Argentina’s YPF pushing forward with Río Negro oil pipeline-terminal project

Argentine state-controlled energy firm YPF indicated that public consultations on a planned crude oil pipeline and port project may start this year, as the company prepares to pipe crude to Chile and continues building an associated feeder duct.

Argentine producers are expanding midstream infrastructure to help debottleneck production at upstream investment target the Vaca Muerta unconventionals formation and, in turn, support growth in exports. 

YPF CFO Alejandro Lew told the company’s Q1 results call that engineering work was ongoing and that the next major phase was getting the environmental green light from federal authorities. 

“We’re finalizing the environmental studies and we expect the public hearings for environmental approvals to take place in the coming months, so that should be a key milestone for that project, which goes into a new territory and potentially involves a new port,” Lew said.

“Once that’s done, then the rest of the project will mostly be related to construction,” he added.

Known as Vaca Muerta Sur, the project involves building a pipeline between Vaca Muerta and a site with deep water terminal potential on the coast of Río Negro province. Engineering design work is 70% complete and company officials have entered talks with other producers in the Neuquén basin – home to Vaca Muerta – about potentially participating in the project.

“We’re making good progress with the engineering,” Lew said. “That project should contribute to the debottlenecking of Vaca Muerta from 2026 onwards.”

On the planned port, he added: “The location is still being fine-tuned but most likely – and as mentioned before – it’s going to be a new port in an area in Río Negro province where we can take advantage of natural deeper waters that should allow for the entrance of VLCCs [very large crude carriers] and hence making exports more efficient. That’s the general idea of that project.”

YPF is mulling a project that could be expanded as production climbs, from initial capacity of 30,000m3/d (188,694b/d) to a maximum of 120,000m3/d.

Producers in Neuquén province, home to the bulk of Vaca Muerta, exported 6.5Mb in January-March, up 58% year-on-year. In March, 2.3Mb or 23% of total production was exported, led by Vista Energy, Petronas, CHNC (YPF-Chevron) and Shell.  

In a parallel debottlenecking export move, the company is preparing to start piping oil over the Andes to Chile within the next few weeks via the Otasa duct, which has been refurbished after sitting idle for around 15 years.

Under an initial agreement, up to 40,000b/d of oil from YPF and other producers will be exported to Chilean state hydrocarbons company Enap via the pipeline, with YPF accounting for around 45% of dispatched crude. Following completion of the Vaca Muerta Norte pipeline this half, which will connect to YPF’s core Vaca Muerta shale hub, volumes are expected to climb to 70,000b/d and rise again to 110,000b/d by the end of 2024.

On prices, Lew said: “In terms of the commercial agreement, it’s a formula that basically relates to export parity prices at [Argentine export terminal] Puerto Rosales and on top of that it adds some logistics premium … at least for this initial agreement that's for the first two months.”

Over the next five years, YPF aims to double oil production and increase gas production 30%. The strategy involves stabilizing conventionals output and ramping up unconventionals. 

Requisite annual capex is around US$5-6bn, according to figures presented earlier in the year.

By 2027, the company plans to be exporting 35-40% of oil produced, roughly 150,000b/d. 

Elsewhere on the hydrocarbons map, YPF, with partners Equinor and Shell, plans to drill Argentina’s first deepwater exploration well offshore Buenos Aires province by the end the year, at Argentina Norte basin block CAN-100.

Further south, in the Austral basin, YPF is considering the possibility of participating in existing gas concessions. “It’s an analysis that we're performing; it’s a little too early to comment,” Lew said.

CAPEX, OIL PRODUCTION, FINANCIALS, LNG

Argentina’s biggest hydrocarbons producer, oil-focused YPF saw capex rise 78% to U$1.30bn in 1Q23, with shale operations accounting for around half. Full-year guidance is US$5.0bn, last quarter's call was told.

Crude oil production climbed 7% year-on-year to 238,000b/d, which was the fastest quarterly output rate since 2016, while net income rose 28% year-on-year to US$341mn.

Lew said there was “still much work to be done,” before a final investment decision could be made on a natural gas liquefaction project being considered with Malaysian partner Petronas. A decision could be reached by the end of next year, the call was told.