Argentina Changes Unconventional Gas Subsidy Program

(Kallanish Energy, 6.Feb.2019) — Argentina’s government has decided to change the country’s subsidy program for unconventional gas development leaving projects in limbo, Kallanish Energy learns from local producers YPF and Pampa Energia.

The program, aimed at stimulating investments in the development and production of shale gas, offered companies a subsidy since 2013. Specifically, companies were offered a price floor of $7.50 per million British thermal units (Mmbtus) for new production above a set base level.

However, the government has been unable to meet all its commitments, and some $1.5 billion in late subsidies were expected to be paid from early 2019.

No new programs

On Jan. 30, the energy secretariat held a meeting with companies to discuss changes in the program and informed them no new project will be approved within the program. The secretariat will also evaluate a new stimulus plan fostering production of unconventional gas during the winter season, Pampa Energia said.

The company had asked the government to include three of its exploration projects in the program, which were previously approved by provincial authorities — Rio Neuquén, El Mangrullo and Sierra Chata.

“As of today, there is no resolution of formal instruction issued by the SGE (Secretariat of energy), nor has Pampa been formally notified that the inclusion within the program of the abovementioned projects was not approved,” the firm said.

Pampa assessing its next steps

Pampa is now assessing its next steps and continues to wait on the guidelines for the new winter program.

Meanwhile, YPF, a major oil and gas producer in Argentina, warned investors the changes will most likely imply a loss of $60 million for the company. Diego Celaa, head of market relations, said in a statement the company was notified of certain considerations related to the scope and conditions of the program, which differ from what was originally planned.

“These changes will affect in a detrimental way both projects that were waiting to receive formal approval of the secretariat, as well as the amount to be received linked to projects approved to date under the program,” Celaa said.

Examining domestic gas market

As a consequence, YPF said it’s also evaluating the different variables in the domestic gas market, including excess supply outside the winter period, to decide on whether or not to continue with certain investments. These would be unconventional gas projects that won’t have the benefit of the program, given some basic premises supporting their investment decision have now been modified.

The Secretariat didn’t comment on the changes nor provide further details of the scheme.

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