Gassed up

Argentina seeks to support growing gas exports with new regulations.

The increase of Argentinean gas exports in October are the result of higher production levels and the success of an upstream subsidy programme, which required auctions to supply gas at above-market prices for power generation in the 2021-2024 period. The aim of the subsidy was to boost shale and output and cut back on liquified natural gas imports.

Argentina has significantly increased exports to neighbouring Chile and to Brazil, which has suffered a drought that has hindered hydroelectric production in the country. This is important for Brazil because hydroelectric contributes around 62% of its total electricity generation. An executive in the energy industry in Argentina confirmed, “Brazil is buying from Argentina because it is in an energy crisis due to the lack of flow of the rivers that are use for hydroelectric generation. Chile has suffered from droughts too but the latest deal was triggered by a specific problem in the logistics of a regasification vessel.” An energy industry consultant confirmed, “These contracts are due to extraordinary circumstances that are unlikely to continue in time, Argentina’s reliability would be a problem for longer term contracts.”

“These contracts are due to extraordinary circumstances that are unlikely to continue in time, Argentina’s reliability would be a problem for longer term contracts.”

Energy industry consultant, Argentina

Exports will take place at a time of the year when Argentina has greater gas availability (according to our sources, this type of agreement would be impossible in winter), which represents a great opportunity. In addition, it occurs at a time when there are greater restrictions to export from the northern hemisphere. 

Natural gas production is currently seen as an attractive source of revenue for Argentina due to high gas prices and increasing global demand, as part of the global energy transition. However, the country needs huge investments in infrastructure, mainly pipelines and gas plants, to consolidate the increase in production and exports. An economist and energy consultant affirmed, “Argentina has great potential to increase the export of LNG, since it has the gas available from the Vaca Muerta Field, and also a great availability of water. However, the big problem it has is the economic crisis, which prevents it from carrying out the necessary investments to increase exploration, and also to make the investments in infrastructure necessary for transportation to neighbouring countries.”

The Argentinean government plans to improve conditions for oil and gas investment through a legislative proposal currently under review in Congress. New regulations intend to provide long-term exchange rate stability and incentives for oil and gas production. Thus, gas producers will be able to enter into three-year sales contracts which would allow them to use export proceeds freely.

“It would be useful for the region to think about greater energy integration but there hasn’t been much progress.”

Energy economist, Chile

Could these types of deals lead to longer term energy integration in the region? A Chilean energy economist hoped so, “It would be useful for the region to think about greater energy integration but there hasn’t been much progress. At times it seems so, but then it slows down or even goes backwards.” The energy executive believes the key to unlocking this potential could be the development of Vaca Muerta, “If we think about the long term, Vaca Muerta could satisfy Argentina’s local demand at a low price and then continue to satisfy regional and even some part of global demand.”

Argentina certainly has enough gas and water but it will be challenging to finance such developments without more political, economic and regulatory stability.

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