Argentina's Energy Boom in Vaca Muerta

By Alexander Villegas and Eliana Raszewski
ANELO, Argentina (Reuters)

Argentina's new market-friendly government, along with concerns over oil supply from the Middle East, is driving a drilling and production boom in the Patagonian region, notably the Vaca Muerta shale formation, which translates to "Dead Cow" in Spanish.

Shale oil and gas output is increasing in this flat, arid landscape. Record numbers of fracking wells are being drilled, and pipelines are being constructed to transport gas north to Buenos Aires and eventually to liquefied natural gas (LNG) facilities.

"Our energy future is being built here," boasts a large billboard from YPF, Argentina's state energy company, near Anelo, a town experiencing a 10% surge in population within the last year.

Under the pro-industry libertarian President Javier Milei, the government is promoting oil and gas exports as a means to generate foreign currency for reserves and is offering incentives for significant investments.

Vaca Muerta, an area comparable in size to Belgium, contains the world's second-largest shale gas reserves and fourth-largest shale oil reserves, presenting tremendous potential despite being relatively undeveloped in the global energy market.

As geopolitical tensions escalate in oil-rich regions, Argentine investors are eager for a stable oil and LNG source. Anelo, formerly a quiet village, is now bustling with hotels, restaurants, and even a casino catering to energy sector workers.

Resident Monica Paredes, 70, reflects on the town's transformation, saying, "The boom is already here… There was nothing here before, nothing."

Local authorities report Anelo's population has increased by 1,000 in the past year, leading to strain on infrastructure, which poses challenges for continued growth.

An important energy summit drawing thousands of oil executives is set to begin, focused on infrastructure, LNG export ambitions, and energy agreements, resulting in full bookings for hotels around Neuquen.

Can Vaca Muerta turn Argentina into a Global Energy Player by 2030?

Vaca Muerta holds the promise of revitalizing Argentina, which has long faced economic turbulence marked by depleted reserves and high inflation. Despite ongoing concerns, President Milei's economic policies aimed at enhancing private sector development have shifted investor perceptions positively.

Incentives for investments in energy and mining, providing tax reductions and better access to foreign currency markets, are encouraging funding into the sector. However, logistical issues remain a significant obstacle, particularly the insufficient LNG export capacity, which could take years to develop fully. Infrastructure around roads, education, and housing in areas like Anelo also lags behind population growth.

José Luis Sureda, former secretary of hydrocarbon resources, predicts that oil development will accelerate faster than gas extraction due to shipping ease. Argentina's shale oil output currently stands at 400,000 barrels per day, with potential to rise to 2 million with the right investments.

Daniel Dreizzen, director at Aleph Energy consultancy and a former energy planning secretary, believes that if things progress well, Argentina could emerge as a major global energy player by 2030. Central to this ambition is the capability to build pipelines and gas export facilities, though challenges remain visible. Even if a key LNG terminal agreement with Petronas goes through, the extensive development would require significant time and investment.

"Oil is highly profitable, but gas requires more infrastructure," Dreizzen points out, anticipating that annual sector investments could nearly double to around $23 billion within the next eight years. He warns, "To compete internationally, it's a long-term project."