A blockbuster deal between the oil and gas industry, labor unions, and the Argentine government could pave the way for a flood of new investment in shale oil and gas in the South American nation. The deal involves a determination by the state to shoulder the cost of new drilling, but it could lead to the spread of the shale revolution beyond North America.
Argentina’s government has agreed to extend regulated natural gas prices at elevated levels, in effect a public subsidy to entice major oil and gas companies to flock to Argentina’s prolific Vaca Muerta shale basin. Prices for gas will be set at $7.50 per million Btu (MMBtu), vastly higher than market places in most parts of the world. The fixed prices were scheduled to expire this year. By way of comparison, natural gas prices in the U.S., home of the original shale gas revolution and still the largest natural gas producer in the world, are currently trading for $3.33/MMBtu, or less than half that price.
For years, Argentina has been cited as the most likely place to replicate North America’s shale revolution. While international oil and gas companies have invested capital and drilled wells in places like China, Argentina, Mexico and a handful of European countries, a new major source of shale production has not been achieved anywhere outside of the U.S. and Canada.
Argentina is thought to hold 27 billion barrels of oil and 802 trillion cubic feet of natural gas in its shale formations, according to the EIA. In terms of gas, those reserves are nearly 30 percent larger than the estimated reserves in the U.S., and are second only to what is thought to be located in China. If the shale revolution is to truly spread beyond North America, the Neuquén Basin – where the Vaca Muerta is found – is where it will unfold. …