Exclusive Q&A: The Future of Argentina’s Vaca Muerta Shale and LNG

Argentina’s Neuquen Province could be on the cusp of a shale boom with LNG implications. However, certain headwinds remain for the South American country’s huge Vaca Muerta shale play.

The Neuquen Province is home to the Vaca Muerta or ‘Dead Cow’ formation, which the U.S. Energy Information Administration (EIA) estimates holds recoverable shale resources of 308 Tcf. Shale production from the province is the main force behind Argentina’s rising crude oil and natural gas production profiles and key to preventing legacy declines, according to Rystad Energy estimations.

Neuquen Province Energy Minister Alejandro Rodrigo Monteiro spoke briefly with Hart Energy on the sidelines of the Vaca Muerta Shale Day in Houston 2022 event on Sept. 29—hosted by the Instituto Argentino del Petróleo y del Gas—about near-term investment headwinds as well as the South American country’s potential to achieve scalable LNG exports by the end of this decade. Here are excerpts from Monteiro’s conversation.

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Pietro D. Pitts: What are the main headwinds confronting Argentina in its quest to attract investors?

Alejandro Rodrigo Monteiro: Next year Argentina will have macroeconomic problems that will impede the generation of conditions of predictability and credibility, or will not insure desired conditions for investors are maintained over the medium and long term. This is the main problem.

We have the proven resources, and companies have invested and achieved phenomenal results. We have some infrastructure bottlenecks that are being resolved, but we have problems with the supply chain, the value chain and goods and services. Therefore, that requires equipment as well as goods and services to come from other places. Today, the hydrocarbon production activity in the U.S. is very good and growing.

So, we have to compete with those goods and services in order for them to come to Argentina. And for those goods and services and the capital that companies need to accelerate investment to come to Argentina, we have to create conditions and demonstrate to investors that the conditions are going to last over time, otherwise it will be very difficult. And in the last decades, Argentina has not had a track record of fulfilling everything it has committed to.

PDP: Do the presidential elections next year add another layer of complications?

ARM: There’s a situation that we have seen in recent years where those in the political sector today within government and as part of the opposition all understand the importance of what Vaca Muerta can do to reverse the outflow of dollars due to the importation of energy and all the dollars it can generate in [mainly] three ways.

On the one hand, there is the inflow of capital for investment and production which would allow us to replace imports and then finally we would generate large export volumes. So, all this is understood at the political level.

What we need to do is reach a consensus on how to generate and design the tools and generate a law or all the legal mechanisms that give investors that credibility so that they can come to Argentina to do business and earn money like anywhere else in the world.

PDP: And how much time do investors realistically need to wait?

ARM: In recent times the current national authorities have begun to make certain small decisions that are going in the right direction.

For example, Chevron had committed investments of $5 billion since 2013. Argentina had an incentive scheme for those investments but the previous government didn't comply, and now this government is starting to unlock that so Chevron can access those benefits that have been promised starting in the fifth year of the investment. Petronas had the same benefits, and it will come in for [discussions with government for] the same reason.

“What we need to do is reach a consensus on how to generate and design the tools and generate a law or all the legal mechanisms that give investors that credibility so that they can come to Argentina to do business and earn money like anywhere else in the world.” – Neuquen Province Energy Minister Alejandro Rodrigo Monteiro

We are looking for those mechanisms that would allow us to unlock these drawbacks that investors see in Argentina. We are not going to turn everything around from one day to the next but instead take small steps in the right direction, and I think that’s going to and will change the investor’s perspective.

PDP: What can Argentina do to make sure it can build the Nestor Kirchner gas pipelines, which is crucial to shipping out more Vaca Muerta gas from the Neuquen Basin?

ARM: Today, construction of the first phase of the pipeline is going to be done by the state. For the second phase the state is now in talks with the production sector and companies under certain conditions whereby they are committed to financing [that phase of] the gas pipeline. I believe the conditions are in place for large domestic funding, but perhaps we’ll need to seek some international financing so that the second phase can be completed and from there take a larger scale leap in gas production.

PDP: What efforts are being taken by Argentina to pay for the imported LNG, which of course is an extra expense that it has to make despite having massive gas resources?

ARM: This year’s gas imports could pay for three gas pipelines, that is, a gas pipeline that cost $2 billion. We imported $6 billion [worth] of LNG, so it doesn’t make any sense not to build it. What the state is doing now is investing those $2 billion so it can save more than $2 billion next year.

PDP: When do you envision Argentina emerging as a strong player in the LNG market?

ARM: An LNG project takes time including analysis, the final investment decision, financing, construction, installation and commissioning. I don’t think before 2028-2030 Argentina will be able to bring on LNG in magnitude. [There is potential] for small LNG projects of around 1 million tonnes per year to be developed faster, and we know that there are [to be] concrete advances in these projects by 2025-2026, but for a serious project of scale between 2028-2030 would be the soonest time frame.

PDP: Will piped gas exports from Argentina to Chile resume?

ARM: Starting Oct. 1, firm non-interrupted gas exports will begin and last for seven months at around 10 MMcm/d for the months of October, November, December, January, February, March and April.

Afterwards, during Argentina’s winter, we expect to export up to 5 MMcm/d of gas. That is, when Argentine demand is at its peak, we expect to export gas as production is rising.

We are recovering trust we lost in 2004 with Chile and I think that will continue to increase investments, especially in infrastructure that is being built, which will allow more gas to be released [or exported] to Chile in the rest of the year.

PDP: Is Argentina still eying Bolivian piped gas imports although production there continues to fall?

ARM: [Our] import contract with Bolivia runs until 2026 and remains in place.