Winter wins again: Argentina interrupts gas exports to Chile

Argentina has drastically reduced its gas exports to neighboring Chile, with supply being interrupted almost entirely to meet rising local demand.

Exports through northern pipeline operator company TGN fell from 2.5Mm3 on June 26 to 2Mm3 last Tuesday (Jul 2), 1Mm3 on Wednesday and were then interrupted entirely on Thursday and Friday. Meanwhile, exports through southern pipeline operator TGS fell from 1.7Mm3 on June 26 to 0.7Mm3 last Wednesday before edging up to 0.8Mm3 on Friday.

While overall demand dropped in the period, from 165Mm3 on June 26 to 152.4Mm3 on Friday, demand in the priority category – residential users – rose from 71.1Mm3 on June 26 to 80Mm3 last Thursday. The rise coincided with a drop in temperatures from an average of 9°C to around 7.5°C.

The news confirms industry predictions and Chile’s concerns that Argentina will not be able to commit to stable, non-interruptible gas supply in the near future.

While the country currently has enough production to meet its domestic demand, transportation problems at the rich Vaca Muerta formation are making it impossible to move gas to the main demand centers and maintain exports at the same time.

Vaca Muerta bottleneck

As Vaca Muerta concentrates investor attention more and more, the site’s share of the country’s total gas production keeps growing. The latest energy ministry figures show that, while conventional production fell 8.9% in the 12 months to May, unconventional production (led by Vaca Muerta) rose 40.7%, accounting for 39% of total gas output.

However, according to Martina Gallardo, oil and gas analyst at ratings agency Moody’s, gas production is currently being held back by a lack of transport infrastructure. “Transportation is Vaca Muerta’s bottleneck, so we expect production this year to be slightly lower than last year,” she told BNamericas, even though output should keep rising.

When asked about the possibility of an Argentine commitment to a non-interruptible supply of gas to neighboring Chile that can last the whole year, Gallardo was conclusive. “It’s not possible in the next few years,” she said.

That is because during winter the few pipelines that can transport gas from Vaca Muerta to the main population centers are filled to capacity, leaving no room for exports.

The LNG option

For companies looking to export gas, there are two options. One is building a much discussed US$4-5bn liquefaction plant to export LNG.

This option, Gallardo says, is not without its caveats. “No production company is interested in getting heavily involved in midstream,” she said. This means the more likely scenario is that a new company will be created to build the plant with current producers as minority shareholders.

“Production companies would put in US$200mn, US$300mn each, with the new company having control of the project.” A recent BNamericas guest column also discussed the plant’s location: Chilean and Argentine ports have advantages and disadvantages depending on the cargo's destination.

New gas pipeline

The other option to cover local demand and fulfil Argentina’s export potential is to build a new pipeline to take gas from Vaca Muerta to the country’s biggest consumption points, such as Buenos Aires and La Pampa provinces. The former has a big urban population and the latter accounts for a significant part of the country’s agribusiness sector, Gallardo says.

To this end, President Mauricio Macri signed the authorization to launch a tender to build the first stage of a new gas pipeline on Friday. The duct was previously hinted at by energy ministry officials and is expected to have capacity of 40Mm3/d.

The 590km first stage will be from the small town of Tratayén in Neuquén province to Salliqueló, on the westernmost end of Buenos Aires province. The second 440km stage will begin in Salliqueló and finish in the town of San Nicolás, on the Paraná river between the cities of Buenos Aires and Rosario.

From left to right, marked with stars: Tratayén, Salliqueló and San Nicolás.

According to state news agency Télam, the total cost estimated by the energy ministry is between US$1.7bn and US$2bn. The pipeline is expected to begin operations in 2022.

The concessionaire will hold the rights for 35 years, which can be extended by a further 10.