Buenos Aires — Vaca Muerta, Argentina’s massive shale formation located primarily in the province of Neuquén, currently accounts for nearly half of the country’s oil and gas production. However, its operations –led by companies such as the state-run YPF and the privately-owned Vista Energy and Pampa Energía– are facing increased risks due to the national government’s squeeze on imports, a policy that is impacting economic activity as a whole, and which is expected to lead to a recession this year.
The shortage of net international reserves at the central bank (BCRA) has led authorities to micromanage imports. The government has implemented a system that critics say is making it hard for industrial importers to access supplies crucial to production. At Vaca Muerta, this hardship is mainly hitting service companies and SMEs.
Norwegian consultancy Rystad Energy projects that more than one million barrels of oil could be produced per day at Vaca Muerta by 2030.
Unions warn of potential strike
One of the main voices warning over the risk of import restrictions impacting production at Vaca Muerta has been the Private Oil and Gas Union of Río Negro, Neuquén and La Pampa (Sindicato de Petróleo y Gas Privado de Río Negro, Neuquén y La Pampa), which met with national authorities on Tuesday. “Argentine Customs is halting the development of Vaca Muerta”, the union stated in a release this Sunday.
According to its leader, Marcelo Rucci, Customs “is not allowing or expediting the entry of vital supplies for oil and gas production”.
The union claimed that only 7% of the import permits, known as SIRAs, were approved during the last three weeks. “These permits are not being approved and this is leaving all imports at warehouses,” the group said, warning that, if the situation were to linger on, Vaca Muerta’s workers will go on strike.
Meeting with the Government
Argentina’s Secretary of Energy, Flavia Royón and head of Customs, Guillermo Michel, met with Rucci this Tuesday, along with other oil and gas union leaders. After the meeting, Rucci’s union bemoaned that the restrictions on imports is not allowing for the development of rigs. It also claimed that the lack of dollars for purchases abroad is starting to stunt building works for the Néstor Kirchner gas pipeline and another oil pipeline to Chile.
The release added that the authorities claimed to be “committed to engaging with companies that are reporting problems with the import of supplies and equipment”. The next meeting will take place next week, on a date that has still not been specified.
Demand for fracking and drilling rigs
The main alarm regarding imports is being raised over fracking and drilling equipment, which are in short supply at Vaca Muerta’s the blocks. “More than 30 drilling rigs and six fracking sets could be brought to a standstill due to lacking supplies, which are being held up at Customs”, states the release from the union led by Rucci.
A report from the energy consultancy firm Aleph Energy states that “today in the basin there are eight fracturing sets in operation”. And it adds: “Most of them are old fleets, whose repairs are often compromised by import barriers”.
“It is almost a situation of prohibition of supplies, the exceptions to the rule are few and the deadlines are being stretched to a great extent,” Edgardo Phielipp, member of the executive board of the Argentine Chamber of Commerce, told Bloomberg Línea.
This problem affects small and medium-sized service companies to a greater extent, he added. “There are around 1,200 local SMEs and also some large companies, which have less backing than the operators,” says Phielipp. If the issue is not resolved, the impact will be seen in the levels of gas and oil production, he continued.
A bottleneck to avoid
Rystad Energy sees the potential for Vaca Muerta at one million barrels of oil per day by 20230, but, it also warns about the limitations in the extraction capacity and availability of platforms.
The report also warns that “the standardization of long-reach wells requires drilling contractors to bring to the region high-specification equipment capable of handling that level of workload”. This, the paper adds, leads to “the first major bottleneck that could disrupt Vaca Muerta’s growth potential”.
Key infrastructure at Vaca Muerta
Oldelval, a company that is currently overseeing the expansion of an oil pipeline from Vaca Muerta to the province of Buenos Aires, is facing the needs to import 200 kilometers of sheet metal.
According to the previously Aleph report, these imports are being led by Tenaris (Techint Group), the company that is building the pipes. However, Tenaris is currently unable to access the dollars for the import operation due to the shortage in the central bank’s reserves.
To solve this bottleneck, they point out, “Oldelval will take charge of importing the sheet metal, for which it will have to obtain the approval of the Argentine Republic’s Import System (SIRA) and then it will have to obtain the green light from the BCRA to transfer US$42 million (at the official exchange rate) abroad, which is the cost of the sheet metal”.
The company assured that at the moment there are no problems to carry out this operation. If this scenario does not change, the firm expects to reach an “important milestone” of this project by October.