Argentina’s shale province has been touted for years as the next Permian that would make the South American country a net exporter of energy after decades of import dependence.
The Vaca Muerta shale basin is estimated to be the world’s second-largest shale gas deposit and the fourth-biggest resource of shale oil. However, Argentina’s perennial economic crisis and capital and currency controls in the past decade have deterred major investments in the top shale region.
The election of the new libertarian and business-friendly president, Javier Milei, has started to turn the fortunes for Vaca Muerta and its operators. The president has enacted market reforms to encourage large-scale and foreign investments into the energy sector, hoping that oil and gas exports would bring in billions of U.S. dollars to Argentina’s depleted foreign currency reserves.
Oil and gas production in Vaca Muerta has jumped in recent months and the country is now looking at the next step of the resource boom—exporting its huge hydrocarbon resources.
Shale Surge
Vaca Muerta—Spanish for ‘dead cow’—has been dubbed the Argentinian Permian, although its geologic properties have been compared more appropriately to the Eagle Ford.
The shale play in the Neuquen province is estimated to hold recoverable resources consisting of 16 billion barrels of oil and 308 trillion cubic feet of natural gas. Those numbers make the Vaca Muerta the world’s second-largest shale gas deposit and the fourth-biggest shale oil resource.
In recent years, Argentina has seen a boom in the number of fracking wells in Vaca Muerta. This year, the monthly number of wells has topped 1,500 for the first time ever, as companies are expanding drilling amid friendlier and free-market policies introduced by the new government. Natural gas production has surged so far this year, according to data from consultancy Aleph Energy cited by Reuters.
Oil production in Vaca Muerta has also soared, quadrupling over the past five years, from less than 90,000 barrels per day (bpd) to almost 400,000 bpd now.
Free Market Reforms
Companies are also boosting their presence in the region due to the more business-friendly investment environment.
The government of President Milei has pushed for new legislation, the so-called Large Investment Incentive Regime – or RIGI, by its Spanish initials – offering tax breaks and other incentives for major investors in the South American country.
Argentina’s market deregulation efforts are expected to raise the energy investments in the country by about $2.5 billion to $15 billion next year, officials have said.
Thanks to the RIGI investment regime, Argentina expects a combined $30 billion in energy investments in 2025 and 2026.
The energy sector saw the highest oil production in 15 years in the first half of 2024, as well as the highest natural gas output in 17 years over the same period.
As a result, Argentina has been posting monthly energy trade surpluses this year and is on track to book a rare surplus in energy trade for the full year 2024.
Argentina’s energy trade surplus widened further in September, Brazil-based bank Itau said in a note last week. The rolling 12-month surplus reached $4.7 billion in September, up from a surplus of $4.2 billion in the previous month. In the third quarter of 2024, Argentina’s energy imports plummeted by 33.5% year-over-year, while oil exports rose by 26.2% y-o-y in the same period, the bank’s analysts noted.
Exports Powerhouse
Vaca Muerta is vital to Argentina’s plans to become a significant oil and gas exporter at a time when supply concerns about exports from other regions, most notably the Middle East and Russia, are upending global trade flows.
Vaca Muerta operators are boosting production.
CEPH, Argentina’s oil and gas industry association, expects oil output to top 1 million bpd by 2030, from about 400,000 bpd now.
Independent producer Vista Energy, the second-biggest shale producer in Argentina, plans to invest around $1.1 billion in Vaca Muerta.
“In 2012, Vaca Muerta was for believers. Today, Vaca Muerta is for engineers,” the company’s founder and CEO Miguel Galuccio told Reuters last month, referring to the production gains operators can achieve from the shale play.
Supertankers could begin docking in Argentina to load oil from the country’s shale patch after a pipeline is set to connect Vaca Muerta with a terminal at Punta Colorada port capable of handling the so-called very large crude carriers (VLCCs).
Argentina is also moving a step closer to exporting LNG and monetizing its huge resource in Vaca Muerta after maritime LNG infrastructure firm Golar LNG signed a 20-year deal with Pan American Energy (PAE) for the deployment of a Floating Liquefied Natural Gas (FLNG) vessel in Argentina.
However, infrastructure development, especially of gas pipelines, is lagging behind and needs a boost so that Argentina can realize the huge potential of its shale play.
Due to the dire state of Argentinian state finances, the government is unwilling to pour public finances into infrastructure to support exports, but its business-friendly policies could incentivize private investment into oil and gas pipelines and export terminals.
Vaca Muerta’s potential is huge, Miguel Galuccio, founder of Vista Energy, a company focused on the shale play, told the Financial Times.
“We’ve proven the quality of Vaca Muerta’s formation is second to none, [even greater] than the US’s Permian Basin,” Galuccio told FT.
By Tsvetana Paraskova for Oilprice.com