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A South American story: part two

Hydrocarbon Engineering,

Read part one of this article here.


If Mexico is the belle of the ball in Latin America’s oil and gas sector, then Argentina represents her shady uncle. The country’s ham fisted approach to the oil and gas sector over the last decade has resulted in destructive consequences. Production has fallen from over 900 000 bpd in 1998 to current levels of 523 000 bpd, and gas from 4.5 billion ft3/d in 2007 to 3.5 billion ft3/d.

While Argentina possesses approximately 16 trillion ft3 of conventional reserves, the figure is dwarfed by its unconventional potential. The EIA notes that the country could contain up to 774 trillion ft3 of recoverable shale gas and 21 billion bbls of shale oil, mostly in the Vaca Meurta shales formation in the Neuquen basin in western central Argentina.

Spain’s Repsol had been poised to unlock the shale bonanza through its subsidiary YPF, when, in 2012, President Cristina Fernandez de Kirchner seized 51% of YPF SA from Repsol, which had purchased the shares after YPF was privatised in the 1990s. Repsol has taken legal action and filed a complaint against Argentina before the World Bank’s arbitration centre.

Chevron, China-based Sinopec and others have stepped in to take up the slack. Sinopec has partnered with YPF to explore a region in the western Argentine province of Mendoza. The US$300 million JV includes 3D seismic surveys, wildcat wells and the refurbishment of existing infrastructure.

Several new discoveries have recently been made. Calgary-based Crown Point Energy announced that it had drilled an exploration well on its Tierra del Fuego concession and encountered gas that subsequently test flowed at a rate of 5.6 million ft3/d. The well also produced 88 bpd of oil.

Dow Chemical has announced initial plans to build a new cracker at its Bahia Blanca petrochemical complex, located near the Vaca Muerta shales. The facility currently produces 750 000 tpy of ethylene, 270 000 tpy of high density polyethylene (HDPE), 290 000 tpy of linear low density polyethylene (LLDPE) and 90 000 tpy of low density polyethylene (LDPE). The company hopes to boost ethylene production to around 2 million tpy.

While below ground prospects look good, above ground risks remain murky. President Kirchner has been replaced by Mauricio Macri, who ran on a platform of economic reform, although massive debts, low growth and a stunted economy remain. In the past, these woes have translated into state seizures, price controls and export restrictions. Whether her successor is able to walk a more business friendly path remains to be seen.


Without a doubt, Venezuela is at the bottom rung of Latin America’s oil and gas ladder. Not because of its reserves (it has 300 billion proven bbls of oil and 170 trillion ft3 of gas), and not because of its production (2.4 million bpd of oil and 2 billion ft3/d of gas), but because the country is a complete economic mess.

Since the ascent of Hugo Chavez more than a decade ago, Venezuela’s oil and gas sector has been through bouts of nationalisation, strikes, currency collapses, import and export controls, and international arbitration. Most majors have either curtailed or abandoned operations. Finances at PDVSA, the state oil company, are dire; its financial debt at the end of 2014 has been reported at US$46.15 billion. Far more ominous, its accounts payable to suppliers stood at almost US$21 billion. Major suppliers of crude and diluents have begun to insist on payment before delivery, leading to tankers waiting for several weeks prior to discharging their cargoes at PDVSA’s Bullenbay terminal on the island of Curacao.

In spite of it all, some punters are still willing to take the risk. The US Geological Survey estimated that the Orinoco heavy oil belt holds approximately 513 billion bbls of recoverable heavy oil. Rosneft, Russia’s top oil producer, is heavily involved in joint ventures in the Orinoco belt. Spain’s Repsol is in discussions with PDVSA to invest US$1.2 billion in the Petroquiriquire joint venture, which operates mature fields in eastern and western Venezuela.

International operators are also investing in natural gas. Italy’s Eni and Spain’s Repsol are involved in the massive offshore Perla field, estimated to hold up to 17 trillion ft3 of recoverable gas. Indeed, it has proven to be one of the few bright spots in the oil and gas sector; the field came onstream in 2015, at 450 million ft3/d and production is expected to climb to 1.2 billion ft3/d by 2020. PDVSA’s natural gas arm is purchasing all of the production for distribution in the domestic market.

Few, if any, NGLs associated with Perla’s production will likely become feedstock accessible to international petrochemical processers; however, even if stocks were available, few operators could stomach the risk of new investment. Since 2009, the government has pursued an active strategy of nationalising the petrochemical sector, with a consequential drop in production and increased reliance on imports.

Read part three of this article here.

Written by Gordon Cope, Contributing Editor. This is an abridged article taken from the February 2016 issue of Hydrocarbon Engineering. Subscribers can view the whole issue by logging in.

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