Argentina and Chile expand gas trade and evaluate infrastructure

Despite growing domestic gas production from reserves at the Vaca Muerta deposit (see analysis), Argentina still relies on gas imports to meet local demand. The country was a net energy exporter in the early 2000s, but artificially low electricity and gas prices set by the government saw many producers leave the country from 2006 onwards, while at the same time enabling residents to consume more energy. As a result, domestic production fell and import volume increased.

As of the start of 2018 Argentina imported 20% of its natural gas needs, mostly from Bolivia and Chile. However, driven by rising production, the government has moved to overturn its energy export deficit by renegotiating trade deals with the two countries.

Trade Deals

Existing agreements between Argentina and Bolivia are coming under pressure as the former looks to bolster local production and increase trade with Chile. In a statement to foreign investors in February 2018, Daniel Redondo, secretary of strategic energy planning at the Ministry of Energy and Mining, indicated that the government’s goal is to supply domestic consumption almost entirely through Vaca Muerta gas production by 2021, with the exception of the winter months. Therefore, Argentine officials are in discussion with the Bolivian government to modify existing gas import contracts, which expire in 2026.

Renegotiating contracts with Bolivia is just one part of the government’s broader shift in regional energy trade. Since 2016 exchange between Chile and Argentina has increased, with Chile piping gas across the border during the winter months. However, seeing that gas production at Vaca Muerta is now booming, Argentina is looking to reverse this trade balance and will export gas to Chile at the end of 2018 for the first time since 2006. In June 2018 Juan José Aranguren, the former minister of energy and mines, noted that state-owned Yacimientos Petrolíferos Fiscales and privately owned Tecpetrol would begin exporting excess supply from Vaca Muerta to Chile during the summer of 2018-19 without restrictions. Previously, local gas producers could only export to Chile on the condition that they reimport the same volume of gas within one year.

As part of the agreement, the countries will employ gas swaps. These swaps entail Argentina exporting gas from Vaca Muerta to the south of Chile, which is heavily dependent on wood for heating and other household uses, while Chile will pipe gas from terminals in the centre of the country directly to Buenos Aires Province, where supply limits are often tested due to the capacity constraints of the Vaca Muerta-Buenos Aires pipeline. It remains unclear exactly how much gas will be exported to Chile, although it is likely that most of the excess produced at Vaca Muerta in the summer months – amounting to 15m cu metres per day – will be piped across the Andes.

Infrastructure Upgrades

Anticipated growth in gas trade is prompting both governments to look at upgrading infrastructure. In May 2018 Susana Jiménez, the minster of energy of Chile, said her country would consider “optimising the existing seven gas pipelines” that criss-cross the Andes. With exports to Chile to begin in October or November 2018, Chilean providers are in the process of securing import contracts, and private companies in Argentina are examining existing infrastructure. For example, in May 2018 Gas Natural Fenosa, a Spanish company now called Naturgy, announced it would reopen the Pacific Gas Pipeline between Vaca Muerta and Chile, which was closed in 2005, and invest a $50m in increasing its capacity.

In addition to physical pipelines, some players point to soft aspects that would further ease trade. “Connectivity is not an issue of infrastructure. One can actually transport gas to and from anywhere in the Southern Cone,” Daniel Ridelener, CEO of Transportadora de Gas del Norte, told OBG. “The issue is reaching a consensus in terms of regulatory policies uniting all countries. Making a push for greater regional integration on this front would allow Argentina’s gas exports to rise.”