Argentina's government has unveiled plans to revitalise operations in the prolific Vaca Muerta shale formation and prevent an increase in natural gas imports, as the country braces for a deep recession in the wake of the Covid-19 pandemic.

According to press reports, the four-year subsidy programme is expected to cost about $5.1 billion for the cash-strapped Buenos Aires administration in an attempt to encourage local producers to boost gas output in the region.

The stimulus plan will cost Argentina more than $1 billion per year — including $1.5 billion in 2021 — as production in the Vaca Muerta shale continues to fall on a monthly basis.

Economic woes

The sharp drop in crude prices seen since the beginning of the year hit Argentina’s energy sector hard, as the costs of producing unconventional resources in the Vaca Muerta are deemed high.

The new subsidy initiative is better than the alternative of buying cargoes of liquefied natural gas, even though LNG prices are currently low, Bloomberg reported Argentina's Energy Secretary Dario Martinez as saying.

He added companies that compete in an auction scheduled for next month for three-year gas supply contracts can receive a maximum of $3.70 per million British thermal units, with the government covering the difference between the winning bids and prices currently paid by consumers of $2.30 per million Btu.

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“We have done the analysis and we really benefit from doing this,” Martinez told reporters in Buenos Aires, adding other natural gas basins, not just the Vaca Muerta, are eligible for the programme.

The government also plans to invest $600 million to improve two existing gas pipelines in the Vaca Muerta before reviving any plans for a third one.

Operators including state-owned YPF and international oil companies such as ExxonMobil, Chevron, ConocoPhillips, Shell, Equinor, BP and Total have assets in the Vaca Muerta shale formation.