Argentina Now Shaping Up As The World’s Top Natural Gas Play

Argentina Now Shaping Up As The World’s Top Natural Gas Play

I’ve been writing over the last several months about the world’s top natural gas play — the growing demand center of Argentina.

And this week, things got even tighter in terms of supply here. Making the entire region more attractive for producers.

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That became apparent from a critical piece of news emerging over the weekend in Argentina’s neighbor to the northwest: Boliva. Where lifeline exports of natgas into the Argentinean market are apparently dwindling fast.

Local papers in Bolivia reported that state energy firm YPFB failed to meet natgas export commitments this past July. With sources quoting Bolivian Vice President Alvaro Garcia Linera as saying that shipments to Argentina for that month totalled just 15.4 million cubic meters per day — at least 23% lower than the volumes of 19.9 to 23.4 million cubic meters that YPFB is contractually obligated to provide.

So what’s causing Boliva to fall short on its natgas commitments? Apparently rising demand closer to home.

Vice President Linera told papers simply, “There are priorities in the domestic market.” Going on to note that Bolivia’s natgas production is perfectly stable, but that more of the supply is being used in the country — leaving less for export.

The critical point for the regional energy picture is, Bolivia’s government believes the shortfall may continue. As Linares told the press, “We are happy about the increase in demand in the Bolivian market. If it increases more, that is perfect. We must continue to supply [the local market] because it is the priority.”

For its part, Argentina’s state energy firm Enarsa has reportedly levelled a fine of $2.1 million against Bolivia’s YPFB for failing to meet contract volumes. But such small penalties are unlikely to deter Bolivian officials from resuming supplies at the expense of the local market.

All of which means that supply could be about to get even tighter in Argentina. Putting further pressure on lawmakers here to raise prices in order to spur domestic production.

This development could also be good for natgas developers in neighboring Chile. With Argentina’s government saying last week that it plans to up imports from Chilean producers in order to meet any supply shortfalls.

Overall, the fundamentals looks very supportive for prices and natgas development across this region. Watch for rising prices and ensuing projects being launched in Argentina, Chile, Bolivia and beyond.

Here’s to filling the void,

Dave Forest

Article by Peirce Points

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Dave Forest writes Pierce Points Free Daily E-Letter, an advisory on mining and energy read every day by BP, Rio Tinto, JPMorgan, BNP Paribas, Repsol, GDF Suez, GE, Platts, Warburg Pincus, and the UN. Sign up for free at Mr. Forest has funded and managed over $80 million in global exploration and development in natural resources, and continues to design and develop projects globally. He is a professional geologist.
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  1. Missing a few items.

    “…imports from Chilean producers” ?? There are no “Chilean producers” of natural gas outside of the extreme south (Magallanes) region. There are re-sellers in Chile who import gas from Asia and provide the infrastructure, including regasification, to deliver that gas to Argentina at rather high prices.

    While Argentina has demanded compensation for the dip in supply of Bolivian gas (US$2.1 million for the month of July), the contract for delivery remains intact through the year 2027, at which time the monthly delivery of Bolivian gas is to be 27 MMmcd. The shortfall, according to Bolivia, is due in part to problems created by Argentina as well as delays in the Incahuasi (Bolivia) plant coming on line. Besides higher Bolivian domestic demand there was also greater demand from Brazil, and Argentina rated a lower priority for a time.

    Argentina’s own gas production is stymied by high labour costs and other overhead expenses and inefficiencies, which tend to support continued energy imports. Those imports are not restricted to production in the region, and Argentina has imported significant natural gas from Nigeria, Qatar, Trinidad, and others and the many competing sources for the Argentine market tend to moderate potentially large natural gas price increases.

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