The Key to Making Argentina an Energy Transition Powerhouse

Tapping vast natural gas reserves could make the country a major global energy player—a new government program can help

Vaca Muerta, located in the Argentine province of Neuquén and home to one of the largest shale gas deposits in the world, has long been hailed as the key to making Argentina a major player in the global energy economy.

The increasing visible economic and human toll of climate change has led much of the world to commit to the mitigation of climate change. The goal of the effort is clear—to reduce greenhouse gas (GHG) emissions and achieve net zero—but several transition strategies are available or, at least, debated.

One strategy, perhaps most apt in the near term, involves extraction and deployment of natural gas. Natural gas is a lower-emission fossil fuel, emitting less CO2 than oil or coal when burned for power generation. Natural gas can complement renewable sources of energy, such as wind and solar, by providing backup power. It also can be used to produce hydrogen, considered a clean fuel for the future. Accordingly, it is often considered to be a “bridge” source in the global energy transition.

Vaca Muerta’s recoverable resources include 8.7 trillion cubic meters of natural gas and 16 billion barrels of oil and condensate—enough to meet the entire country’s energy needs for over a century. Yet despite these vast reserves, Vaca Muerta remains largely untapped. In 2023, just 8 percent of its acreage was in the production phase. By increasing its natural gas production and exports, as well as its own reliance on natural gas over oil, Argentina could contribute to global efforts to reduce GHG emissions and mitigate climate change.

Moreover, leaving Vaca Muerta’s gas in the ground is not an economically efficient option for Argentina or the energy companies operating there. In the US and EU, governments are taking steps to incentivize the production of the cleanest energy technologies by assigning penalties to GHG emissions. If it takes one hundred years to get Argentina’s natural gas out of the ground, as current production rates imply, these regulations are likely to proliferate around the world and drive down the long-term value of fossil fuels. This goes to say: Argentina should extract these reserves sooner rather than later. But to do so, the country must significantly ramp up production.

Fortunately, changes are in the works that could help Argentina do just that. Below, we review where things stand and the challenges and opportunities that lay ahead.

From Net Importer to Net Exporter

Argentina is rich with energy resources: it’s estimated to have the second-largest shale gas reserves and fourth-largest shale oil deposits in the world. Despite this bounty, the country has actually been a net importer of natural gas since 2008. In 2023, imports of natural gas by pipeline and liquified natural gas (LNG) exceeded the level of exports in these categories by 33 percent.

Although Argentina’s domestic natural gas production has been increasing since 2015, largely thanks to production from Vaca Muerta, output remains relatively low compared to reserves. Lack of infrastructure is largely to blame. As of 2022, pipeline bottlenecks created a production ceiling of around 56 million cubic meters of gas per day.

To satisfy internal demand and become a net exporter, Argentina must invest in midstream infrastructure to increase capacity. And if product like LNG—which has become critical to the global energy chain since Russia’s invasion of Ukraine—is to be exported globally, additional investment in liquefaction terminals is needed.

If Argentina can tap into these resources, the country could become an important producer of natural gas in the global energy transition to net-zero carbon emissions. Additionally, becoming a net exporter of natural gas would help Argentina meet its own energy needs, reduce the foreign currency required for imports, increase foreign reserves, and stimulate the economy.

Economic Challenges—and a New Regulatory Solution

The economic landscape in Argentina has provided unstable footing for investors in recent years, impeding efforts to build sorely needed energy infrastructure.

Previous governments, for instance, implemented capital controls that have limited the exit of foreign currency from the local economy, in effect making it difficult for companies to import equipment, service debts, or pay dividends.

This has hindered investment from international banks and large foreign investors since, all else equal, they do not want to tie up capital in Argentinian projects if they are unlikely to receive returns or even be able to repay creditors without incurring penalties. As a result, many energy companies are limited to reinvesting with cash flows from local operations.

However, a new government program could lay the groundwork for these much-needed investments. In August, Javier Milei’s administration passed a bill of economic incentives known as RIGI (“Regimen de Incentivos para la Generacion de Inversiones” or “Large Investment Incentive Regime”). The program is designed to offer tax, customs, and foreign exchange incentives for specific projects, established with sole-purpose vehicles so that companies, joint ventures, consortia, and other structures can benefit from this regime for their large-scale investments (above USD$200 million) in critical sectors.

A Promising Track for Natural Gas Production

Development of Vaca Muerta’s production and transport capacity has made progress of late. Energy companies in Argentina planned over USD$8.2 billion of upstream investments for 2024, according to data from the Secretaría de Energía, up nearly 10 percent from the USD$7.5 billion invested in 2023.

Midstream development has attempted to keep pace. In July 2023, the first stage of the Nestor Kirchner natural gas pipeline was inaugurated, connecting the shale play in Neuquén with Buenos Aires province and adding a potential capacity of 22 million cubic meters per day. The second stage of the project would extend the plant to San Jerónimo in Santa Fe Province and reach total potential capacity of 40 million cubic meters per day. To hit this goal, three compression plants are planned for Tratayén, Salliqueló, and Mercedes. The first was inaugurated in July 2024; the others are expected to be operational this fall. With these projects, capacity is expected to reach 104 million cubic meters per day in 2025. This would be enough to eliminate imports from Bolivia, according to Raúl Bertero, president of the Center for Study of Regulatory Energy Activity.

Thanks to RIGI, multiple companies have also publicly announced plans to invest in Argentina’s exportation of LNG. Pan American Energy has partnered with Norway’s Golar LNG to bring a floating liquefaction terminal to Argentina; the project requires an annual investment of USD$300 million and is expected to begin exporting LNG in 2027. Likewise, YPF has piloted its “Argentina LNG” project, which plans to bring two floating liquefaction terminals to Argentina and, in its second stage, build a USD$30 billion liquefaction plant in Río Negro. Horacio Marín, CEO of the state oil company, explained that the objective is to make Argentina a major player in the global exportation of LNG by 2030 and increase Argentinean exports to USD$15 billion.

RIGI is new, with only a few months under its belt, but so far it appears promising that the benefits may work as intended to encourage investment in much needed infrastructure. Still investors are cautious: the question hanging over investors’ heads when it comes to Argentina is whether the country will keep its promises. Although the regime itself promises stability in time, future governments may change the rules of the game even if that means incurring arbitration claims. Only time will tell if RIGI will create the fertile ground for the investments necessary to shift the country from underproduction to massive production and export of natural gas on a global scale.