Argentina considers oil price controls to support Vaca Muerta shale exploration

Jonathan Gilbert and Patrick Gillespie April 09, 2021
Vaca Muerta shale drilling
Vaca Muerta shale drilling

(Bloomberg) --Argentina’s government is pushing for long-term oil price controls as the South American nation runs out of time to unearth a shale trove in Patagonia.

The idea of setting a ceiling and floor on domestic crude prices is being written into draft legislation aimed at spurring oil-and-gas investments, Production Minister Matias Kulfas said in a Thursday interview. A cap would prevent bull runs in oil markets from triggering a surge in fuel prices. And -- crucially for Argentina’s shale ambitions -- a floor would discourage major oil companies from pulling out of a marginal asset like the burgeoning Vaca Muerta if markets collapse.

“What we want structurally is a solution that foresees the problems of volatility,” Kulfas said.

The administration of President Alberto Fernandez is in the midst of drafting the bill, which will be sent to congress this year for debate among lawmakers. Enacting controls by law would send a clear signal about the rules under which drillers can produce oil in Argentina in the coming years when the specter of peak demand threatens to keep vast resources buried in Vaca Muerta.

Drillers are producing 137,500 barrels of crude daily at the largely untapped shale deposit in the southern part of the country, according to newspaper Rio Negro. In comparison, the Permian Basin in the U.S. is expected to produce 4.6 million barrels of crude a day in May.

Argentina is a perennial meddler in energy markets. Just last year, when oil prices tanked, the government priced its crude higher. Companies also recently agreed to help refiners pressured by the government to keep gasoline prices in check.

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