Floating LNG is writing a new chapter in Argentina’s shale gas story and stands to have much farther-reaching implications.
Argentina's new chapter has its roots in a 20 November 2018 meeting between YPF president Miguel Gutiérrez and Exmar chief executive Nicholas Saverys at which they struck a deal for use of the Tango FLNG vessel to liquefy gas reserves from Argentina’s Vaca Muerta field for the next 10 years. As a result, Argentina will enter the LNG export race in 2019. And while that may not sound like a big deal, it is.
Tango FLNG arrived in Argentina on 6 February from China after being transported on the semi-submersible heavy transport ship Forte. Berthed at Bahia Blanca terminal, the Tango FLNG unit has a storage capacity of 16,100 m3 and will produce 0.5 mta. It will be the first floating LNG export project in the Americas.
Think shale gas exporters, and the US and Canada come to mind first. The Vaca Muerta field in western Argentina, however, has shale gas reserves that are second only to Eagle Ford in the US. According to the US Energy Information Administration, Vaca Muerta has an estimated 308Bn ft3 of dry, wet, and associated shale gas resources. The South American country as a whole has technically recoverable shale gas and oil reserves of 802Bn ft3 and 27Bn barrels of oil.
And production from Argentina’s unconventional hydrocarbon sources is expected to increase. According to energy research firm Rystad Energy, the number of wells fractured in Vaca Muerta increased in 2018 to 143 from 104 in 2017. Rystad Energy expects this to rise to 207 next year and about 250 in 2021.
While FLNG units are not a good fit for all instances, floating liquefaction is the ideal solution for Argentina, which currently lacks the gas pipelines and liquefaction plants necessary to export LNG over long distances.
That is not the only reason Tango FLNG makes sense. Using an existing FLNG unit mitigates a great deal of risk. Since it is already built, the floating liquefaction barge eliminates the logistics of getting a skilled workforce on site to build. It also eliminates the significant investment and political risk in a shoreside facility and opens up better financing options.
By partnering with Exmar, YPF also benefits from the experience of a pioneer in the floating liquefaction market. Besides Tango FLNG, Exmar owns a floating storage and regasification unit and an LNG carrier, with inhouse management and crewing. Exmar Shipmanagement Services also manages a diverse fleet of 75 vessels, including VLGCs, midsize and pressurised LPG carriers, LNGCs, FPSOs and FSRUs.
However, before it produces its first LNG cargo in Q2 2019, Tango FLNG must still undergo outfitting and commissioning. But once fully operational, YPF estimates it will generate sales of US$200M per year — representing about 10% of Argentina’s total exports of fuel and energy. With Tango FLNG, YFP can quickly unlock the export potential of Vaca Muerta. YFP believes it can export LNG to about 40 countries.
With the global demand for LNG expected to more than double by 2030 to 550 mta, Vaca Muerta field is attracting some interesting investors. Last year, Qatar Petroleum (QP) became an equity holder with ExxonMobil in Vaca Muerta's formation, marking its first significant international investment in unconventional oil and gas reserves. As you might recall, QP and ExxonMobil are also partnering on the US$10Bn expansion of the Golden Pass LNG export facility in Sabine Pass, Texas.
Investors will be monitoring the success of the Tango FLNG project closely. If all goes according to plan, there could very well be more FLNG units coming to the Americas.