BMI View: Highly p rospective acreage, a strengthening competitive landscape and supportive pricing dynamics will help insulate the Argentine shale sector from aggressive claw backs in industry spending. A shift toward a more centrist government after the Octo ber 2015 presidential election will open up significant investment opportunities in Argentina, particularly within the oil and gas sector. As such, t he core Neuquen shale province will experience greater development over the course of the next decade , although the more peripheral shale formations will see limited investment.
|f = BMI forecast. Source: EIA, BMI|
|Crude, NGPL & other liquids prod, 000b/d||691.1||698.2||705.2||713.8||723.7||734.3||746.1|
|Refined products production, 000b/d||679.0||672.2||658.8||665.4||675.3||682.1||688.9|
|Refined products consumption & ethanol, 000b/d||804.8||813.5||822.1||857.7||916.7||985.8||1,074.5|
|Dry natural gas production, bcm||36.9||37.2||38.0||39.0||40.3||41.7||43.2|
|Dry natural gas consumption, bcm||45.7||45.5||45.9||47.0||48.3||49.7||51.2|
The main trends and developments we highlight in the Argentine oil and gas sector are:
Argentina's real GDP will contract in 2015 as currency controls and high levels of inflation weaken real wages and discourage fixed asset investment. In 2016, the country's economy will return to positive growth after the October 2015 election as a new administration encourages an expansion of business-friendly policies, with the oil and gas sector emerging as a main beneficiary.
The government, at both the federal and provincial level, has been enacting a programme of reform to improve both fiscal and licensing terms and support the development of the nascent shale sector. Several major concessions have been made, streamlining permitting processes and reducing the tax burden on unconventional assets.
Argentinean shale prospects will be resilient in the face of volatility in oil prices as low commercial breakevens and vast proven reserves will encourage continued investment into the sector thanks to an improving regulatory environment.
Lower prices will pressure oil companies to pullback on investing in projects with high breakeven prices, bolstering the relative attractiveness of Argentina's Vaca Muerta shale play. As a result, we forecast annual average crude production growth of 1.9% over the coming decade following a decade of persistent production declines.
Argentine shale exploration is heavily dominated by a few major companies, most notably Chevron and YPF. ExxonMobil and Shell are also expanding their presence. These large, integrated companies have less exposure to falling revenues, have stronger cash flows, are typically less levered and have higher capex budgets.
Increased investment into the sector will support our positive outlook for natural gas production growth. We expect output to rise by an average of 3.7% year-on-year through 2024 with particular strength in the latter half of the period as economic reforms take hold.
Despite these gains, Argentina will maintain a deficit in natural gas supply over the coming decade, resulting in a negative net export position through 2024. Net imports will improve modestly in 2015 as a result of lower demand amid a contracting economy and relatively limited upstream activity. Over the remainder of our forecast period, we believe increased natural gas production will drive trade dynamics. However, we believe rising demand will continue to outpace production growth.