Pan American to Boost Gas Investment 47% in 2004

Argentine oil and gas company Pan American Energy plans to increase its investment in gas exploration and production 47% to US$91.3mn in 2004 from US$62.1mn in 2003, Pan American's gas sales VP, José Luis Sureda, told delegates at the Elecgas energy conference in Chile.

The Cuenca Austral field, operated by France's Total, will account for US$41.2mn in investment, with US$22mn earmarked for the Pan American-operated Cerro Dragon, Sureda said.

As a result of frozen gas and electricity rates in Argentina since January 2002, "We have not invested at the rhythm we are accustomed to investing, but we have been investing and we are continuing to invest," Sureda told BNamericas.

"We would have liked to invest US$200mn [in 2002 and 2003] but evidently we have invested less because of the whole situation in Argentina, but [we were still] meeting our contract obligations," Sureda said.

The company currently produces about 13.8 million cubic meters of gas a day (mcm/d) in Argentina, of which about 2mcm/d is exported to Chile.

Sureda says the government's decision to restrict gas exports to Chile in order to meet domestic demand is unfair because Pan American has complied with all of its domestic contractual obligations. "I would ask [the government] to intervene less and regulate the industry correctly, so those that do not comply with the regulations are severely penalized. But if we abide by the rules please do not intervene in our business because that doesn't help," Sureda said. "The best [the government] can do is do the least possible," he said.

The government took "a step in the right direction" by passing resolution 659 last week to eliminate a restriction on gas exports to Chile, which limited cross-border sales to their 2003 levels. Now exports are only restricted by the requirement to first meet Argentina's domestic demand. "It will help to make the export cuts less arbitrary," Sureda said, "but it's not enough."

A positive sign for gas producers is that gas prices for industrial clients are gradually starting to increase under an agreement with the government.

The average gas price is expected to increase to US$0.70/mBTU in 2004 from US$0.60/mBTU in 2003 and industrial prices "are practically normalized to 2001 levels," Sureda said.

However, the problem for gas producers is that residential clients still pay pesofied rates frozen at their January 2002 level, "and it's quite possible they will stay frozen until December 2006," Sureda said.

"When you give a 5-year signal to the market that gas isn't worth anything, what do you do with something that's not worth anything? You throw it out and take care of things that are worth something," Sureda said.

The problem, according to Sureda, is that people in Argentina do not appreciate the true value of natural gas because it is so cheap. "People are saving money on energy and spending money on things that are superfluous," he said. "I think teaching people that gas is free is a bad lesson."

Pan American wants a dialogue with the government about the future of Argentina's energy sector. "The agreement we have solves the problems of today, but we have to talk about the future," Sureda said.

If Argentina aims to grow 4% a year in GDP, that means an 8% increase in energy demand, of which natural gas demand is about 50% meaning that it will grow at 4% a year, Sureda said.

"This requires a huge amount of investment in natural gas, in pipelines and in distribution networks. We have to talk about these things or the country can't grow," he said. Pan American Energy is 60% owned by UK company BP Amoco, with Argentina's Bridas holding the remaining stake.

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