Analysis: Argentina's Vaca Muerta gas-export plan is a pipe dream

Pan American Energy

21/11/2024 11:00

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      Full pipelines hinder Argentina's gas-export potential
    

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      Private-sector investment needed for $58 billion worth of
infrastructure
    

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      Skepticism grows over Argentina's LNG-export plans by 2032
    

  
    By Alexander Villegas, Eliana Raszewski
       NEUQUEN, Argentina, Nov 21 (Reuters) - Natural gas
production is booming in Argentina’s vast Vaca Muerta shale
lands, but full pipelines and the government's free-market
approach to paying for new ones may prevent the country from
becoming a major gas exporter by early next decade.
About $58 billion worth of new or upgraded pipelines, processing
plants and export terminals is needed to handle Argentina's
growing production from the world's second-largest shale gas
reserves Vaca Muerta, which is Spanish for "dead cow". 
    But libertarian President Javier Milei has replaced direct
investment by the national government in gas infrastructure with
tax breaks and other incentives, a radical shift from his
predecessors.
    The government's goal is to export $15 billion worth of
liquefied natural gas annually by 2032, up from zero currently.
    "Until now, all gas projects were done by the state as
public works. Now that's not an option," said Daniel Dreizzen,
Argentina's former secretary of energy planning and now director
of Aleph Energy, a consulting firm.
The country's newest, $710-million pipeline opened this month,
funded by the government and a loan from the Development Bank of
Latin America and the Caribbean. Milei's government called it
the last state project. 
Milei's austerity drive has driven down inflation and lowered
Argentina's investment risk, but some investors are still
waiting to see if the changes will last to pay off long-term
investments. They fear a swing back to leftist Peronism that
intervened in the energy industry before Milei took office last
year, setting prices and breaking international contracts.
    "This has happened lots of times in Argentina's history and
completely stopped development," Dreizzen said. "The biggest
risk is that destabilization."
     
    FALLING PRICES
    While Argentina has sufficient oil-export infrastructure and
privately-funded expansions under way, Dreizzen said investors
view gas as less profitable, its markets more difficult to reach
and subject to tougher government regulations.
Global gas prices are about a third of their peak in 2022 due to
increased supply and lower demand from a milder-than-expected
winter. 
    The long-term contracts needed to justify building new
infrastructure could be hampered by the early 2030s by LNG
export capacity coming online in Qatar and the United States,
buyers' preference for spot contracts and the European Union's
goals of reducing greenhouse-gas emissions, said Alex Jones, an
LNG analyst at research firm Energy Aspects.    
    Vaca Muerta's gas output has increased five-fold to nearly
100 million cubic meters per day since 2018, but the country's
pipelines cannot even deliver enough for use by Argentina and
neighboring countries. 
     
     
    Argentina can transport around 130 MCM per day and another
20-40 MCM per day is needed to meet current domestic and
regional demand, said Daniel Ridelener, executive president of
the country's largest gas pipeline operator TGN  TGNO2m.BA . 
    Pipeline capacity would need to expand by an additional
40-130 MCM to support the country's plans to export LNG,
Ridelener said.
  
    Investment interest from U.S. oil and gas companies in
expanding Argentina's production is at an all-time high, said
Ariel Bosio, founder and vice president of the U.S.-based
Argentina-Texas Chamber of Commerce.
    "This doesn't mean they're going to invest immediately, but
there's interest," Bosio said, adding that companies want to see
the outcome of 2025 legislative elections and currency controls
lifted before committing.
    TGS  TGS.OL , Argentina's other main pipeline company, has a
$700-million plan to boost its capacity out of Vaca Muerta by 14
MCM per day. The project is waiting for government approval
before seeking financing. 
    A $2-billion plan to expand a state-owned pipeline by 20 MCM
per day is expected to go to an international tender process.
    The pipeline plans depend on construction of LNG export
terminals to buy and export the gas.
    Argentina state-owned energy company YPF  YPFDm.BA  plans on
using floating LNG barges as early as 2027 with Pan American
Energy  PNRG.CD , but YPF's crown jewel is Argentina LNG, a
proposed $55-billion megaproject in partnership with Malaysia's
Petronas  PETRA.UL  that would produce 30 million metric tons
per year onshore by 2032. 
    Jones sees the floating LNG barges as realistic but he is
skeptical about Argentina LNG. 
    "It's a coin flip ... less than a coin flip," Jones said. 
    Argentina LNG talks have been wavering between the partners,
according to local media, although YPF CEO Horacio Marin said
the company would move forward even if Petronas pulls out. 
Milei's cabinet chief said this month that Shell  SHEL.L  had
strong interest in investing in the terminal. The company said
in a statement it is always exploring opportunities.
During an October oil and gas conference in Neuquen, Shell
senior vice president German Burmeister said Vaca Muerta's
assets are technically competitive, but Argentina needs more
infrastructure, including roads, that require foreign-exchange
restrictions to be lifted. 
    "The world will talk more about Vaca Muerta when we're a
more credible and trustworthy country," Burmeister said.  
     

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Argentina: Fracking Boom    https://reut.rs/4fh6EvZ
Argentina: Fracking Boom (Interactive)    https://reut.rs/3UdYFHF
Argetina's Vaca Muerta: Oil Pipelines    https://reut.rs/4eldujf
Argetina's Vaca Muerta: Oil Pipelines (Interactive)    https://reut.rs/3YrjLnz
Argentina: Gassing Up    https://reut.rs/3NHigMJ
Argentina: Gassing Up (Interactive)    https://reut.rs/4dU5CVr
Argentina: Shale Oil Production    https://reut.rs/4hr0QBY
Argentina: Shale Oil Production (Interactive)    https://reut.rs/4h9h2HT
Vaca Muerta: Gas Injection Capacity    https://reut.rs/4f7PbWX
Vaca Muerta: Gas Injection Capacity    https://reut.rs/3CjksYm
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Alexander Villegas and Eliana Raszewski;
Additional reporting by Marianna Parraga; Editing by Adam
Jourdan and Rod Nickel)
((mailto:adam.jourdan@thomsonreuters.com; +54 1155446882;
Reuters Messaging:
rm://adam.jourdan.thomsonreuters.com@reuters.net/))