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    Argentina says LNG exports are back on the cards: press


Could Europe's entrenched energy security dilemma finally turn Argentinian shale into a net exporter of gas?

by: Callum Cyrus

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Argentina says LNG exports are back on the cards: press

An aborted multi-billion dollar LNG project to export supplies from Argentina has resurfaced after Buenos Aires concluded it could be viable, on the back of sales to gas-starved European economies, Bnamericas reported May 11.

Argentina has access to indigenous gas in the Vaca Muerta shale formation, but has never been able to cover domestic consumption, particularly in winter. The economy is a perennial hindrance to Buenos Aires. A tendency to borrow far too much has led to multiple national bankruptcies - Argentina has suffered nine defaults since winning independence from Spain in the 19th century.

Amid COVID-19, Argentina missed several bond payments, though it has so far managed to escape further economic turmoil. The weak Argentinian peso, however, is prompting more workers to use cryptocurrency to store their hard-earned cash.

As the colder months arrive and markets become even tighter, the soaring gas price due to the Ukraine war can only heap pressure on businesses and households. Reuters reported February 25 LNG import costs to Argentina could rise three-fold this year. Energy has compounded troubles here before. In 2004, a sharp uptick in domestic gas demand exposed insufficient Vaca Muerta spends, due to low gas prices.

Gas prices are now trending at multi-year highs. Buenos Aires proposes to leverage the improved situation to revive a $5bn LNG export project in the port of Bahia Blanca that had fallen by the wayside. Originally, the plan was to ship liquefied exports into Asian markets. But Argentina's economic position, and its fragile credit score, soon undermined the proposal.

Targeting Europe does give the LNG project's backers a stronger hand in securing finance. Observers widely believe that returns from natural gas globally will continue upwards well into next year, and the fundamentals will likely remain strong for some time afterwards. If all goes to plan, Argentina could ship its first LNG batch by 2026. The project is being led by YPF, the national oil company, along with private sector partners.

YPF chartered a floating LNG terminal in Bahia Blanca previously. It shipped its first export batch in 2019, but cancelled the 10-year lease with Belgian shipping company Exmar just sixteen months later, as profit margins began to slip out of its comfort zone.

The price tag of its latest effort has doubled compared to the previous plan, from $5bn to $10bn, Buenos Aires thinks this is reasonable, and estimates that $15bn of annual revenue could be generated.

The difficulty may come in supplying enough gas. Argentinian gas production of 38.3bn m3 in 2020 is down marginally on 39bn m3 ten years earlier, according to the BP Statistical Review of World Energy.  Consumption last year amounted to 43.9bn m3, BP says.

If prices remain high as anticipated, it may be that upstream investment follows, but it could take years to come to fruition. Bullish observers cite the US Permian as an example for Vaca Muerta in terms of boom potential, but the reality of expansion is rarely as straightforward. Otherwise, it is hard to see how the new LNG plant can both turn Argentina into a net exporter of gas, and satisfy the need for affordable domestic produce to support economic growth.

Despite its domestic shale reserves, Argentina needs more gas immediately. Buenos Aires launched talks last month to rapidly ramp up imports from Bolivia to more than double current levels, to around 16 to 18mn m3/day, in preparation for a harsh winter that will cause spikes in demand, according to Reuters.