Argentina is unlikely to develop serious liquified natural gas (LNG) export capacity this decade because of the current political and economic unpredictability, researchers at the country’s Austral University and the UK’s Oxford Institute for Energy Studies said recently.

However, while “Argentina might not become a relevant LNG exporter in this decade,” the country “will continue to play a significant role as a regional seasonal exporter through its existing infrastructure of exporting pipelines,” the authors said in a report.

Argentina has 10 natural gas export pipelines connecting it to Chile, Uruguay and Brazil. It is the country with the largest natural gas market in South America. Natural gas accounts for 58% of the primary energy supply in Argentina, the authors noted.

LNG exports would be based on production from the giant Vaca Muerta formation in Neuquén province. Still, economic and political uncertainties exacerbated by the coronavirus pandemic, a lack of pipeline infrastructure, and the high potential costs of the needed infrastructure are stumbling blocks.

In order to compete in the global LNG market, Argentina would need wellhead prices in the $2-3/MMBtu range, researchers said. The “issue of seasonal supply is an obstacle to delivering LNG at competitive prices when compared to projects” in the United States and the Middle East.

Argentina’s demand peaks in the winter, which runs from May to September. During these months, Argentina imports from Bolivia and via LNG to meet demand.

The good news for upstream companies in the natural gas business is that productivity has improved and costs are coming down. 

“Argentine producers have expressed that they do not need subsidies since the learning curve for productivity has shown steady progress,” the researchers said. As a result, auction prices in the past two years for power plants and industrial demand have been close to Henry Hub.

The report’s authors added that producers “seem encouraged” by the national government’s Plan Gas 4 tender scheme, and that it should provide cash flow predictability for the next four years.

In December, the national government handed out 23 contracts for 67.42 million cubic meters/day (MMm3/d), or 2.38 Bcf/d, as part of the tender scheme. Gas would be delivered through 2024. Winning companies included state oil firm YPF SA, Tecpetrol SA and Pampa Energia SA.

As part of the plan, winning companies would be able to sell natural gas to the market at a combined weighted average of $3.54/MMBtu through 2024.

In February, the government announced an additional tender to lock in natural gas volumes for the upcoming May-September period. The Energy Secretariat also added a second floating regasification unit to secure supply.

The problem with Gas Plan 4 is that it puts a heavy burden on already-strained public finances. A government study estimated that the cost of meeting the natural gas demand of distribution companies could reach $2.1 billion this year.

“This begs the question of whether the government will align end-user prices with real costs,” or whether it “will run into problems to pay the producers,” the researchers said.

Argentina was once a net exporter of energy but “energy and economic policies adopted during the last thirty years strongly affected the country’s hydrocarbon production and demand, leading to continued dependency on imports from 2009 onwards,” the report said.

The Vaca Muerta find had promised to change this narrative. Shale gas growth began in 2017, reaching its peak in June, 2019. Production then declined by 9% in 2020. Production from the Vaca Muerta play fell below 900 MMcf/d in December for the first time since October 2018.

This Southern Cone winter, imports will be more of a fiscal burden. The country’s natural gas buyer Integración Energética Argentina (Ieasa) is paying LNG prices 174% higher than in 2020, according to the report.