Argentina's Gas Export Shift Captures Global Investor Focus
By Bryan Chester Campbell Romero
Argentina is attracting significant global investor attention due to its rapid growth in natural gas production and domestic pipeline infrastructure expansion. Vaca Muerta’s shale formation is paving the way for the country to transition from an energy importer to a net exporter by 2027. This is of particular interest to the liquefied natural gas (LNG) industry, which is expected to face an undersupply scenario until new projects in North America come online by the end of this decade.
The US Energy Information Administration (EIA) considers Argentina’s shale gas and oil potential from Vaca Muerta as the most viable for significant production and commercialization outside of North America. Vaca Muerta, the country’s largest shale formation, is located in northern Patagonia and covers 30,000 square kilometers.
Producers and operators increased drilling activity in Vaca Muerta between 2018 and 2021, driven by factors such as technological advances in hydraulic fracturing and horizontal drilling, favorable oil prices and supportive policy measures implemented by the administrations of former presidents Mauricio Macri and Alberto Fernández. These new investments allowed Argentina to increase natural gas production by 27% between January 2021 through September 2024.
Untapped Potential
Several companies are capitalizing on this scenario by increasing efforts and investments in Vaca Muerta production. These include the state-run energy company YPF, as well as local and international private energy producers TotalEnergies, Pan American Energy (PAE), Pampa Energía, and Vista Energy.
The 2022 Russian invasion of Ukraine elevated the role of the LNG industry in Europe’s energy security, and also increased international interest in Vaca Muerta’s gas export potential.
Now, President Javier Milei’s market-oriented policies are expected to contribute to the expansion of Vaca Muerta investments in the short term, producing a bullish sentiment among investors and market participants. One key part of this strategy is Milei’s Incentive Regime for Large Investments (RIGI), which has driven more interest in production and export projects.
Key incentives under RIGI include a reduced corporate tax rate, exemptions from new taxes and import duties, and the ability to resolve disputes through international arbitration. RIGI also introduces foreign currency exchange benefits, allowing companies to progressively lower their use of the official exchange rate for dollar revenues. It also provides a three-year exemption from export duties.
The Vaca Muerta formation accounts for more than 70% of Argentina’s natural gas production, reaching 74% in September 2024. Pipeline expansion projects are a key component of Argentina’s ambition to develop the formation’s resources fully.
In November 2024, state-run Energía Argentina reversed the Gasoducto Norte, a gas pipeline delivering volumes to Argentina’s northeastern region. This reversal now allows Argentina to supply natural gas to the northeastern region for industrial and residential use with its own resources, limiting the need for imports. The newly inaugurated and recently rebranded Néstor Kirchner pipeline (now called Perito Francisco Pascasio Moreno) transported record-high gas volumes in September 2024, Energía Argentina reported.
Argentina still imports LNG to manage the gaps in production and pipeline infrastructure, which does not always allow domestic gas to reach every part of the country. However, the country is steadily reducing its energy import needs through these new ventures. Argentina produced an average of 5 billion cubic feet per day (Bcf/d) of natural gas over the first nine months of 2024, an EIA analysis shows, which represents 5.2% more than the same period in 2023. Natural gas production averaged 5.4 Bcf/d in August 2024 — the most of any month in 21 years. A continued upward trend during the next few years is expected to fully satisfy local demand with domestic production.
Argentina is building its way toward energy independence. Gas exports from Bolivia to Argentina ended this September, Reuters reported, and Argentina has only needed to use one of its LNG import terminals during the last two years. This growth in production and transport capacity is also allowing Argentina to increase its export volumes through pipeline connections to neighboring countries, and to advance several early-stage LNG export projects.
Argentine officials recently signed an agreement to facilitate direct natural gas exports to Brazil. The project would satisfy the demand for certain Brazilian regions that do not have a connection to the national pipeline network, such as the Uruguaiana region in Rio Grande do Sul. The timeline and logistics for these exports to Brazil are still unclear.
Argentina Looks to Boost LNG Exports
Argentina is poised to become one of the top five LNG exporters in the world by 2032, when it is expected to reach 30 million tons per annum (mtpa) in export volumes. However, the country still faces major operational challenges, such as pipeline constraints and securing sufficient financing to advance its LNG export projects.
Argentina is on track to become a rising player in the LNG market, which is still dominated by European and Asian demand. YPF has recognized the strategic importance of LNG in its new long-term business plan. The company has taken concrete steps by establishing a dedicated entity, Sur Inversiones Energéticas, to advance the Argentina LNG export project. That initiative seeks to export Vaca Muerta gas resources through liquefaction plants.
This long-standing gas export project has received a new push from the Milei administration. Argentina LNG’s design includes two floating liquefaction units (FLNG) expected to begin operations between 2029 and 2030, with an onshore facility anticipated by 2031. YPF has said it aims to produce and export an initial output of 5 million mtpa and 30 mtpa by 2032.
YPF is already reviewing bids from Argentine and international firms for the engineering work related to the two FLNGs, and it hopes to reach a final investment decision by mid-2025. YPF expects to control about 30% of the production volumes and to spend about USD3 billion on this project.
Malaysian company Petronas was expected to become an offtaker for the LNG that YPF’s subsidiary produces, but it announced in December 2024 that it is exiting Argentina LNG after completing the engineering design for the project’s first phase. Petronas has played a leading role in supporting YPF’s ambitions to export LNG since the two companies formalized a partnership in 2022, and the two companies will continue developing an oil field in Vaca Muerta called La Amarga Chica.
After Petronas bowed out, YPF and Shell announced a project development agreement (PDA) on 19 December 2024 to develop the first 10 mtpa phase of the export project. Shell is not an offtaker for the project at this time, but its involvement will allow YPF to secure the knowledge and financing needed to develop its first phase.
YPF executives have traveled to key potential markets such as Europe and Asia to advance commercial discussions, BNN Bloomberg reported. However, YPF has yet to secure bidding contracts with offtakers. Little is known about YPF’s strategic priorities and ongoing commercial discussions, which is not unusual in an industry whose participants typically reveal little about their operations to protect information about pricing and contractual terms.
International Investment Interest
Argentina's economic challenges, including debt and credit issues, have hindered its ability to develop large-scale energy projects independently. This has made foreign investment crucial to its export aspirations. However, several new projects are in the works.
Chevron, Exxon, Total and Saudi Aramco are showing interest in the Argentina LNG project and Shell’s involvement could reassure potential new investors that the venture is feasible.
Major international LNG firm Golar LNG is already investing in a different LNG export project in Argentina, clearing the path for Argentina to soon become an exporter. The company signed a 20-year deployment agreement for a floating liquefaction unit in Argentina with local energy producer PAE. UK-based Harbour Energy will also take a 15% stake in this Golar-PAE project. YPF recently announced that it will also leverage its production capacity at Vaca Muerta to supply this project.
US-based Excelerate Energy is also exploring LNG export opportunities in Argentina, but the firm has yet to provide more public information about its progress.
What to Watch
While Argentina is reducing its energy imports and inviting new LNG players to participate in the market, the industry is keeping a close eye on how closely new projects can follow their planned timelines.
YPF’s venture will likely be delayed in solidifying a final investment decision timeline and commercial start dates for the Argentina LNG project. Negotiations with Shell could also add further delays. Delays are common in LNG projects, mainly due to issues like securing enough offtakers and financing. Argentina's traditional political and legal uncertainties could also challenge the project's original timeline.
Concerns regarding project timelines are crucial to ensuring the successful execution of these initiatives, highlighting the need for clear planning and effective communication throughout the process.
Two or three additional global energy players are expected to enter the project during the first half of 2025. Throughout this year, Argentina is likely to continue raising its domestic production to record levels, which will increase its gas exports to Brazil and lessen its own import requirements.
Market participants in the LNG industry are still cautious about fully committing to a country with a history of structural problems, considering that offtake agreements require long-term commitments.
For example, the country attempted to establish LNG export infrastructure in 2019 with the Bahía Blanca FLNG terminal, but the project yielded limited results. YPF stopped paying shipping company Exmar during the COVID-19 pandemic, and then agreed to pay a USD150 million cancellation fee after an arbitration settlement.
Despite Argentina’s history of having economic and political challenges, its energy sector is experiencing a unique moment. The country is seeing enough international interest in project development and local policy support to truly incentivize the sector’s growth.
Argentina’s LNG exports have the potential to increase market competition in the long term, which could eventually decrease global LNG prices. Countries that rely on energy imports in Asia and Europe could benefit from the shift, as it would grant them access to more affordable and varied natural gas supplies. The EU recently signed a cooperation agreement with Argentina that includes potential future LNG deliveries, showcasing how LNG exports can reposition Argentina on the global stage.
Argentina's LNG exports have the potential to significantly improve the country's macroeconomic situation by helping the country increase its foreign currency reserves, reduce its trade deficit, create jobs and drive economic growth. But for that to happen, project developers would have to meet deadlines, sign bidding commercial agreements as soon as possible and secure the necessary financial backing. Robust and steady pro-market government support over the next few years is also key for maintaining a bullish sentiment among investors.
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