Repsol's Argentina LNG deliveries uncertain amid YPF expropriation
Spain's Repsol has diverted one LNG cargo originally destined for Argentina's Bahía Blanca terminal, and is deciding the fate of the remaining nine cargoes that Repsol is contracted to deliver in 2012 as LNG has taken centre stage in the ongoing political dispute between the two countries.
Repsol's decision not to send a cargo to Argentina coincides with the controversial decision by the Argentinean government to expropriate the country's largest oil and gas company - YPF - from its previous majority owner, Repsol. The government now has a 51% stake in YPF.
On Thursday, Argentina's parliament passed the final bill for the state to take control of YPF after President Cristina Kirchner claimed the Spanish company was not making enough of an effort to boost domestic hydrocarbon production.
Repsol decided to re-route a LNG cargo that was scheduled for discharge in Bahía Blanca around the middle of May because Argentina's state-run gas firm ENARSA did not present a letter of credit to the Spanish company that would ensure payment for the LNG, ICIS understands.
Repsol claims payment risk
A letter of credit is a financial mechanism that mitigates the payment risk for seller and the delivery risk for the buyer. It allows a bank to assume the financial risk between a buyer and seller, and ensure that the seller is paid. Payment is ultimately collected from the buyer.
Repsol has been lenient in allowing ENARSA to be late on previous LNG payments, but the Spanish company did not want to risk non-payment on the May cargo, a source said. A Repsol spokesman declined to comment on the matter.
Argentina, through ENARSA, has been plagued by late payments and credit quality issues in the country's pursuit of LNG volumes, a point that was echoed by BG Group's top executive.
"We took two [LNG] cargoes to Argentina [in the first quarter], and clearly, the credit worthiness of these particular companies will determine the commercial terms upon which we are prepared to trade," BG's CEO Frank Chapman said in a media results briefing on Thursday.
"We don't have any long-term investments in Argentina, so we are committed to Argentina on a case-by-case basis."
The fate of the other nine cargoes for Bahía Blanca is being determined internally within Repsol, sources said, and the Spanish company is not interested in exacerbating an already public back-and-forth between high-level figures from both countries.
ENARSA had not received any correspondence from Repsol as of press time about the company voiding the contracted cargoes, a source in Argentina told ICIS.
YPF increases gas supply options
In the meantime, YPF is moving ahead with alternative gas supply plans after it said Repsol "unilaterally" decided to void its LNG obligations.
YPF said that it has engaged other companies that could possibly make up for the LNG shortage in supply over the winter, but particular companies could not be confirmed.
ENARSA has been the sole LNG buyer for Argentina but now that YPF is also under government control, the two companies could be merged to take care of LNG buying, public officials and ICIS sources in the country have suggested.
The last LNG import deal done into Argentina was for a July cargo from US-based Excelerate Energy at Henry Hub plus $15.79/MMBtu.
Argentina has been short four cargoes at Bahía Blanca over the southern hemisphere winter. One slot remains open in each month from May to August after failing to receive conforming offers in previous tenders.
Repsol's obligations are for two Bahía Blanca deliveries in June, July and August, which may force the country to search for up to 11 cargoes in the peak gas demand months.
Repsol also has Bahía Blanca cargoes scheduled for October, November and December, sources said. (see Market Report)
YPF looked to quell fears of a gas shortage by proclaiming that Argentina will be importing an additional 3 million cubic metres (Mm³)/day from Bolivia, and would ramp up domestic gas output by another 2Mm³/day starting this week.
Gas imports from Bolivia to Argentina were already elevated by more than 50% in 2012 compared with last year, Jorge O'Donnell, ENARSA's LNG commercial manager, told the CWC World LNG Series: Americas Summit in San Antonio last week.
During Argentina's winter months, supply from Argentina would top out at 11.5Mm³/day compared with a total of 7.7Mm³/day in 2011, O'Donnell said.
Summer flows from Bolivia to Argentina reached 10.2Mm³/day in 2012 after sitting at 5.7Mm³/day in 2011.
In 2013, Bolivia's gas exports to Argentina in the winter are expected to rise to 13.5Mm³/day, O'Donnell said.
In the meantime, YPF has announced that US explorer Apache Corporation has pledged to further its development in the hydrocarbon-rich province of Neuquen, the Argentine company said in a statement on 27 April. Apache is producing 3Mm³/day in Neuquen, YPF said.
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