Argentina bets on a gas pipeline to ease the economic crisis – 06/19/2023 – Market

Thermometers already drop to less than 10°C, blankets are starting to come out of the closet and heaters are going on in Buenos Aires homes. Winter is approaching, and there is a rush for pipes buried along almost 600 kilometers to fill with gas towards the homes of the province and the capital of Argentina, which together are home to about half of the population.

This is the new Néstor Kirchner gas pipeline, the first section of which will begin operating this Tuesday (20). The country is betting on the monumental work to achieve independence in this source of energy by 2025 and alleviate its harsh economic crisis, as the government will be able to save on imports and reduce the lack of dollars that drives the very high inflation.

The inauguration of the large pipeline also brings Argentina closer to a dreamed export of the commodity to Brazil, which, however, is still considered far away. That’s why a few months ago President Lula’s (PT) signal that financing the project would be a priority for Brazilians caused a stir, which so far has not materialized.

“Argentina has the second largest reserve [de gás não convencional] in the world, and the gas pipeline allows for the flow of this gas, currently limited by transport capacity. We will be able to take a leap in production and make it possible to export to other countries, such as Chile, Brazil and Uruguay”, says Flavia Royón, Secretary of Energy under the administration of the Peronist Alberto Fernández.

She is referring to Vaca Muerta, a massive geological formation of 30,000 km² (almost the size of Alagoas) in Patagonia, on the border with Chile, which makes the country second only to China in terms of available shale gas. The reserve was discovered almost a century ago in the homonymous mountain range, where, legend has it, a cow’s bones lay.

Before very complicated and costly, exploration has become more accessible in recent years. That made former president Mauricio Macri sign an agreement in 2017 to lower operating costs — despite climate science’s call to avoid investing in any fossil fuel, ignored to date by the government.

Since then, the production of Vaca Muerta has been surprising and putting Argentina back in the game. “It’s as if the country were going back 25 years, to recover the export seal it had in the 1990s, but ended up losing due to all its crises”, says Rivaldo Moreira Neto, a partner at the consultancy Gas Energy.

In the last year, with the war in Ukraine and the soaring price of gas, “it became a question of life and death” for a deficit country to stop depending on imports, he says, which hastened the construction of the first phase of the gas pipeline, completed in just nine months.

The stretch that goes into operation this Tuesday connects Vaca Muerta to the province of Buenos Aires, the most populous region. The inauguration ceremony, however, will have to wait, because the Minister of Economy, Sergio Massa, is on a trip and cannot be left out of the picture after being the main champion of the project. He is a pre-candidate for the Presidency for Kirchnerism.

The second section, to be auctioned in August, will allow gas from Vaca Muerta to reach northern Argentina, supplying the region’s lithium production — a new mine in the eyes of the United States, China and Europe. This is because the Néstor Kirchner gas pipeline will be connected to the existing 1,454 km North gas pipeline, which also reaches Chile and Bolivia.

Before that, however, the flow of this North gas pipeline will have to be reversed, because today the gas travels in the opposite direction: it serves Argentina to import gas from Bolivia, with which it has a contract signed until 2026. week, with delivery scheduled for mid-2024.

Bolivian production is in decline and no longer meets Argentine demand during the winter, which is why the country has also started to import LNG (liquefied natural gas) through tankers. “Any gas that the Néstor Kirchner gas pipeline carries means less gas to be imported. It won’t make Argentina out of the crisis, but it helps”, says Ernesto López, president of the Argentine Institute of Oil and Gas (IAPG).

Secretary Flavia Royón says that the economy in imports will be US$ 1.7 billion (about R$ 8 billion) this year and US$ 4.2 billion (R$ 20 billion) next year, sparing her casualties foreign currency reserves. Royón also cites the jobs created and a reduction in high expenses with electricity bill subsidies, since energy will become cheaper.

For these reasons, the gas pipeline is still seen by analysts as only a national priority, and not a binational one, as stated in an agreement signed by presidents Lula and Fernández in January. “If there is interest from businessmen and the government, and we have a development bank for that, we are going to create the conditions to finance to help with the Argentine gas pipeline”, said the Brazilian on the occasion.

Royón claims that Lula has not promised to finance the project, but only the Brazilian company that will produce the pipes for the second section of the gas pipeline. When contacted, the BNDES (National Development Bank) replied that “so far there is no demand or forecast for carrying out a financing operation for the export of goods” for the Argentine project.

“From the market point of view, Brazil does not benefit from this gas pipeline. To assume this risk would be a decision of the State”, opines consultant Moreira Neto. The most discussed possibility today to send energy from Vaca Muerta to Brazil is through existing pipelines in Bolivia, but this should still take time. “Argentina still doesn’t have the sustained production that Brazil needs,” he says.

The environmental aspect has been ignored in the discussion: despite being less harmful than coal and diesel, there is still criticism from scientists and local communities to “fracking”, a method used to remove shale gas. According to a report by consultancy Profundo and the NGO 350.org, if exploration is accelerated, the annual carbon footprint of Vaca Muerta in 2030 could be equivalent to 49% of Argentina’s target for that year.

“Everything in Vaca Muerta is like that, there is a media and government shield in the name of improving the economy. The gas pipeline passed over a native forest, passed through communities that were not consulted or did not give permission”, says Maria Victoria Emanuelli, campaign coordinator at the NGO, which follows up on the issue.

The Argentine government’s response indicates that the position should not change. Asked about the environmental criticism, the Secretary of Energy only said that “there is no questioning of the project”.