In its latest weekly report, shipbroker Gibson said that “an often-overlooked part of the global shale picture is Argentina’s Vaca Muerta (Dead Cow) field; currently the world’s second largest commercial shale formation with an estimated recoverable 1.6 billion bbls of crude oil and 308 trillion cubic feet (Tcf) of associated natural gas. Recent years have seen Argentina’s crude export volumes limited following the collapse in oil demand linked to Covid-19, poor export infrastructure and an unfavorable business environment compounded by ongoing macroeconomic instability. Argentina is not by any means a major energy exporter compared to other local producers such as Brazil or Venezuela. However, improving energy market fundamentals and increased investment could boost Argentine crude and natural gas production moving forward”.

According to Gibson, “as the global demand picture improves, there is growing capacity in the Vaca Muerta field. Currently just 45 rigs are active, but this number is set to expand in the coming months as the global demand picture improves. A key benefit for operators is access to the latest shale technology pioneered in the US market at a time of rising efficiency and well productivity. Both of which are positive for the development of the field and the region more broadly. Whilst the exact production breakeven levels are unknown, estimates by Rystad Energy place them in line with US Shale. It would not be unreasonable to assume Vaca Muerta breakevens in the range of $30-$40/bbl when considering the less developed nature of production in the country. Based on this assumption, oil firmly above $80/bbl should produce positive net cashflows after accounting for the required CAPEX to raise production as sufficient profit margin per barrel will create value for investors in these well projects”.

The shipbroker added that “another positive factor is rising natural gas prices. Vaca Muerta has significant LNG potential. Compared to the US shale sector, which benefits from abundant existing infrastructure to support regional demand; Argentina producers are at an earlier stage of infrastructure development in the region. As in the case of the shale oil, rising gas prices should help unlock additional investment in the required facilities such as gas pipelines to transform Argentina into a larger LNG exporter. However, this would require a much higher level of investment to finance expensive LNG export infrastructure. In both cases, Argentina would need to embark on a program of major reform to create a business environment receptive of international investment based on transparency, clear rules, and stability. Whilst some steps have been taken to address these issues, much more is required and will continue to hold back the export potential of both Argentine crude and LNG at a time when the global market is experiencing a supply squeeze”.

Gibson concluded that “any increase in crude exports loading out of Argentina would be positive for Suezmax and Aframax tankers and provide additional support for the Atlantic tanker market. However, these rising production volumes are still from a relatively low base compared to alternative load areas such as Brazil and West Africa. Likewise, Argentina would need to build up and maintain a decent and stable quantity of crude exports for Atlantic tankers to benefit over the long term. Despite these positive improvements, Argentina still has a long way to go in realising its export potential”.

Marex Media