BP, Pan American Eye Exporting Argentina Shale Gas As LNG Via Chile

(S&P Global Platts, 15.Nov.2018) — Pan American Energy, the second-biggest oil producer and third for gas in Argentina, is working with BP on potentially exporting LNG out of Chile, a project that could prove faster to get Vaca Muerta shale gas to market than building a liquefaction facility in Argentina.

The project is in the conceptual design phase and would involve delivering supplies over an existing Argentina-Chile pipeline to the Quintero LNG regasification terminal in Chile, said Alejandro Lopez Angriman, vice president of reserves development at Pan American.

The Quintero terminal “can be turned around so it can liquefy to export,” he said on the sidelines of an energy conference in Mendoza, Argentina.

The pipeline has 10 million cu m/d of capacity for moving supplies from Vaca Muerta to Chile, but is mostly running empty. It has been used over the past few June-to-August winters to bring regasified LNG to Argentina from Chile.

To deliver supplies to Chile, the pipeline would have to be modified with a loop, Lopez Angriman said.

BP — which owns 50% of Pan American alongside Bridas, itself 50% owned by China’s CNOOC — is helping on the conceptual engineering for the project, he added.

The project could cost around $300 million if it goes forward, he added, with the first train exporting 25 million cu m/d.

LOOKING FOR NEW MARKETS

The research into the project comes as gas production surges in Argentina, led by Vaca Muerta, one of the world’s largest shale plays.

The country’s overall gas production rose 14% to 130 million cu m/d this year from a 16-year low of 113.7 million cu m/d in 2014, allowing the country to restart exports by pipeline to Chile after an 11-year suspension.

The Energy Secretariat estimates that with enough investment Vaca Muerta could double the country’s gas production over the next five years to 238 million cu m/d, allowing exports to surge to 100 million cu m/d in 2023 from less than 1 million cu m/d this year.

In the late 1990s and early 2000s, Argentina exported 20 million cu m/d to Brazil, Chile and Uruguay, and the pipelines are still in place. The country halted exports in the mid-2000s as production plunged, bringing shortages and a surge in imports of Bolivian gas and LNG. Imports have averaged 30 million cu m/d since 2012, but started declining this year, according to Energy Secretariat data.

Pan American got a permit this year to export gas to Chile, and it likely will start to make deliveries during the upcoming December to February summer for consumption in that market, Lopez Angriman said.

But he said that won’t be enough to sustain a larger development of Vaca Muerta, where he estimates one field could easily supply the LNG export terminal.

“The field could produce 25, 50, or even 100 million cu m/d,” Lopez Angriman said. “It’s incredible the number of wells that you can do in Vaca Muerta for gas.”

Frackers, he added, have de-risked the gas potential in Vaca Muerta, and the next step is to find the capital to put it into full-scale production. But to attract investors, more pipelines are needed to get the gas out and additional markets must be found to increase sales so production can be sustained year-round, not slowed during the summer with the closing of wells. State-run YPF, the country’s biggest gas producer, had to close gas wells in the third quarter of this year, in part because warming temperatures and a contracting economy reduced demand.

Argentina has sharp fluctuations in gas demand, from 115 million cu m/d in the summer and peaks at 180 million cu m/d in the winter, according to data from Enargas, the national gas regulator.

“It is not a good thing to convince investors to invest in shale gas when production has to be halted during the summer,” Lopez Angriman said.

CUTTING WELLHEAD COSTS

While gas exports can be increased to neighboring countries, these markets suffer the same predicament as Argentina: their demand for gas plunges in the summer. That means LNG must be pursued if output from Vaca Muerta is to be expanded, he said.

But to do that, a big challenge is to bring down development costs in the play so the gas can be competitive against Australia, Qatar, the US and other suppliers in sales to Southeast Asia, where demand is expected to grow, Lopez Angriman said.

He estimates that at around $3/MMBtu, sales can be competitive. But to get there, Vaca Muerta development costs must come down 30%, and the focus is on easing the strain of frack sand, which accounts for 30% of the well completion cost, he said.

Frackers have shaved the cost of sand to $190/mt from $250/mt over the past few years, but it is still higher than the $60/mt figure in the US.

“If we are going to compete with the US or Canada, one way or another we have to reduce the cost of sand,” he said.

Help is to come from moving more sand by boat and train to Vaca Muerta, located in the southwest. Most of the sand is currently being trucked 1,000 km (621 miles) from Entre Rios, a central province, with transport accounting for 50% of the total cost of sand.

There is a government-led plan to extend a cargo railway to Vaca Muerta, but it is not likely to start for three to four years. Once it is in operation, the cost will come down because it is cheaper to move the sand from Entre Rios by river and ocean to Bahia Blanca, an Atlantic port where it can be loaded onto the train for delivery to the well sites.

THE ARGENTINA LNG OPTION

Pan American also is looking at the option of building liquefaction capacity in Argentina, as are other companies.

On Monday, YPF said it plans to install a floating liquefaction barge in Bahia Blanca to export up to 2.5 million cu m/d of LNG from 2019, and then work on building a larger export terminal.

The government, meanwhile, is studying a project for exporting LNG from a six-train onshore terminal in Bahia Blanca, likely starting in 2023 with shipments of 40 million cu m/d, increasing to 120 million cu m/d in 2025.

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