Argentina's Vaca Muerta Gas Export Plans Face Major Hurdles

(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 million cubic meters (MMcm) per day and another 20-40 MMcm 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.

Pipeline capacity would need to expand by an additional 40-130 MMcm 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, Argentina's other main pipeline company, has a $700-million plan to boost its capacity out of Vaca Muerta by 14 MMcm per day. The project is waiting for government approval before seeking financing.

A $2-billion plan to expand a state-owned pipeline by 20 MMcm 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 plans on using floating LNG barges as early as 2027 with Pan American Energy, but YPF's crown jewel is Argentina LNG, a proposed $55-billion megaproject in partnership with Malaysia's Petronas 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 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.

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