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Monica_55905 Jun 04

Vaca Muerta: Investment and energy policies to speed up development

Vaca Muerta: Investment and energy policies to speed up development image
Summary of the LGC Digital Dialogue: Country Spotlight Argentina - “Vaca Muerta: Investment and energy policies to speed up development", which took place on Thursday 3rd of June 2021
Argentina has come out the other side of the COVID-19 pandemic with a refreshed outlook and, critically, refreshed energy. Despite having one of the largest gas deposits in the world in the form of Vaca Muerta, the country has historically struggled to convert that potential into relative, regional influence. However, that landscape is in the process of an evolution, as the country looks to open Vaca Muerta up to the world, while simultaneously stabilising its own domestic regulatory framework.

The new, proposed legislation is set to tap into Vaca Muerta’s potential by creating a more lucrative, competitive and attractive investment portal. Addressing the quantity, quality, and - thanks to additional plans structured around LNG development – diversity of its gas makeup, this new plan is hoping to make waves across Argentina, Brazil, Bolivia and even Chile.

A crux of the new plan - targeted initially towards development and transformation up to 2024 - is to instil a more stable environment that lures both public and private investment. The respective regulatory framework put forward will be consistent and open enough so that tendering processes become more competitive, ramping up the feasibility and bankability of all associated infrastructure projects. And, ultimately, raising capacities to leverage the volume scope that Vaca Muerta has.

However, the strategy is of course nationwide, rather than specific to this resource. What this legislation is also intended to do is create more of an ecosystem of collaboration and productivity where the industry as a whole benefits from wider interest. The goal is an overall snowball effect leading to greater economical opportunity, and local enrichment.

“This gas plan is essential for the future of the sector in Argentina, as it provides vital visibility, and commitments to regulate supply, which instils confidence,” explained Patricio Da Re, Strategy, Business Development and Investee Management Manager, Vice Presidency G&E, at YPF. “It creates a baseline where investors can think about growth projects and commercial opportunity.

“It encourages thinking beyond the scale of Vaca Muerta that we always knew, to also think about stream development around the use of gas and capacity building projects.”

This improved visibility around Argentina’s gas future isn’t just limited to these four years, either. While the plan in its current guise has been labelled 2020-2024, it is vital that, as every year passes, a new four-year outlook materialises. From this ongoing cycle of visibility, additional transparency will make prospective investment and growth projects more viable.

“Each year, we should be looking to essentially plan to monetise the next four-year cycle,” Da Re affirmed.

A flexible, modern vision

LNG is included in this regulatory framework as a sign of heightened diversity and flexibility following a challenging year.

Understandably, much the same as the rest of the world, the pandemic diminished levels of productivity and project discussions, and this has somewhat coerced Argentina into rethinking its overall gas makeup.

To add more strings to its bow from a resource, product, storage, technology and import perspective comes with the aim to create a more mature overall infrastructure.

But while the end ambition is lucrative, the incremental steps to reach this stage are less simple. Firstly, that’s why a more stable and inviting footing was needed from a regulatory perspective. However, more broadly, a lot of emphasis is now being placed on Argentina’s future role in the wider regional ecosystem.

Bolivia’s supply of gas has been diminishing in recent times, and this creates an opportunity for Argentina to substitute the country’s role in supplying local neighbours. To this end, pipeline development projects have already been discussed so that Argentina might meet Bolivia’s need and use the country as a stepping-stone into areas of Brazil, and even northern Chile – potentially even as far as the north-western coastline.

With this in mind, notions of storage, transportation and mutually beneficial arrangements or ‘time swaps’ (where countries capitalise on respective seasonal production to store and transport between the two) have all been discussed as part of the new plan. For LNG specifically, the use of ships for storage is set to mitigate any time or geography challenges thanks to the large volume capacities and the ability to remain offshore close to supply points.

“It’s all about being flexible as part of this modern vision,” explained Gabriela Aguilar, General Manager for Argentina, and VP for South America at Excelerate. “Ships are a great example as a replacement for land storage – they’re cheaper, more efficient than having a tank on land, and can be situated near points of demand.

“We need to be more flexible when considering the moving of products given our international ambition and domestic resource. Vaca Muerta and the new gas plan naturally opens us up to need from the international market.”

To diversify and open up avenues of opportunity, from a position of more stable regulation, is the dream combination that Argentina has been waiting for. With this initial four-year plan in place, and a more streamlined, conjoined ambition long beyond that, the established global potential of Vaca Muerta, can finally put Argentina’s gas production on the global map.

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