Argentina’s natural gas market

Oscar NataleDirector Nacional de Evaluación de Políticas y Proyectos Energéticos – Subsecretaría de Planeamiento Energético – Secretaría de Gobiernode Energía

Planeamiento Energét ico

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Infrastructure at a glanceWell-developed electricity and O&G transportation systems cover virtually the

whole Argentine territory.

Power Grid

Transmission linesSubtransmission lines

O&G Transmission

Gas transmission pipelinesGas distribution pipelinesOil pipelines

21,418 k transmission and subtransmission lines

Total power capacity

33,901 MW

16.5 million users

9,935 k gas pipelines and 721 miles of oil pipelines

9 million natural gas users

8 refineries

627 kbbl/d capacity

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Natural gas regulatory frameworkThe production and commercialization of O&G is deregulated, whereas NG

transport and distribution are public services.

• Hydrocarbons Law 17.319 (1967)• Local governments own hydrocarbon

plays in their territories.• They grant licenses for exploration,

production and transportation of hydrocarbons.

• Once extracted, hydrocarbons belong to the licensees.

• Prices and contracts are deregulated.

• Natural Gas Law 24.076 (1992)• Natural gas transportation and

distribution are natural monopolies regulated by ENARGAS.

• 2 transport licensees, 9 distribution zones.

• Regulated rates: price cap, with biannual cost index-based adjustment.

• Off-system: private pipelines (exports).

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Argentina’s energy mixNatural gas is Argentina’s leading source of energy, both for internal supply and for power generation purposes.

Hydro

4%

Wind &

solar

0.2%

Other

Renewables

3%Nuclear

2%

Natural gas

58%

Biofuels

2%

Oil and by

products

30%

Coal1%

81,2

Mtoe

136,5

TWhOther

renewables2%

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Energy supply mix. 1960-2018eRegulatory distortions created structural demand vs. supply imbalances, which Vaca Muerta is helping to redress.

TPES 1.425

-

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

1960

1961

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2014

2015

2016

2017

2018e

KBO

E/d

Nuclear

Hydro

Oil and by-products

Natural Gas

Carbon

Other renewables

TIES 1,598

New pipelines enabled rapid natural gasdevelopment and penetration

NEUBA I CENTRO OESTE NEUBA II

v

NG exports and trade balanceAs of 2011, Argentina entered into a heavy energy trade balance deficit phase, due to declining production and increasing (and subsidized) demand. In 2019, trade deficit will be phased out.

2

58

1214 15

17 18 17 16

6

2 2 1

5

2,0 1,5

1,11,2

0,91,2

0,60,7

2

5

8

13

16 16

1920

19 18

7

3 21

1 0,3

6

0

5

10

15

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25

1997

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2018

2019p

Export

s,

MM

m3/d

CHILE BRASIL URUGUAY OTHER (LNG)

Natural gas exports were drastically reduced in 2007 and practically dissapeared until 2018

5,46,2

7,27,8

6,97,8

6,5 6,5 6,7 7,05,6

4,9

2,2 2,0 2,5

4,24,8

-0,5-1,0-1,5-1,7-2,8

-4,3

-2,6

-4,8

-9,8-9,1

-12,5-11,3

-6,9

-4,9-5,7

-6,5-5,1

4,9 5,25,6 6,1

4,1

3,5 3,8

1,8

-3,1-2,2

-6,9

-6,4

-4,6

-2,8 -3,2-2,3

-0,3

-15

-10

-5

0

5

10

2003

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2019p

Tra

de,

USD

bn.

Exports

Imports

Balance

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Energy subsidiesMarket intervention also resulted in generalized subsidies, putting pressure on fiscal balance.

0,0% 0,4% 0,3% 0,3%0,6%

1,0% 1,1% 1,2% 1,2% 1,3%1,7%

2,1%1,7%

1,4%

0,7% 0,8%0,6%

0,1% 0,1% 0,1%

0,1%

0,2%0,3%

0,4%0,5%

0,7%

1,3%

1,4%

1,5%

0,8%

0,5%0,5%

0,4%0,4% 0,3% 0,4%

0,7%

1,2%

1,6% 1,7%

2,0%2,1%

3,0%

3,5%3,3%

2,4%

1,4%1,5%

1,1%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

4,0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

% o

f G

DP

Electricity Natural Gas & LPG Others

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• End of the intervention of the gas and electricity regulatory authorities.• Transition from regulated to market-oriented pricing.• Integral tariff reviews for transmission and distribution segments.• Power generation capacity additions of more than 4+GW (5GW more to

come).• Reserves on peak power demand grew from 1.5% in 2016 to 10.3%.• Ambitious renewable energy program.• Natural gas exports to Chile and Brazil were resumed.

Back to normal

This Administration made a movement towards normalization.

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Resuming exportsSeasonal (off-peak) exports gained momentum during the first semester of 2019

0,2 0,41,3 1,8

5,34,4

5,7 6,37,5

6,1

4,1

2,20,51,2

0,5 0,6

1,51,9

5,44,6

6,3 6,4

7,7

6,3

4,3

2,5

0

1

2

3

4

5

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9

jan-1

8

feb-1

8

mar-

18

apr-

18

may-1

8

jun-1

8

jul-

18

aug-1

8

sep-1

8

oct-

18

nov-1

8

dec-1

8

jan-1

9

feb-1

9

mar-

19

apr-

19

may-1

9

jun-1

9

jul-

19

MM

m3/d

CHILE URUGUAY BRASIL

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Monetization of domestic resources

Argentina Hydrocarbon Reserves and Resources

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Monetization of domestic resourcesVaca Muerta is comparable to the best unconventional plays in the US

Play TOC [%] Thickness [m]Reservoir pressure

[psi]

Vaca Muerta 3—10 30—450 4,500—9,500

Barnett 4—5 60—90 3,000—4,000

Haynesville 0.5—4 60—90 7,000—12,000

Marcellus 2—12 10—60 2,000—5,500

Eagle Ford 3—5 30—100 4,500—8,500

Wolfcamp (Permian)

3 200—300 4,600

Vaca MuertaAcreage

~8.65 MM acres35,000 km2

Eagle FordAcreage

~9.4 MM acres

38,000 km2

Max ThicknessEagle Ford

~330 feet

Max ThicknessVaca Muerta

~1,480 feet

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Key drivers for large scale development

Vaca Muerta combines exceptional “below surface” characteristics with “above surface” enablers and conditioning factors

ENABLERS CONDITIONING FACTORS

❑ Geology

• World class play, comparable to best US basins, with significant technically recoverable resources

❑ Geography / Topography• Plain surfaces, with relatively easy access

❑ Demography• Low population density in production areas

❑ Oil and Gas Prices

• Oil: Export parity vs. international oil prices• Gas: Transition from partially subsidized domestic prices to

future LNG export parity competitiveness

❑ Energy and Environmental Policies / Regulation• Energy: Basic political consensus, with nuances• Environmental: Partial lack of coordination between

national, provincial and municipal policies❑ Productivity and Costs

• Low number of players / insufficient competition • Capex and Opex, improving but higher than in US

❑ Infrastructure / Logistics• Oil and gas pipelines, existing or planned• Road, railroad, port facility and housing constraints

❑ Environmental / Social Concerns• Less critical than in US, due to positive track record• Corporate “complacency”, a potential risk

❑

❑

❑ Water Availability

• Abundant, with full-scale development only requiring 1% of Neuquen’s water resources

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Increasing linkage to international marketsArgentina now has natural gas surpluses during the summer, which are mostly exported to its neighbours by pipelines, but will evolve into LNG accesing the international markets

ExportsResumed

They are increasing And will soon turn into LNG

After a sudden stop in 2007, the success of Vaca Muerta allowed to resume gas exports to neighboring

countries.

During the first half of 2019, natural gas exports grew up to an

average of 6.0 Mm3/d with a monthly maximum of 7.7 montly

exports on April.

YPF signed a ten-year contract to comission a floating liquefaction

unit with 0.5 MTPA capacity, equivalent to 2.5 Mm3/d of natural gas. First shipment departed last

June.

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New gas pipeline project

One of the “issues" of abundance, instead of the previous shortage, is to generate new infrastructure for the evacuation of the resource.

Potential sketch

More convenienttechnical alternative

(ENARGAS)

New transportationlicense

1st Phase (570 km): From Tratayén(Neuquén) to

Salliqueló (Buenos Aires) with connection

to the TGS system.

2nd Phase (440 km): From Salliqueló to San

Nicolás.

Economic and regulatory aspects

1st Phase: 15 MMm3/d2nd Phase: 41 MMm3/d

Special regime for remuneration of COM

10 MMm3/d of capacityfor thermal power

generation

Open access + yearly open seasons for

remaining capacity

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Towards regional integration

• The construction of the NQN-Litoralpipeline will boost exports for up to 3 MMm3/d to Uruguaiana.

• Transport capacity bottlenecks crossborder.

• Possibility of further expansion of pipelines on the Brazilian side in order to reach Porto Alegre (TSB stage 2, 15 MMm3/d, 615 km)

Brazil

• Development of export permits in firm condition during off-peak

Chile

Muito obrigado!

Planeamiento Energét ico

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Liquid fuels for power generation

Lower consumption of liquid fuels due to the recovery of NG production + progressive incorporation of renewable capacity (mostly wind and solar) + investment in efficient thermal power projects (CC closure and cogeneration).

3,65,0 6,1

7,55,1

7,2 8,2 9,17,1

8,7 9,98,5

4,11,8 1,3

1,11,0

1,0

1,4

1,4

1,5

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1,71,3

1,2

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9,2

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019p

MM

m3/d

Fuel Oil Gas Oil CarbónCoal

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Composition of revenuesDomestic gas producers are getting better prices, while subsidies are being reduced

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Monetization of domestic resources

Argentina posesses world-class unconventional oil and gas resources

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Monetization of domestic resourcesOnly 4% of Vaca Muerta’s acreage has entered development phase yet

Tight

Shale

Conventional

Not granted

yet

73%

Granted

Unconventional

concession

23%

Unconventional in

development phase

4%

8.6 M

acres

Oil window: 5.4+ M acres Gas window: 3.2+ M acres

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Shale fracture evolution

Compared to 2016, average monthly fracs increased by 181% in 2018, peaking at 712 monthly fracs in February 2019.

143

248

402

544

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600

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800

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5

2016 2017 2018 2019

Num

ber

of

fracs

Vista Oil & Gas

YPF

ExxonMobil

Wintershall

Total Austral

Tecpetrol

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Vaca Muerta key projectsCompared to 2016, average monthly fracs increased by 181% in 2018, peaking at 712 monthly fracs in Feb-19.

Project Operator 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Loma Campana YPF

El Orejano YPF

Aguada Pichana Este Total

Cruz de Lorena-Sierras Blancas Shell

La Amarga Chica YPF

La Escalonada Total

Rincon la Ceniza Total

Fortin de Piedra Tecpetrol

Bajo del Choique-La Invernada ExxonMobil

Bandurria Centro PAE

Bandurria Sur YPF

Pampa de Las Yeguas I ExxonMobil

Rincon del Mangrullo YPF

La Ribera I YPF

La Ribera II YPF

Aguada Federal Wintershall

Bandurria Norte Wintershall

Aguada de la Arena YPF

Punta Senillosa Tecpetrol

Aguada Pichana Oeste - Aguada de Castro

PAE

Coiron Amargo Sur Oeste GyP

Bajada de Anelo Shell

San Roque Total

Bajada del Palo OesteVista Oil&Gas

La Calera Pluspetrol

Puesto Rojas El Trébol

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VM horizontal well performanceRelentless progress through the years but still below potential

Source: WDVG Petroleum Engineering Laboratories

Subsecretaría de Planeamiento Energético

Contacto: Luciano Caratori, Subsecretario.

privadaplaneamiento@energia.gob.ar

Dirección Nacional de Escenarios y

Planeamiento Energético

Dirección Nacional de Evaluación

de Políticas y Proyectos

Energéticos

Dirección Nacional de Información

Energética

Contacto: Leonardo Mastronardi,

DN

lmastronardi@energia.gob.ar

Contacto: Oscar Natale, DN

onatale@energia.gob.ar

Contacto: Fernando Pino, DN

fpino@energia.gob.ar

Últimas versiones y datos actualizados:

https://www.argentina.gob.ar/energia/planeamiento-energetico

http://datos.energia.gob.ar/