UPDATE 2-Argentina says wellhead natural gas prices to rise

Wed Nov 28, 2012 5:09pm EST

* Energy sector beset by high demand, low investment

* Gov't keen to develop shale energy resources

BUENOS AIRES Nov 28 (Reuters) - Argentina will allow wellhead natural gas prices to rise substantially from current levels as the energy-hungry South American country seeks to attract foreign investment into new fields, President Cristina Fernandez said on Wednesday.

Fernandez, who is keen to lure private investment to bring hefty shale energy resources on stream, said wellhead prices would rise to $7.50 per million British Thermal Units (BTU).

The current price ceiling is about $5 per million BTU, although prices at the wellhead average about $2.50 per million BTU in the Neuquen basin in southern Argentina, the country's main production zone. Lower price caps had been part of a policy of supporting local industrial energy users.

"We've decided to give incentives for gas production," Fernandez said, adding that the new price would be available for all energy companies that invest to develop new fields in the South American nation.

The government earlier this month vowed to increase consumer prices for natural gas and electricity as state-controlled energy company YPF hopes to lure partners to invest in the Vaca Muerta shale site, which may hold enough resources to double Argentina's oil and natural gas output.

A U.S. Department of Energy report shows Argentina holds more natural gas trapped in shale rock than in all of Europe - a 774-trillion-cubic-feet bounty that could transform the outlook for Western Hemisphere supply.

Local energy sector analyst Victor Bronstein said the new, elevated price should attract international investment.

"This was a piece of news that was expected and necessary," he said.

YPF and U.S.-based Chevron Corp have already signed a deal to consider jointly exploring for shale oil and natural gas in Vaca Muerta.

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