirmed that Vaca Muerta has enormous potential for gas extraction (308 TCF) and has vast oil resources of 16.2 billion barrels, multiplying Argentina’s current reserves by ten.

For more information, visit Energía16

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