In a desolate, windswept expanse of the Patagonian wilderness, Argentina’s aspirations to emerge as a formidable player in the global energy arena are beginning to take tangible form.
Picture this: a dedicated crew of ten, laboring under the relentless September sun in a remote enclave of the expansive Vaca Muerta shale formation nestled within the western province of Neuquén. They meticulously maneuver 75-centimeter-thick carbon steel tubes, joining them through welding to construct a vital oil pipeline—one engineered to transport crude oil nearly 600 kilometers to the Atlantic coast.
Vaca Muerta, esteemed as the globe’s fourth-largest repository of shale oil and the second-largest for shale gas, is poised for monumental shifts. A pipeline stretching southward is slated to connect with the town of Allen, just 130 kilometers away, by year’s end. Moreover, an ambitious second segment, set to be completed by 2026, aims to ferry crude an additional 440 kilometers towards the shores of Punta Colorada on the southeastern coast.
“This marks the nation’s inaugural pipeline crafted exclusively for export purposes,” asserts Manuel Castillo, the project manager for YPF, Argentina’s state energy titan. “In time, we anticipate elevating the transport capabilities of this basin by a staggering 70 percent.”
As Vaca Muerta stands on the brink of fulfilling the grand promises heralded by various governments over the past 14 years since its discovery, fresh infrastructural developments are alleviating the transport inefficiencies that have long suffocated production potential.
One noteworthy pipeline, operational since last year, has reignited oil exports to Chile for the first time in nearly two decades. Another, scheduled for completion in 2025, is expected to bolster flows destined for Buenos Aires province’s coast.
Over the last five years, oil output in the basin has experienced an astonishing surge, skyrocketing from 90,000 barrels per day in 2019 to an impressive 369,000 bpd by August 2024. Projections suggest this could reach a staggering 1.1 million by the close of 2030, enabling export volumes of nearly 700,000 bpd.
However, the infrastructure required to export natural gas remains in nascent stages. Yet, a new pipeline to the capital has effectively more than doubled production since 2019, achieving 70 cubic meters per day in 2024 and dramatically slashing reliance on eagerly needed imports. This figure could escalate to an ambitious 170 cmpd by 2030, according to the local hydrocarbons business chamber CEPH.
Argentina, grappling with an energy deficit since 2011, is projected to reap a substantial $5 billion from energy exports this year—a critical boost for a nation facing dwindling hard currency reserves.
Nonetheless, the economic landscape remains mired in stringent currency and capital controls, and before attracting the necessary investment to realize its potential as a significant exporter, the country must confront its macroeconomic turbulence, industry leaders caution.
Amid this backdrop, the ascent of President Javier Milei nearly a year ago, who is fervently advocating for the dismantling of these oppressive controls and the deregulation of the sector, has ignited optimism among investors.
Since Milei’s election, stock prices of numerous Argentine energy firms have more than doubled, riding the wave of explosive growth witnessed in recent years. Take Vista Energy, for instance, which, by honing in on Vaca Muerta’s shale oil bounty, has become Argentina’s premier non-integrated producer, witnessing its shares skyrocket nearly 700 percent over the past three years.
Reflecting on these developments, Miguel Galuccio, the visionary behind Vista—who previously spearheaded YPF’s initial foray into Vaca Muerta’s resources—proclaims, “The potential for growth in this basin is immense. The quality of Vaca Muerta’s formation is unparalleled, perhaps even superior to the US’s Permian Basin. In the States, they operate 500 drill rigs; we, however, can make do with just 30. Just imagine the untapped potential that lies ahead.”
Nevertheless, the evolution of Vaca Muerta is arguably the closest thing to a consistent state policy that Argentina has witnessed. Early-stage subsidies from left-wing Peronist administrations in the 2010s set the groundwork. Voices across the political spectrum advocate that the cash-strapped nation must not squander its oil and gas fortune while wealthier countries meander in their emission-cutting endeavors, despite the increasing public concern over climate change, particularly after harsh droughts have pummeled agricultural exports.
Initial investments by YPF alongside US giant Chevron in 2014, coupled with Buenos Aires-based Tecpetrol’s engagement in 2017, catalyzed a swift reduction in risk and production costs.
YPF, innovating beyond reliance on conventional methods, pioneered horizontal drilling techniques tailored for Vaca Muerta. This was exemplified recently at one of Vista’s drilling sites, just a few dozen kilometers from the new YPF pipeline, where a colossal 150-ton drilling rig pierced two kilometers downwards before seamlessly transitioning to bore another three kilometers horizontally—a $15 million endeavor each time.
Yet, foreign investment in Vaca Muerta has sluggishly stagnated over the last decade. In 2011, former president Cristina Fernández de Kirchner instituted capital controls aimed at curbing foreign companies’ profit repatriation, notwithstanding assurances of exceptions. The following year, her administration executed a controversial expropriation of YPF, and subsequent governments have wielded the company’s 57 percent market share to impose price controls on fuel.
“Most foreign firms operating here navigate with tightly constrained budgets, merely keeping their operations afloat,” remarks Nicolás Arceo, director at energy consultancy EyE.
The Milei administration posits that its reform agenda could lure up to $15 billion in investment next year. “We’ve inherited a system underfunded and teetering on the brink of collapse,” asserts Eduardo Rodríguez Chirillo, who stepped down as energy secretary in mid-October. “In just nine months, we have embarked on shifting this antiquated model, aiming to reinsert Argentina onto the global energy stage and reclaim its status as a primary exporter.”
Nevertheless, controlling Argentina’s surging triple-digit inflation remains the administration’s foremost priority, which has led to the postponement of plans for lifting capital controls and adjusting fuel price ceilings.
“Though we’ve made strides during 2024, substantial challenges linger within the business climate that hinder the full realization of Vaca Muerta’s growth potential,” states Javier La Rosa, Chevron’s managing director for Latin America. “Fundamental to attracting the requisite investments to harness Vaca Muerta’s promise are essentials such as maintaining contract integrity, ensuring unobstructed capital flows, and implementing stable free-market policies.”
The quest to export gas poses an even greater hurdle. Argentina is in dire need of fresh financing for ambitious projects, including a proposed $2.5 billion pipeline to Brazil and the eye-watering $30 billion liquefied natural gas terminal envisioned for the coast. Austerity-driven Milei has categorically dismissed the notion of public funding.
“There exists considerable uncertainty surrounding gas,” elaborates Daniel Dreizzen, managing director at Aleph energy consultancy.
“To significantly boost production, we require a more stable macroeconomic environment and robust legal predictability, neither of which are currently at hand,” notes Arceo. “Yet, Vaca Muerta is poised for growth in the forthcoming years. The crux lies in the alacrity of that progress.”