Argentina's Hydrocarbon Sector Takes Baby Steps in 2024, Bigger Steps to Come in 2025

(Camilo Ciruzzi , Energy Analytics Institute, 11.Dec.2024) — Efforts by Argentina’s president Javier Milei have resulted in a more flexible regulatory framework and to the benefit of his South American country’s hydrocarbon sector as strategic projects continue to inch forward.

No surprise, Argentina’s crude oil and natural gas sectors are on track to conclude 2024 with positive movements. This, owing to progress on infrastructure build outs, rising Vaca Muerta production which is anchoring rising exports. Chile is among the countries in the Southern Cone region to benefit from increased piped exports from Argentina.

However, continued forward progress in 2025 will depend on the industry’s ability to attract investments, strengthen infrastructure, and maintain a critical balance between sustainability and competitiveness.

Southern Energy SA makes waves

One of the standout achievements this year relates to the ‘Hilli Episeyo’ FLNG vessel, a floating liquefaction unit with a production capacity of 2.45 million tonnes per annum (mtpa). The FLNG will be located in Río Negro and managed by Southern Energy SA, an ambitious joint venture led by Argentina’s Pan American Energy (PAE) and Norway’s Golar LNG.

According to Aleph Energy‘s Dec. 2024 report, the Southern Energy initiative offers lower costs compared to a traditional onshore plant. The initiative will also position Argentina as a competitive LNG exporter in the global market, according to Aleph.

VMOS pipeline

The Vaca Muerta Sur oil pipeline, also known as Vaca Muerta South or the VMOS pipeline, also marked a turning point for the Argentine energy sector.

With its second phase projected for completion by 2026, this pipeline will have a transport design capacity of over 700,000 barrels of oil per day (b/d), according to YPF SA.

“The expanded transport capacity will generate projected revenues of $21 billion annually,” according to Aleph.

Growing production

In terms of production, the month of Oct. 2024 closed with robust figures: 570,000 b/d of oil and 135 million cubic meters of gas per day (MMcm/d). Fracturing stages in unconventional formations exceeded 1,500 operations in Nov. 2024, recovering from logistical limitations reported in previous months.

Regulatory flexibility has been introduced in Argentina through Decree 1057/2024. The decree introduced a more competitive framework for exploration and exports. Highlights include regulations for underground gas storage and the removal of barriers to hydrocarbon exports, ensuring legal stability for investors.

“The new regulatory framework allows prices to align with international values, providing predictability and fostering long-term investments,” Argentina’s Secretariat of Energy said this week.

Argentina’s strategy to diversify its exports and especially in international markets includes a recently signed memorandum of understanding with Brazil, projecting incremental gas exports of up to 30 MMcm/d by 2030.

This agreement establishes Argentina as a key player in regional energy integration.

Headwinds persist

In what remains of 2024 and rolling into 2025, a major headwind confronting Argentina and the planned projects relates to advancing necessary financing for major projects, such as VMOS, which requires a project financing scheme to cover around 70% of the costs.

According to industry sources, YPF is leading negotiations with potential partners, including Vista Oil & Gas, Chevron Corporation and Shell, among other international oil companies (IOCs).

Other headwinds relate to the need to accelerate environmental permits and optimize transport logistics to sustain the growth of unconventional production. This, on top of the political uncertainties around Milei’s policies and his continued high popularity ratings, and uncertainties in the financial and economic spaces even as inflation has retreated and the Argentine peso has appreciated under Milei.

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