Argentina enacts gas production stimulus program

Argentina's government will continue to guarantee a wellhead price of US$7.50/MMBtu for natural gas extracted from shale or tight formations, as part of a production stimulus program announced Thursday.

The energy and mines ministry published resolution 74/2016 in the official gazette, guaranteeing the price for any unconventional gas, as well as conventional gas from discoveries made after January 2013.

Drafted by the government of President Mauricio Macri, the measure replaces a similar program implemented under his predecessor, Cristina Fernández de Kirchner.

Amid a global supply glut of natural gas, the idea is to incentivize domestic production – particularly from the Vaca Muerta shale and other unconventional formations – so that Argentina can reduce its hefty natural gas import bill and return to energy self-sufficiency.

Producers will be able to lock in the US$7.50/MMBtu price for new projects until December 31, 2018.

Under the program, the national treasury will cover the difference between prices obtained on the domestic market and the US$7.50/MMBtu price.​

​The difference between the Macri and Kirchner governments, in terms of natural gas pricing, is that Kirchner subsidized consumption as well as production of the hydrocarbon.

Since taking office, Macri has dramatically scaled back subsidies for residential gas consumers, citing that rates paid by consumers should more closely reflect real production costs.

National oil company YPF reported its first-ever sequential decline in shale hydrocarbon output during the first quarter, but said that tight gas now accounts for 20% of its total gas production.