Argentine investment regime an ‘incentive’ for export-oriented Vaca Muerta projects

The approval of Argentine President Javier Milei’s economic reform bill could trigger energy sector investment, which would likely be led by midstream hydrocarbons infrastructure projects planned by seasoned local players. 

Foreign energy investors will probably observe from the sidelines for now, awaiting further improvements in the business environment or at least clearer signals regarding macroeconomic stability and exchange controls.

A key pillar of Milei’s deregulation-focused bill – known as Ley Bases, or framework law – is an investment-promotion regime known as Rigi, targeting projects with a required outlay of US$200mn-900mn.

“The main impact on investment is expected to come from Rigi, which grants certain tax benefits and exchange control exceptions for 30 years to large projects carried out by special purpose vehicles and enforceable by international arbitration,” says Francisco Romano, partner and lead energy lawyer at the Pérez Alati, Grondona, Benites & Arntsen law firm.  

Romano adds that the regime is seen as a positive step and that shortcomings identified by the market could be partially addressed via the secondary legislation that will be needed to guide its implementation. 

“The main critique is that the regime is highly discretionary, limited in scope and adherence must be within two years of the enactment of the law, with confidence in the government still scarce among international investors that remain in wait-and-see mode,” he tells BNamericas.

Argentina’s biggest hydrocarbons company, state-controlled YPF, and midstream gas firm TGS, for example, have large projects in their portfolios. These target the LNG, natural gas liquids, and oil and gas transportation segments. Last year TGS said it was sitting on a pile of cash.

YPF recently said that a final investment decision on the LNG project, planned with Malaysian counterpart Petronas, would depend on the grant of Rigi incentives.

Former federal hydrocarbons department chief Juan José Carbajales, who is now director of local energy consultancy Paspartú, outlined some of the associated hurdles ahead and referred to the importance of the pending secondary legislation.

“The great challenge lies in unlocking large-scale investment projects in infrastructure, with private financing, through Rigi,” he told BNamericas. 

“Examples include YPF’s LNG project and other expansions of pipelines, plants and terminals. It will be crucial to design (through regulations) mechanisms so that new exports drive acceptable levels of national productive development.”

Carbajales, also an energy-focused academic, referred to the overall bill, which, among other measures, deregulates the hydrocarbons sector. 

“Approval of the Ley Bases brings major uncertainty and a significant challenge,” Carbajales said. “The uncertainty lies in how a deregulated sector will operate, which for the first time in five decades loses the priority of supplying the domestic market. The optimistic view is based on the paradigm of abundance brought by Vaca Muerta. The more cautious view warns of potential shortages or price increases domestically.”

LNG, natural gas, oil

Meanwhile, some sections of the Rigi text appear particularly geared to the YPF-Petronas project, says Romano, who is also co-director of the Universidad Austral Energy Institute.

YPF and Petronas envisage LNG exportation in various phases, starting with floating LNG facilities from 2027, followed by the construction of fixed modules. Export capacity is expected to climb from an initial 1-2Mt/y to 25-30Mt/y by the early 2030s, according to recent comments made by YPF.

Two other LNG projects, one of them planned by TGS and US logistics firm Excelerate Energy, are in the studies phase. 

The key gas source would be unconventional fields in the Vaca Muerta formation.

Oil and gas investment drivers are in place: a national push to spur exports and to substitute imports of liquid fuels, LNG and piped Bolivian gas.   

Luciano Codeseira, executive director of regional consulting firm Gas Transition Consultant, said Rigi constituted an incentive for export-focused infrastructure and development projects at Vaca Muerta.  

Today, the bulk of upstream and midstream investment, particularly oil, is linked to the formation.

Codeseira outlined the state of play for oil and gas, where, in the short term, output growth will remain limited by dispatch bottlenecks. 

“We see that both the global and local contexts will remain more favorable for the development of petroleum resources in Vaca Muerta,” he said. “Regarding natural gas, in the medium term, the advantages of Rigi may counterbalance Argentina's systemic lack of competitiveness in a global LNG market that is much tighter than that of oil, due to the accumulation of liquefaction projects worldwide. 

“In this sense, Rigi will play a crucial role in anchoring large-scale export contracts and providing the security that any offtaker will need to evaluate.”

LNG exporting is vital to Argentina’s goal of turbo-boosting monetization of its vast natural gas resources before the energy transition window narrows.

Indeed, prospects today appear muted for significant growth in piped gas exports to its regional neighbors Chile and Brazil. 

Overall demand from Chile could trend down over the coming years as the country decarbonizes its electricity generation park and works to spur the electrification of the economy. Demand for firm, year-round gas supply from Chilean methanol producer Methanex could buck the trend, however. 

Latin America’s economic powerhouse Brazil is often cited as a major potential offtaker of larger volumes of Argentine gas and preliminary talks have been held, with one option floated the export of Argentine gas via Bolivian infrastructure. However, the signals today are not auspicious: Brazilian President Luiz Inacio Lula da Silva – politically poles apart from Milei – recently said he wanted Brazil to stop depending on imported gas. Associated gas from Brazil’s offshore oil fields could help meet domestic demand.

LNG is likely a more attractive option for Argentina, given it grants local producers access to the global market, diversifying the field of potential buyers.

Low-emission hydrogen

Romano said that low-emission hydrogen projects – which are still in the early development phases – are basically excluded from the Rigi regime, given the two-year adherence window. He added that a special hydrogen framework would be needed to cover the whole hydrogen and hydrogen derivatives value chain, with key aspects including certification and additionality, such as new renewables infrastructure.

Argentine undersecretary of energy planning Mariela Beljansky recently told a Chilean hydrogen conference that a hydrogen bill would be presented in July.

“We’re trying to change lots of things at the same time,” Beljansky said.

Domestically, hydrogen could have a “fundamental role” in decarbonizing some sectors, she said, citing as examples steel and fertilizers. 

The previous government had submitted a hydrogen promotion bill to congress. 

Wind and solar energy-rich Argentina is home to several publicly announced green hydrogen projects  – such as MMEX Austral H2 and Pampas – and last year published a hydrogen strategy.