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Friday
24 Apr 2020

Argentina Plans Higher Local Oil Price to Protect Sector Amid Rout

24 Apr 2020  by ETEnergyWorld   

Argentina plans to issue a decree setting a higher local oil barrel price to protect the domestic industry from being further decimated by a collapse in global prices and slumping fuel demand due to the coronavirus pandemic, two industry sources told Reuters on Thursday.

The locally-set oil price, known as the "criollo barrel" and used before to offset global price swings, would come as oil demand has collapsed around the world and domestically in Argentina due to a nationwide lockdown imposed in mid-March.

In Argentina as in other countries during the pandemic, a slower economy has slashed fuel demand. Refiners are not purchasing all the crude that is being produced, and storage space is growing scarce pressuring prices even more.

One of the people, a senior industry official with knowledge of government plans, said an announcement around the "criollo" barrel would likely be released next week, to help "put a floor under the steep fall." He added the official decree was not yet completed.

Both sources declined to be named because the plans were still private and under discussion.

Argentina is home to the huge Vaca Muerta shale deposit, the size of Belgium. It is thought to hold one of the world's largest reserves of unconventional hydrocarbons.

Argentina has typically produced around 500,000 barrels of oil per day, and with a fast ramp-up at Vaca Muerta has reduced reliance on imports. The country had been targeting an energy surplus in 2020.

Global oil prices have crashed to two-decade lows. On Monday, U.S. crude oil futures actually plunged into negative territory. Low prices are squeezing producers, especially those developing costlier shale reserves.

"A criollo barrel is vital and to maintain the price at the pump. Otherwise (refiners) buy crude at $20 and sell it at a pump at $50, which is what it is today," said the second source, an oil industry executive in Argentina.

Argentina's production ministry, which oversees the energy secretariat, did not respond to requests for comment. The South American country fixed oil prices previously until around 2016 to shield local firms from fluctuating prices.

THE 'DEAD COW'

The pandemic has hammered producers in Vaca Muerta - Spanish for "dead cow" - which Argentina had hoped would produce major export income to help the country claw its way out of recession as it looks to restructure billions of dollars in debt.

"Companies around the world are slashing budgets. Vaca Muerta wasn't cost competitive with the Permian Basin or anywhere else in the United States before the market fell apart," said an executive at a U.S. energy firm in Argentina.

"So why would anyone spend a dime in Vaca Muerta now?"

Guillermo Pereyra, secretary general of the Rio Negro, Neuquen and La Pampa Oil and Gas Union around Vaca Muerta, told Reuters most workers have been sent home and production has fallen steeply in April.

His union, which has 25,000 workers, reached an agreement with oil companies on Thursday to guarantee that the 20,500 workers at home would receive at least 60% of their wages in April and May, he said.

"The pandemic led us to paralyze the economy, planes and vehicles stopped working, factories closed and demand fell," he said. "Refineries began to stock their products. Pipelines cannot pump more because there is nowhere to put oil."

"Vaca Muerta is more dead than ever," he said.

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