Dow to pioneer Argentina first shale gas pilot project
The Dow Chemical Company (Dow) from USA and the Argentina national oil company YPF signed a memorandum of understanding (MOU) to develop shale gas in the giant deposit of the Vaca Muerta in the eastern Province of Neuquen.
So far Dow could take advantage of its global position to boost production in the regions of the world where the resources are the cheapest.
Since Sadara was decided in the year 2000’s the US shale gas became a reality up to the point that all the international companies are relocating their petrochemical activities in USA and Saudi Aramco is now starting to explore shale gas for its own purpose.
Dow is in the lead of this relocation movement of the petrochemical industry in the USA and is actively lobbying in the USA against the export of liquefied natural gas (LNG) from the USA as it could propel the local natural gas prices to dangerous high levels compared with other producing regions in the world.
In opposite way the oil and gas companies are developing an integrated upstream – downstream business model eliminating most of the risks on the gas prices fluctuation since the gas price is mostly used for internal transfer calculation.
In this context, the opportunity to get access to shale gas resources and to develop a pilot project with YPF represents some kind of U-turn in Dow strategy investing upstream to benefit from this integrated upstream – downstream business model developed by its global competitors.
This choice was justified by the successful connection on March 1st of the El Orejano-2 to the Pacific Pipeline by the first shale gas well put in commercial production.
Dow and YPF to partner downstream and upstream
In 2007 Argentina put in place an export tax system to preserve the price level of the oil and gas in the country against the international fluctuations.
If these measures were efficient in that respect, their backside had been to dry up all the investments of the international companies in Argentina.
Over the years the old fields matured and the lack of investments led Argentina to turn short of natural compared with its own consumption.
The discovery of the Vaca Muerta and other unconventional oil and gas fields in the same time motivated the Argentina Government to adjust its export tax to attract again the international companies.
In that respect Dow and YPF pilot project in Argentina is to return experience about shale gas development, the integrated upstream – downstream business model and the benefit or not for a country to control its oil and gas export despite huge resources.