Alejandro Monteiro, Minister of Energy and Natural Resources, Neuquén

Argentina is the world's fastest-growing unconventional oil and gas producer. Neuquén's energy minister tells investors what to expect next...

How are oil and gas policies decided in Argentina’s federal system?

Alejandro Monteiro: The province of Neuquén has been producing hydrocarbons since 1918. But we didn’t become a province until 1956 because underpopulated Patagonia was the last area to be converted from national territory to provinces. Once you become a province you have more control over the licensing regimes for hydrocarbon exploration and production. Another factor is that since 1962, Neuquén has been governed by the same political party – Movimiento Popular Neuquino. That has created incredible stability in a country that has a lot of political uncertainty at the federal level. I have been Minister since 2017 and in that time I have seen six national Ministers of Energy and Mining. That political uncertainty makes it difficult to build a coherent national energy policy but at least we can compensate with stability at the provincial level.

In Neuquén we have separate regimes for conventional and unconventional assets. Conventional concessions have a 25-year term, while unconventional concessions have 35 years. Both have the possibility to renew for ten years. The royalty is 12% of profits but that increases first to 15% and then to 18% with each subsequent renewal. Obviously unconventional concessions are still very new, with the oldest one still nine years away from renewal. So, we have a lot of regulatory control at the provincial level but anything to do with oil and gas prices, markets or export is decided by the federal government. Oil and gas producers know that Neuquén always respects the terms of a concession and won’t change the total burden – of combined taxes and royalties – that were set at the start of the term. At a national level the federal government regulates the price of gas to assure local supplies, while the price of petrol is effectively set by national oil company, YPF as it controls most of the refineries.

When WTI is at $90 the price of crude in Argentina is around $65, compared to a global price. YPF can decide what it wants to pay producers and there is strong political pressure to keep prices low to alleviate the significant poverty in Argentina. The good thing is that the oil and gas producers here have learned to live with lower prices and have invested in new technology to reduce prices. That means they can be competitive if global prices fall.

Vaca Muerta’s production growth is impressive; how did it happen?

AM: In 2012 there was some exploration work in Vaca Muerta to identify the scale of the resource. In 2013 we awarded the first concession, to a joint venture between YPF and Chevron. That pilot project committed to investing $1.2million in the first five years. But it was followed by more concessions. The rate of development increased partly because of the solid early work of YPF and Chevron, which combined local knowledge with leading shale technology from the US.

But the Vaca Muerta story is only just beginning. So far, our 45 unconventional concessions cover just one third of the basin’s total 9,000 km2 area. Of those 45, only ten are in constant production, with the infrastructure in place to export the oil and gas. So really Vaca Muerta is only 8% developed. We have lots of concessions that are ready to develop but they are limited by infrastructure constraints. With just a few small concessions we are growing Vaca Muerta crude production at a 45% compound annual growth rate (CAGR) and gas at 25% CAGR.

What is the next stage in Vaca Muerta’s growth?

AM: Now the key for us is to build more pipelines. We need to restore the Trans-Andino pipeline to Chile, which was built in the 1990s. It has 115,000 bpd capacity though it hasn’t been used since 2006, when Argentina’s conventional crude production fell. The integrity of the pipeline is currently being tested, with a view to pumping 50,000 bpd of crude to Chile by February next year. Neuquén today produces 290,000 bpd of oil, so the Trans-Andino pipeline will have a significant impact. It is also symbolically important because it marks Argentina’s return as a significant exporter There is a similar situation with gas, where pipelines that were built to supply gas to Chile ended up being reversed so that we could receive some of its excess LNG.

The only buyer would be Chile’s state-owned refiner, Enap, which can take the light crude from Vaca Muerta. Oil from Vaca Muerta is lighter than conventional Neuquen oil, so we could mix them together to create a blend that works well for Enap. Yet the most Enap could take is 70,000 bpd, so if we get the pipeline up to its maximum capacity of 115,000 bpd (perhaps even higher with upgraded pumping stations), the excess could be transported to Chile’s ports for export to Pacific markets. Another big boost will come from Oldelval’s Duplicar Project that should be ready by 2025.

In 2025 the Nestor Kirchner gas pipeline will transport 22 million cubic metros of gas (mcm) per day, reaching a total of 39 mcm when fully completed. Total Neuquén gas production is 90 mcf at the moment, so the pipeline will be able to add 40% of extra transport capacity. It means Argentina will no longer have to import gas in our winter (June, July and August) when our demand is highest. The swing between our winter demand of 180 mcf and our summer demand of 120 mcf is very high and is currently covered by expensive imports of LNG or Bolivian gas.

Can Argentina help solve the global energy crisis?

AM: Vaca Muerta has 300 tcf of natural gas. At current demand that is 200 years of Argentina consumption and we all know that in two centuries’ time we won’t be using natural gas. So yes, we could double or triple production and sell most of the excess to international markets.

We can export gas to Chile for $7.50 per British thermal unit. That is a good price, especially when you consider that transport is changed on top. We believe that by 2030 we can be producing (how much?) gas per year. Our initial plan with gas is regional.  Bolivian gas production is in terminal decline, so we could reverse the pipelines that currently supply us with its gas and send our exports through the Bolivian pipeline to Brazil. There is also another option of sending it through Uruguay, which gives us negotiating power.

If we want to make regional markets then we would need to build LNG facilities. We could export 1 million tonnes per year, using the existing pipeline projects but the LNG modules would take between three to six years to build. For example YPF and Petronas have an LNG plan that involves beginning with a floating LNG facility, that is quicker to install, and then replaced by an inland plant that is more expensive but more efficient in the long-run. However, it is not just a technical challenge - you also need to create the conditions for such capital-intensive projects.

We imported 50 boats of LNG last year, so the first step of our gas production is to replace those imports. There also an exciting global market for LNG, which as accelerated following the conflict in Russia.

As for oil we are currently producing 290,000 bpd but that can increase to 750,000 bpd by 2030 – it is just a question of building the oil pipelines.  We could get to 1 million bpd with other oil pipeline projects.