LatAm urged to incentivize unconventional E&P

Tuesday, August 9, 2016

Shale and tight hydrocarbons have the potential to greatly benefit economies in Latin America over the coming years.

However, governments must recognize the logistical differences between conventional and unconventional E&P and draft regulations accordingly, says a new white paper produced by regional oil, gas and biofuels association Arpel.

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Regulators must offer tax and royalty incentives, as well as different concession terms for the production of oil and gas from shale and tight formations, Arpel argues, citing the results of a survey conducted among its member companies.

Most respondents agreed on the need for a separate regulatory framework for unconventionals, citing that shale and tight E&P require different extraction and assessment techniques, a longer and more complex exploration stage, higher operational costs and more specialized facilities throughout the value chain.

Argentina, which sits on 802Tf3 of technically recoverable shale gas resources, the second-most of any country in the world, has led unconventional development in the region, in part through incentives like the ones recommended by Arpel.

Mexico, Brazil and Venezuela, meanwhile, boast 545Tf3, 245Tf3 and 167Tf3, respectively, of technically recoverable shale gas resources. However, Argentina is the only country in Latin America producing commercial volumes of shale oil and gas.

Argentine national oil company YPF said last week that it now has 503 shale wells in operation, and that tight gas now accounts for 20% of total natural gas output.

Latin America has grown increasingly dependent on expensive LNG imports, amid increasing demand and general under-investment in its own immense gas resources.

In order to slow this trend and ensure its long-term energy security, the region must overcome the logistical, social and regulatory hurdles to shale and tight development, Arpel maintains.