Economy Minister Sergio Massa is moving forward this week with the liquefied natural gas (LNG) bill. The regulatory framework is a necessary condition for investments worth millions of dollars in at least three different projects. Despite the opportunity provided by the geopolitical context and the need to advance in order to take advantage of a limited timeframe for hydrocarbons, industry sources say there are several obstacles blocking the bill.
Sources at the economy ministry said Massa will try to hold talks with YPF President Pablo González and go through the fine print of the bill before sending it to Congress. After overcoming two judicial rulings in international courts, YPF’s legal horizon appears clear and one of its goals will be to seal the deal with the Malaysian oil company Petronas.
The numbers from the YPF-Petronas agreement are promising on paper. Both companies have reserved a site in the Bahía Blanca port for what might become the country’s first LNG production plant. It will aim to produce 25 million tons of LNG at full capacity, which equals almost the entire consumption of a country the size of France. The project also includes investments in gas production in a block of Vaca Muerta shale oil and gas field and the infrastructure for three gas pipelines.
The project may be crucial for the Argentine economy, given the rise in exports to countries outside Latin America. There is also a favorable geopolitical context after the rise in energy prices due to the Russian invasion of Ukraine, which resulted in Russia not being a reliable world provider anymore. Sources in YPF estimate that investments, including plants and pipelines, could climb up to US$30 billion.
However, the reality is quite different. The government agrees with the business sector on the need to guarantee decades-long fiscal stability and clear rules of play to ensure a predictable flow of approved export contracts.
Yet according to official sources, there are obstacles related to the company’s request for free access to dollars, which could turn the Petronas agreement into a distant possibility, as happened with the green hydrogen bill.
Both drafts of energy bills have already been announced several times, but they are not making it to Congress. Expectations are low due to the lack of consensus between the ruling party and the opposition. In December, Massa met Techint owner Paolo Rocca at the closing of the Propymes conference and assured that the LNG would be voted on in the extraordinary sessions. Then, last March, he promised again in front of dozens of investors in New York during the 30th anniversary of YPF’s listing on Wall Street.
However, with no regulatory framework, none of the potential investments will materialize. On one side, Pampa Energia’s Marcelo Mindlin was planning to announce in March the project for a gas liquefying plant in Bahía Blanca, through an alliance between Transportadora Gas del Sur (TGS) and Excelerate. The announcement never happened.
“The entire sector is expecting a law that provides a framework for such big investments with a scope of 30 years,” said Mindlin over the summer during the expansion of the Ensenada Barragán thermal power plant.
“We hope it will be sent to Congress and passed with full support, it’s essential because otherwise, it’s very difficult since this is a new activity”.
Likewise, businessman Marcos Bulgheroni, CEO of Pan American Energy (PAE), has been insisting for a year on the need for a regulatory framework to advance LNG exports. PAE is also interested in joining the construction of a liquefying plant and the necessary infrastructure, and with that in mind, it suggests the alternative of creating a consortium of companies led by YPF, given the size of the investments and considering that the big players in the energy market are Argentine companies.
A necessary condition
“It’s a necessary condition but insufficient on its own,” said Daniel Dreizzen, energy consultant for Aleph Energy and Ecolatina, referring to the need for a legal framework for LNG.
When asked about what it should include, he mentioned fiscal stability, availability of foreign currency, added infrastructure, and fulfillment of long-term contracts.
Dreizzen participated in the LNG plant that Pluspetrol built in Peru in 2005, which he said was made through a consortium of companies, an alternative he considers in case the YPF-Petronas deal doesn’t move forward.
Dreizzen said that once there is a law in place, the “contract engineering” needed for the execution of an LNG project could take at least a decade.
“The world is demanding liquified gas after the Russian invasion, but also because gas is a bridge towards energy transition,” he said. Germany inaugurated three LNG terminals in a record time of 3 months to receive gas from Qatar or the US, since 40% of their supply depended on Russian imports.
There is a certain paradox in the sense that the economy ministry believes that enabling full access to foreign currency and moving forward with the law is difficult, yet you need the law to get more foreign currency.
“The request should be more about insurance because you shouldn’t have a problem with lacking foreign currency if Vaca Muerta is developed,” Dreizzen said.
“In that case the trade balance will have a surplus.”