Don't Cry for Argentina; It's More Energized Than We Can Imagine

Today In Energy, the house news organ of the Department of Energy, put out a great post on Friday on the subject of Argentina's oil and gas successes. Below is the rather lengthy article, followed by brief commentary from yours truly:

Crude oil and natural gas production in Argentina are both nearing record highs, driven by increasing output from the Vaca Muerta shale formation, which is offsetting declining output from conventional oil and natural gas fields. From January 2021 through September 2024, crude oil production in Argentina increased by 50%, and natural gas production rose by 27%, lifting output of both fuels near the records set in the early 2000s, according to data from the country’s energy ministry, the Secretaría de Energía de la República Argentina (SESCO).

Data source: U.S. Energy Information Administration and Argentina Ministry of Energy (Secretaría de Energía de la República Argentina [SESCO])

We estimate that the Vaca Muerta shale formation, located mainly in Argentina’s Neuquén province, has 308 trillion cubic feet of technically recoverable shale gas resources and 16 billion barrels of technically recoverable shale oil and condensate resources. Argentina ranks among the world’s top five holders of shale crude oil and natural gas resources.

Data source: U.S. Energy Information Administration; World Bank, ESRI; Instituto Nacional de Estadística y Censos; and the National Energy Technology Laboratory’s Global Energy and Gas Features Database

Crude oil production in the Vaca Muerta formation began to surge in 2021 due to:

• Increased drilling activity

• Technological advances in hydraulic fracturing and horizontal drilling

• Favorable oil prices

• Infrastructure improvements with the commissioning of new oil pipelines

• Implementation of supportive policy measures

In September 2024, production averaged 738,000 barrels per day (b/d) of crude oil in Argentina, 15% more than in September 2023 and the most in any month since 2003. In September, oil produced in the Vaca Muerta formation accounted for 58% of the country’s total output, according to SESCO.

An average of 5.0 billion cubic feet per day (Bcf/d) of natural gas was produced in Argentina over the first nine months of 2024, 5.2% more than the same period in 2023. In August, natural gas production averaged 5.4 Bcf/d, the most of any month in 21 years. The Vaca Muerta formation accounts for more than 70% of Argentina’s natural gas production, reaching 74% (3.8 Bcf/d) in September 2024.

Crude Oil and Natural Gas Exports

Rising production of crude oil and natural gas from the Vaca Muerta formation has increased export opportunities for both fuels. Argentina’s crude oil exports increased by an average of 33% per year from 30,000 b/d in 2017 to 128,000 b/d in 2023. Shale crude oil accounted for about 70% of crude oil exported in 2023. Argentina's primary destinations for crude oil exports in 2023 were the United States, Brazil, and Chile. The recent completion of the Vaca Muerta Norte Oil Pipeline helped facilitate exports to Chile.

Growing domestic natural gas production and the development of several new pipeline projects have decreased Argentina’s liquefied natural gas (LNG) imports and led to planning to increase exports. Argentina relied on LNG imports to help manage peak heating and electricity demand during the winter (June–August) in the southern hemisphere, especially given the country’s limited natural gas storage capacity. During the first nine months of 2024, Argentina imported 0.2 Bcf/d of LNG, 43% less than over the same period in 2023.

Argentina’s natural gas imports via pipeline fell by 47% in the first nine months of 2024 compared with the same period in 2023. The decline was largely because pipeline imports from Bolivia, which made up around half of Argentina’s natural gas imports in 2023, ended in September 2024. Meanwhile, Argentina is investing in infrastructure to expand the distribution of natural gas from the Vaca Muerta formation to northern Argentina, including reversing pipelines designed for imports from Bolivia in order to export natural gas to Brazil.

Natural gas exports to neighboring Chile and Uruguay via pipeline have notably increased, while Argentina’s LNG imports have declined due to new infrastructure projects such as the Perito Francisco Pascasio Moreno gas pipeline, formerly known as the Presidente Néstor Kirchner gas pipeline, which started operations in 2023, transporting natural gas from the Vaca Muerta formation north to the Santa Fe and Buenos Aires provinces. Exports to Chile increased 14% in the first nine months of 2024 compared with the same period last year to about 0.25 Bcf/d.

Data source: U.S. Energy Information Administration; World Bank; Global Energy Monitor, Global Oil and Gas Infrastructure Tracker; and Energía Argentina S.A. (ENARSA)

Natural Gas and LNG Infrastructure Development

Several key infrastructure projects are supporting the growth in natural gas production from the Vaca Muerta region, including the Perito Francisco Pascasio Moreno gas pipeline with a capacity of 0.7 Bcf/d, where a planned second phase would expand its capacity to 1.2 Bcf/d by 2028.

The Gasoducto Norte pipeline is currently undergoing a flow reversal project to transport natural gas from southern to northern Argentina. The first phase of operations began this November, with the pipeline expected to reach its full capacity of 0.7 Bcf/d. We expect this project to be completed in the first quarter of 2025 and facilitate natural gas exports to northern Chile and Brazil to meet growing demand in these markets.

Argentina's government has implemented new policies to boost energy production and exports, including the Plan Gas.Ar. In addition, the Plan Gas IV Program expanded export authorizations and four-year export contracts for natural gas—the country’s first multiyear contracts in two decades. Last July, Argentina’s Congress also passed a Promotional Regime for Large Investment (RIGI), aiming to provide certainty and legal stability to investors by offering tax, customs, and currency exchange incentives, which could support new spending on infrastructure.

Several companies are planning floating LNG (FLNG) infrastructure in the coming years. Golar LNG has a 20-year agreement with Pan American Energy (PAE) to deploy an FLNG vessel in Argentina by 2027, targeting a production capacity of 2.45 million metric tons per year (MMmt/y). Tecpetrol SA is designing a modular onshore plant with an initial capacity of 4 MMmt/y.

YPF SA, Argentina’s state-controlled energy company, plans to bring an existing FLNG facility online by 2027, aiming for 1 MMmt/y to 2 MMmt/y of additional export capacity. It is also seeking new investors for an LNG export project in Rio Negro, despite uncertainties regarding Petronas's involvement and significant infrastructure costs.

Editor’s Note: This is all well and good, of course, but given that it’s coming out of the Biden Administration, we have to realize no credit is being given for the one thing that may have most of the difference in the 15% growth since last year; namely, it’s new leadership. So, I asked Grok about that and got this:

Argentina's new leadership, under President Javier Milei, has implemented several policies aimed at revitalizing the oil and gas sector, particularly focusing on the Vaca Muerta shale formation. Here's how these efforts have spurred development:

1. Deregulation and Privatization: One of the central tenets of Milei's administration is to reduce government control and promote free-market principles. This includes plans to privatize YPF, the state-controlled oil company, which directly impacts investment and operational freedom in the sector. The promise of deregulation has led to a significant increase in the valuation of YPF shares following the election, indicating market confidence in these policy directions.

2. Attracting Foreign Investment: The new government's commitment to creating a more business-friendly environment has been aimed at attracting foreign direct investment. The reduction of capital controls and the potential lifting of oil price caps are seen as key moves to encourage foreign companies to invest in Argentina's hydrocarbon sector. This is expected to lead to increased exploration and production activities, particularly in Vaca Muerta, which holds significant shale gas and oil reserves.

3. Infrastructure Development: There has been a push to enhance infrastructure around Vaca Muerta, with projects like new pipelines and export facilities. For instance, the completion of the Néstor Kirchner pipeline from Vaca Muerta to Buenos Aires has been pivotal in allowing increased gas production to be utilized domestically and potentially exported. Additionally, there are discussions around new oil pipelines and ports to boost export capabilities.

4. Policy Changes for Economic Stability: The leadership's focus on stabilizing the Argentine economy, particularly through controlling inflation, indirectly supports the oil and gas industry by providing a more predictable economic landscape for long-term investments. Lower inflation and currency stability can make projects more financially viable, as seen with the increase in crude oil and natural gas output to near record highs.

5. Environmental and Regulatory Adjustments: Milei's campaign included a skepticism towards climate policies, which has translated into a policy shift away from stringent environmental regulations that could hinder oil and gas production. His administration has promised to reduce bureaucratic hurdles, which could accelerate project approvals and development in the energy sector.

These actions collectively signal a shift towards a more market-driven approach in Argentina's energy policy, aiming to leverage the country's natural resources for economic growth. However, the success of these initiatives will also depend on broader economic stability and the global energy market's response to Argentina's increased supply potential.

That about sums it up. Bold leadership matters and Argentina is fully energized. No one is crying for Argentina (or Evita Peron, the socilalist phony) these days. Let’s hope Trump does the same here!

#Argentina #Oil #Gas #FreeMarket #JavierMilei #Privatize #Deregulation