Rising natural gas production in Argentina, coupled with competitive global LNG transportation costs, is expected to position the country as an emerging source of gas supply to Asia during peak demand periods, according to new research from Wood Mackenzie.
Global LNG demand is showing increasing seasonality, and peak potential LNG production in Argentina during the summer months coincides with strong winter demand from utilities in Asia. This seasonal dynamic could attract Asian buyers and present a strong economic case for Argentinian LNG.
In addition, Argentinian LNG liquefaction plants have lower shipping costs to reach Asian markets than US Gulf Coast facilities, avoiding potential Panama Canal congestions and presenting an overall cheaper alternative to US exports.
Supported by the Vaca Muerta, Argentina's production in the Neuquén basin will ramp up over the next few years, with major scale LNG production expected to begin in 2024. Based on the new research, Wood Mackenzie anticipates that LNG production volumes could potentially reach 6 million tonnes per annum (mmtpa) in that year, which could then grow to 10 mmtpa by 2030.
Associated gas from Vaca Muerta will also represent 15% of Argentina gas production by 2024, and other projects in the condensate and dry gas window with breakevens below US$3 per million British thermal units (mmbtu) will enter into full development in the upcoming years.
A lack of underground natural gas storage facilities close to demand centres in Argentina means that gas flow to potential LNG export terminals will also be seasonal.
Despite other price challenges posed by the seasonal utilisation of LNG plants, Wood Mackenzie estimates breakevens for Argentina LNG of US$8/mmbtu at delivery ex. ship for Japan.
Mauro Chavez Rodriguez, principal analyst, Latin America Gas & LNG, said: "Vaca Muerta's gas production has dramatically changed the outlook for Argentinian gas. It is already bringing cheap gas for local industry and also supporting the construction of new major gas pipelines.
"Nevertheless, not even the domestic demand and exports to neighbouring countries such as Chile and Brazil are enough for Vaca Muerta's gas potential. LNG exports could be a solution that enables Vaca Muerta's production to continue the growth story.
"Argentina's LNG could be interesting to players who want to diversify supply outside North America. The seasonality of its output could be also seen as a virtue for Asian utilities that are looking to contract just for their peaking demand months in the northern hemisphere.
"Some Asian players are already active in the Argentinian shale. Petronas is participating with YPF in the joint venture of La Amarga Chica, while CNOOC participates indirectly through its subsidiary, Pan American Energy, in the Aguada Pichana Oeste. Meanwhile, Qatar Petroleum recently has shown interest in Argentina, buying a stake of ExxonMobil's business unit in that country, and also partnering for exploration offshore.
"We see further opportunities for Asian players looking for foreign investment, not only in upstream but also for major midstream infrastructure, such as gas processing plants, pipelines, have petrochemicals, and LNG export plants."