Argentina’s Vaca Muerta: A Game-Changer in the Making

(Energy Analytics Institute, 23.Nov.2024) — The Vaca Muerta shale formation in Argentina’s Neuquén Basin isn’t just another oil and gas formation, it’s the crown jewel of the South American country’s energy future. Often compared to U.S. shale heavyweights like the

Permian and Bakken, Vaca Muerta holds the potential to transform Argentina into a major energy exporter, reshaping the Southern Cone’s energy landscape while making massive waves in global markets.

In recent years, the numbers speak for themselves. Vaca Muerta now accounts for over half of Argentina’s oil production and nearly two-thirds of its natural gas output. Without it, the country’s energy import bill in 2023 would have exceeded $20bn, Alejandro Monteiro, now the former energy minister from Neuquen, told me earlier this year — a stark reminder of how crucial this development is to Argentina’s economic stability and energy security.

Vaca Muerta is the 2nd largest unconventional gas resource in the world, and the 4th largest unconventional oil resource in the world. — EIA

Neuquen’s oil production accounts for 57% of Argentina’s total oil production, while Neuquen’s gas production accounts for 68% of Argentina total gas production. — Argentina’s Energy Secretariat

The stakes couldn’t be higher. With technically recoverable shale resources ranking among the world’s largest — 308 Tcf of gas and 16.2 Bn bbls of oil in Vaca Muerta alone -Argentina has the building blocks to become a regional and global energy powerhouse. Yet, for this vision to materialize, the country must navigate challenges ranging from infrastructure bottlenecks and rig shortages to political uncertainties and financial hurdles.

The Vaca Muerta crosses four Argentine provinces: Neuquén, Río Negro, La Pampa and Mendoza. It is the main drilling formation targeted by domestic companies as well as international oil companies (IOCs), according to the US-based Energy Information Administration (EIA).

Vaca Muerta is home to 53% of the Neuquén Basin’s gas resources and 38% of Argentina’s gas resources.

The other major formation in Neuquén is the Los Molles. This formation is on the radar of many companies, but it is not a primary drilling focus. Back on point, Neuquén has good production potential in the marine-deposited Los Molles and the Vaca Muerta shales Of note, there are four main sedimentary basins in Argentina. The other three, which linger in the heavy shade cast by Vaca Muerta, include:

Golfo San Jorge, which contains mostly non-marine lacustrine shale source rocks of Jurassic to Cretaceous age:
Austral Basin, also known as the Magallanes Basin in Chile, which contains marine-deposited black shale in the Lower Cretaceous, considered a major source rock in the basin; and
Paraná, although more extensive in Brazil and Paraguay, a small area with Devonian black shale potential is located in Argentina.

Enter Javier Milei

President Javier Milei, an economist with ambitious plans to reboot Argentina’s economy, has placed Vaca Muerta at the center of his energy strategy. One year into his presidency, Milei still boasts widespread domestic support, but the real test lies in whether his administration can attract the multibillion-dollar investments needed for critical projects like Argentina LNG, a liquefaction facility proposed by YPF.

Success here could position Argentina as a key supplier of LNG to energy-hungry markets in Europe and Asia.

Infrastructure remains the linchpin. Completion of pipelines like the Néstor Kirchner pipe line — recently renamed Gasoducto Perito Moreno — and others, will determine whether Argentina can channel its abundant gas to domestic demand centers and export terminals in Chile and Brazil. Both are markets hungry for Argentine energy that’s accessible via pipelines.

Meanwhile, as Bolivia’s gas production declines, Argentina is poised to become the dominant supplier in the Southern Cone, potentially redrawing energy trade dynamics with Brazil and beyond. This, even as Brazil’s state-owned company Petrobras and numerous international oil companies (IOCs) continue to bring in floating production storage and offloading or FPSO vessels to boost pre-salt production offshore.

By 2030, Vaca Muerta’s oil production could surpass 1 MMb/d — up from just below today’s 400,000 b/d.

Achieving such a feat would not only end Argentina’s decade-long production slump but elevate it to a major player in the global oil market. With the right investments and policy frameworks, Argentina could completely transition from an energy importer of mainly LNG during its winter months to a year-long net exporter, leveraging its vast shale resources to fuel economic growth.

For investors, Vaca Muerta isn’t just about geology; it’s about opportunities. The formation’s high-quality shale, combined with its strategic location and untapped potential, makes it one of the most exciting plays in the Americas outside the US. Argentina’s energy story is at a crossroads, and those who move early stand to benefit from what could be one of the most significant energy transformations of the decade.

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