It is still too early to draw conclusions, but it seems quite evident that some things are changing in Argentina. That oil and gas production has been increasing intensely in recent months is no coincidence. The companies that operate in the large Vaca Muerta unconventional oil formation are stepping on the accelerator in their investments, incentivized by greater legal certainty and expectations of future incentivess product of those investments. All of this is having a notable impact on the country’s hydrocarbon production and, in turn, on the energy balance, which is registering a more than notable surplus that could be vital for the Bank of Argentina to continue increasing its gross reserves in dollars. which will give greater stability to the peso and will support the fight against inflation of the Government of Javier Milei.
Argentina’s energy balance has not only managed to reverse its negative balance, but which has also accumulated its largest surplus in 17 years thanks to growing activity in the gigantic Vaca Muerta unconventional hydrocarbon formation. What does the Milei Government have to do with all this? The International Energy Agency explained it in one of its latest reports: “The president of Argentina, Javier Milei, has implemented a reform of the energy sector with the publication of a broad general legal modification in July. That law has also created a new mechanism for large-scale investment (Large Investment Incentive Regime or RIGI) that will provide 30 years of legal and regulatory stability for projects over $200 million.”
The International Energy Agency itself highlighted these positive modifications for the industry and highlighted that the tax changes that are already stimulating gas and oil production in the country: “Additional tax exemptions, export tax exemptions and access to foreign currencies for projects worth more than $1 billion. These reforms are likely to allow for greater production from Vaca Muerta as large international players analyze the details and determine future investment plans.
The newspaper elEconomista.es has had access to the CMF bank report in which these data are presented and the accumulated surplus is calculated. The experts of this entity assure that “in this sense, the main companies in the sector are advancing by leaps and bounds thanks to the implementation of the RIGI. The most relevant news in recent days was the agreement reached by the main producers of unconventional oil from Argentina to begin exporting the production that will be transported by the Vaca Muerta Sur pipeline to Punta Colorada. It is estimated that this consortium could generate annual exports of 30 billion dollars starting in 2027.. The investment in this new operation would reach 2.6 billion dollars. This, together with other projects such as Oldelval and Vaca Muerta Norte, will greatly increase the export potential of the Neuquén Basin,” the report states.
The companies working on the Vaca Muerta formation already sensed that the arrival of Milei was going to be synonymous with greater legal security, so their investments and operations are red hot, generating great expectations in a formation that can accommodate up to 16 billion barrels in crude oil reserves. Little by little, the Neuquén region is rising and consolidating itself as the largest hydrocarbon-producing province in Argentina, thanks to the permanent growth of the Vaca Muerta fields, the centerpiece of the oil emporium that is being generated in this province. Thus, in October, Crude oil production reached a new historical record with 447,460 barrels per daywhich represents an increase of 0.13% compared to the previous month and a notable increase of 26.35% compared to the same month in 2023. Oil is increasingly important for Argentina’s economy.
The surplus of 4.3 billion dollars
However, according to official data, in the first ten months of this year the energy trade balance has accumulated a positive balance of 4.3 billion dollars and, according to official and private projections, it could close the year with a surplus of between 5,000 and 6,000 million. of dollars. This result represents a turnaround with respect to the deficit that Argentina has registered since 2011, with the exception of 2020, an anomalous year due to the effects of the pandemic.
“The dynamics of the energy balance continues to consolidate with a very good performance of hydrocarbon exports combined with a strong contraction of its imports. In the first ten months of the year, the energy balance reached the largest surplus since 2007,” highlights the CMF bank in a report.
Exports of crude oil, gas and other energy grew in the first ten months of the year by 23.4% year-on-year, to 7,995 million dollars, while imports plummeted 48.8%, to 3,693 million dollars. For Leonardo Piazza, director of the consulting firm LP Consulting, the key to this change in trend is Vaca Muerta, in southwestern Argentina, the world’s second largest reserve of unconventional gas and the fourth largest oil reserve of this type.
The colossal formation, which began to be explored by the oil company YPF, controlled by the Argentine State, in 2013, has since received investments of 50 billion dollars for its development. “The investments that were made at the time are now bearing fruit. There is an inertial flow: it is already generating production,” he assures EFE Piazza.
A decade after the start of exploitation in Vaca Muerta, production is a record, which has allowed Argentina not only to substantially reduce its need for gas imports in the southern winter but also to have growing exportable balances of hydrocarbons. “This has a very positive impact on Argentina’s trade balancewhich will no longer depend only on its agricultural exports. And the flow of foreign currency due to greater exports will allow the Central Bank’s monetary reserves to increase,” Piazza said.
Vaca Muerta, where oil companies such as Shell, ExxonMobil, Chevron, Total, Wintershall, Vista, Pan American Energy (PAE), Pluspetrol and Pampa Energía, among others, also operate, already represents more than half of the gas and oil that Argentina produces. . Recent works to expand gas and oil pipelines have increased transport and export capacity.
Argentina exports natural gas to Chile and will soon do so to Brazil through the network through which it previously imported gas from Boliva, while its main buyers of crude oil are the United States, Chile and Brazil. The expansion of the Oldelval pipeline and the construction of the Vaca Muerta Sur pipeline – a project in which several oil companies are involved, with an investment of 2.6 billion dollars – suggest a significant jump in crude oil exports.
According to a report by The firm PwC published days ago, the massive development of Vaca Muerta and related projects could raise Argentina’s energy surplus to more than $30 billion by 2030displacing the agricultural sector as the main generator of foreign currency in the South American country.
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