Argentina Minister Sees Unconventional Gas Boom On The Horizon

BUENOS AIRES (Dow Jones Newswires), Sep. 21, 2011

Argentina's vast unconventional natural gas resources will become an important contributor to the South American nation's energy matrix within the next four years, according to a top minister.

Investments in unconventional gas exploration and production by companies like ExxonMobil should ensure gas supplies through 2015, Planning Minister Julio De Vido told reporters Tuesday.

"We, together with [gas rich] Bolivia, are going to become an gigantic source of gas in South America with opportunities for industrialization," he said.

According to recent U.S. Energy Information Administration report, Argentina ranks No. 3 in the world in terms of technically recoverable
shale-gas resources with 774 trillion cubic feet of gas.

That potential has attracted a number of big players in the global oil and gas industry, including France's Total, Apache, and Argentina's largest oil and gas producer, YPF.

The press office of Argentina's President Cristina Kirchner said Tuesday that Exxon Mobil has agreed to invest $120 million to explore
for gas in Argentina's Neuquen Province. The announcement followed a meeting between Exxon executives and Kirchner that same day.

While the potential of Argentina's shale gas fields could be huge, price caps have discouraged investment in gas production and forced
the government to import growing volumes of much more expensive gas from Bolivia and Trinidad & Tobago.

YPF sold natural gas in the domestic market for an average price of $1.96 per million British thermal units -- about 1,000 cubic feet --
compared with the $7.33/MMBtu that Argentina paid for Bolivian gas.

The supply situation has become so precarious that in the cold winter months the government rations gas to industrial users to make sure residential demand is met.

To attract shale gas investment, the government launched the Gas Plus program in 2008 that allows producers of unconventional gas to charge significantly higher prices than is the case with natural gas from conventional sources. But not everyone in the oil and gas industry is convinced that today's prices are high enough to unleash a shale gas boom.

"Shale gas could develop very quickly in Argentina, but only at the right price and we're not there yet," Halliburton Chief Executive David Lesar told investors earlier this month.

Shale gas producers could well be required to sell all of their output locally as the Kirchner administration discourages exports of oil and
gas with steep taxes.

De Vido hinted that the gas Exxon Mobil produces will be used for electricity generation, especially during the winter and summer months when demand soars.

Earlier this year, the minister said Argentina won't become a gas exporter under the current government even if unconventional gas production turns out to be more than enough to supply the domestic market.

Indeed, Kirchner's policy of providing cheap, subsidized energy to industry and consumers is likely here to stay. The popular incumbent
is expected to handily win reelection by a wide margin in October's presidential election.

Copyright (c) 2011 Dow Jones & Company, Inc.

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