Argentina shale train project fails to steam ahead

01 May 2019, Week 17, Issue 454

There were fewer commitments than anticipated in an auction last week to fill a proposed train with sand and other goods to supply the Vaca Muerta in Argentina. The lack of bids puts at risk a key project aimed at cutting oil and gas production costs in the shale play. 

The project drew in bids to fill 3.3 million tonnes per year (tpy) of capacity over 10 years, less than the 4 million tpy that had been set as the minimum for its economic viability. 

The Ministry of Transport, which is spearheading the project, said it would analyse what steps are required next, saying it wants to press ahead with the project. 

The idea is to line up freight use before holding an auction for building the North Patagonia Line, a public-private partnership that is anticipated to cost US$1.3 billion. The steady revenue from the freight would help encourage companies to bid for the concession, which involves laying new tracks and refurbishing old ones on a line between the port of Bahia Blanca in Buenos Aires province and Anelo, a town in the heart of the Vaca Muerta.

Of the commitments, eight oil companies said they would use a combined 2.5 million tpy of the freight capacity, helping to reduce costs and speed up deliveries of sand to the play by replacing the use of trucks to move it in. The biggest bidder was state-run YPF, which bid to use 1.5 million tpy of capacity. The other bidders were the global majors Chevron, Total and Royal Dutch Shell, as well as BP-backed Pan American Energy (PAE), Mexican independent Vista Oil & Gas and local players Pampa Energia and Pluspetrol. 

The rest of the bids came from companies wanting to use the line to move building materials, fruit, manufactured products and other goods. 

One of the biggest oil companies in Vaca Muerta, Argentina’s Tecpetrol, did not bid to use any capacity on the line. 

Analysts said a setback for bidders was the 10-year commitment, which was considered too long in a country known for its frequent economic crises. 

Even so, oil companies want a cheaper, easier and faster way to supply frack sand to drilling sites. All of the sand is trucked in from Chubut or Entre Rios, provinces to the south and north of the shale play, which is located in Mendoza and Neuquen. With sand accounting for between 10% and 20% of the final cost of the well, any savings in moving the product to the well would improve returns on projects. 

This is even more important at a time when the government is struggling to contain inflation, which more than doubled over the past year to 55% with few signs of abating as a year-old financial crisis continues to afflict the country.

Another concern, which would be beneficial in the long run for oil companies, is that there have been – and still are – attempts to locate sand in the Neuquen Basin, home to most of the Vaca Muerta. 

While YPF commissioned an extensive search for in-basin sand a few years ago without any success, a few companies are testing river sand. They are taking the idea from the US, where the use of natural frack sand has been gaining traction. While it may prove less productive in the long run compared to other types of proppant, such as ceramic beads, it is cheaper, which appeals to companies with multiple drill sites. 

 

Edited by

Anna Kachkova

Editor

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