Analysis: Argentina’s Vaca Muerta shale boom is running out of steam

ANELO, Argentina, Dec 27 (Reuters) – Argentina’s booming shale production in Vaca Muerta, a formation that rivals the United States’ Permian Basin, risks running out of roads as infrastructure to handle oil and gas is nearing capacity, threatening to slow down rapid growth.

The government is now rushing to build infrastructure: a major new gas pipeline is due to come online in the middle of next year, and there are plans for new export terminals near Buenos Aires. The government is also working on a liquefied natural gas (LNG) law to send to Congress in hopes of stimulating investment.

How the government fares is key to Vaca Muerta’s future after years of intermittent development.

The formation, in southern Patagonia in Argentina, is the size of Belgium. It has the second largest shale gas reserves in the world and the fourth largest shale oil deposits. It could become a key global supplier of gas as the world looks for alternatives to Russia, whose energy industry has been heavily sanctioned for its invasion of Ukraine.

But industry data reviewed by Reuters – interviews with a dozen executives, local and national officials and Vaca Muerta residents – reveal how bottlenecks, from pipelines operating at full capacity to a lack of equipment and services of fracking, threaten to delay the country’s plans.

“The current pipelines are very crowded,” said Pablo Trovarelli, head of midstream operations at a Transportadora de Gas del Sur (TGS) gas treatment plant in Vaca Muerta, adding that new pipelines were needed to increase production.

The plant aims to increase its capacity from 15 million cubic meters per day (m3/d) this year to 21 million m3/d in 2023, Trovarelli told Reuters at his office in the town of Tratayén, an energy transportation hub. , in the province of Neuquén. But you can only meet these goals if new pipes are connected.

“If that doesn’t happen, I can’t expand, because I have nowhere to inject the gas,” Trovarelli said.

Data from consultancy Rystad Energy shows that oil and gas production at Vaca Muerta is reaching the limit of what pipelines can carry. Neuquén produces some 280,000 barrels of oil per day, at pipeline capacity. Gas is likewise at its ceiling of around 2 billion cubic feet per day.

Rystad analyst Andrés Villarroel said pipeline shortages forced some recent oil shipments to be moved by truck.

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‘ABOUT TO COLLAPSE’

On the ground in the shale town of Añelo, key to Vaca Muerta, the signs of tension are clear. Red gravel roads remain unpaved and many houses are not connected to sewage or water, locals said, a problem bringing in new oil and gas workers needed to fuel the boom.

“Anelo is about to collapse,” said Milton Morales, 40, the local mayor, citing hundreds of homes without a connection to the gas grid and a lack of services in the town of about 9,000. The population has multiplied by five in the last five years.

“It is ridiculous to talk about the potential to develop Vaca Muerta and the projections generated by the reserves that we have behind our town and to think that Añelo today has 700 families without gas,” he said.

Buenos Aires has taken note, concerned that infrastructure limits will hurt energy production. It has made Vaca Muerta a key focus for raising export dollars to erase a $5 billion energy deficit and replenish depleted foreign exchange reserves.

“Today we are focused on the entire transportation plan, because first we need internal supply to then be able to boost exports,” Energy Secretary Flavia Royon told Reuters on the sidelines of an event in Buenos Aires.

The government is pushing through an LNG bill that should attract investment across the sector by ensuring long-term stability. It is also focused on building the Néstor Kirchner gas pipeline from Vaca Muerta to near Buenos Aires, which could eventually increase total transport capacity by a third.

The first stage of that pipeline is expected to be completed next year, adding a capacity of 24 million m3/day. At the end of a second stage it will add 44 million m3/day to the country’s current total of around 120 million m3/day.

A source at state power company YPF (YPFD.BA) He said the LNG bill could go through congress in the next few days or weeks and would include tax benefits and better access to foreign exchange markets for the sector. That would help unlock deals, including a potential one with Malaysian energy giant Petronas.

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‘MORE DEMAND’

Shale oil and gas production at Vaca Muerta has risen sharply over the past year, driven by increased well efficiencies and government measures to stimulate production.

Oil and gas executives said they needed new export markets to keep their production growing.

“We could increase production, but there would have to be more demand. Local and regional demand is not enough,” said Ricardo Markous, president of Tecpetrol, which operates the huge Fortín de Piedra field in Vaca Muerta.

He said Argentina needed to build infrastructure to export LNG, which it currently lacks.

The government has ambitions to attract investment of about $10 billion in liquefaction plants to convert its gas into LNG with the goal of reaching gas exports of about $15 billion by 2027. The plants, key to exporting gas to the abroad, take years to build.

The chief operating officer of a local oil company, who asked not to be named, said investment was also needed to improve and expand ports for crude exports.

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‘FRACKING SETS’

Oil and gas executives said a difficult economic environment — inflation heading toward 100% and strict capital controls limiting access to foreign currency — was a drag on investment. They want a special regulatory framework for the sector.

“Future production from Vaca Muerta is at risk because there are not enough dollars for SMEs or oil service firms,” ​​Juan José Aranguren, a former Shell executive and government official, said at a seminar in Buenos Aires.

Access to foreign currency is vital to pay for imported services or equipment, he said.

Vaca Muerta is at a crossroads, executives said. While the government is trying to stimulate production, equipment bottlenecks remain an obstacle.

There are currently about eight active fracking teams in Vaca Muerta compared to nearly 280 in the United States, Rystad said. More hydraulic fracturing equipment is also needed to extract shale reserves.

“For the amount of activity that Vaca Muerta will have, the sets of fractures that we have today in the country are not enough,” said Marcelo Mindlin, executive president of Pampa Energía, the third largest gas producer in the Neuquén basin.

During a visit to one of the firm’s fields, Mindlin told Reuters that Pampa was making a bet based on the hope that Vaca Muerta’s potential could finally be unlocked.

“We are importing our own (fracture pool) to avoid setbacks to our growth and investment,” he said.

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Reporting by Eliana Raszewski; Edited by Adam Jourdan and Ross Colvin

Our standards: The Thomson Reuters Trust Principles.

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