Industry Trend Analysis - Austral Gas Subsidy Will Restore Upstream Health - FEB 2018

BMI View: The extension of natural gas pricing incentives to Argentina's Austral basin supports our upbeat production forecast through 2021. Higher domestic prices will encourage greater investment upstream by active producers while improving profitability of existing operations .

Argentina's natural gas sector is set for further growth. Continued improvements above-ground will accelerate investment into the upstream, supporting stronger production gains over the next four years. The extension of the pricing incentive programme to the Austral basin on November 17 will sustain investor appetite in the country's second-largest gas producing province. It will boost revenues and help repair balance sheets over the coming year, reversing a spending pullback which played out over 2017.

This programme allows producers to sell gas domestically for USD7.50/mn British Thermal Units (mnBTU) through 2018, after which prices will gradually decline by USD0.50/mnBTU per year until 2021. The subsidy will provide valuable support to investment into the Neuquen and Austral basins. This drives our forecast for an average of 2.6% y-o-y growth in total production between 2018 and 2021.

Austral Number Two Region For Gas
Argentina - Natural Gas Production by Basin (2017)
*data through Sept 2017. Source: Minem

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