ON 10 JANUARY, THE PRESIDENT OF ARGENTINA, MAURICIO MACRI, ANNOUNCED AN AGREEMENT TO BOOST DEVELOPMENT OF THE VACA MUERTA UNCONVENTIONAL GAS DEPOSIT IN THE PROVINCE OF NEUQUÉN.  

After months of negotiations, the agreement was signed by Argentina's state government, oil companies, the provincial government of Neuquén, (where the deposit is located) and oil sector trade unions.

The agreement includes:

  • The state government will extend the Gas Plan1 for a further two years, which guarantees a minimum price for producers. It will also invest in key infrastructure – such as railway – in order to improve logistical support for oil and gas producers in the Neuquén area.
  • The companies involved in extracting gas at Vaca Muerta (including: YPF, Total, Pan American Energy, Chevron, Shell and Dow) have made investment commitments that in aggregate exceed $10 billion per year, except for the first year in which they will invest $5 billion.
  • The provincial government of Neuquén will not increase taxes for operators and will invest in infrastructure in the region.
  • The trade unions accept the inclusion of clauses in collective bargaining agreements aimed at improving productivity.

This agreement heralds progress in the outlook for the country's energy sector, the aim of which is to attract annual investment of $20 billion from 2018 onwards.

As a result of the agreement, Argentina's state oil company YPF has been searching for partners among large companies that do not have a presence in Argentina as well as medium-sized companies with expertise in the shale gas2 business.

Vaca Muerta

Vaca Muerta is the world's second largest deposit of unconventional gas and fourth largest of unconventional oil. Its economic importance resides in the fact that it is Argentina's primary geological shale gas formation. The deposit covers an area 30,000 km2, of which 40% have production potential, with estimated gas reserves and substantial oil resources reaching 27 billion barrels, according to the 2013 EIA3 , which would mean multiplying Argentina's current reserves by 10.

  1. The Gas Plan is a programme to stimulate natural gas production that the Argentine government launched in May 2016, initially until 31 December 2017, with the aim of reducing LNG imports and combating the country's energy deficit. The programme meant that new natural gas projects could be eligible for a price stimulus of US$/BTE 7.5. As a result, the Argentine government compensates producers up to the new stimulus price if they are unable to obtain that price when selling their gas in the domestic market.
  2. Shale gas is a gaseous hydrocarbon that can be found in fine-grain sedimentary rock formations. New technologies, such as fracking, are needed to extract shale gas commercially.
  3. EIA: US Energy Information Administration.