The Vaca Muerta Shale Basin is located in the Neuquén Basin in Patagonia, Argentina. Photo: Wikimedia Commons (NASA Earth Observatory).| Sectors | Oil and Gas Extraction, Pipeline Transportation of Crude Oil, Pipeline Transportation of Natural Gas |
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| Website | https://www.ypf.com/Vacamuertachallenge/Paginas/index.html |
According to the US Energy Information Agency, Argentina has the second-largest shale gas reserves and fourth-largest shale oil reserves in the world. The country's shale gas reserves alone would account for 11.4% of the world’s remaining 1.5°C carbon budget if exploited to its maximum. Nearly all of these reserves are located in the Neuquén Basin in Northern Patagonia.
The Vaca Muerta Shale Basin is located in the Neuquén Basin. It has been identified as the largest shale play outside North America. The megaproject entails extraction from the area’s enormous shale oil and gas reserves, as well as building associated infrastructure such as pipelines and LNG terminals. The deposit extends over 30,000 square kilometres and represents 43% of Argentina's total oil production and 60% of its gas production.
Initially, this basin was supposed to contribute towards energy self-sufficiency, but recently, the export potential of the region has been realised and more attention is being paid towards exports.
As of 14 February 2022, the administration of Argentina’s President Alberto Fernández has further advanced its planned US$3.5bn gas pipeline project.
Fernández issued a decree giving state energy company IEASA a 35-year transport concession for the central component, the Presidente Néstor Kirchner duct. The decree states that IEASA is authorized to build, maintain and operate the duct, either directly or via third parties.
The decree also establishes an administrative and financial trust, Fondesgas, with state-owned investment and foreign trade bank BICE appointed trustee. Issuance of associated debt instruments and project participation certificates will also be authorized, the decree states.
Argentina plans to tackle the overall project in two phases, with the first financed using public funds and sporting a price tag of around US$1.6bn.
A central purpose of the pipeline and its ancillary elements is easing a winter dispatch bottleneck at the Vaca Muerta shale play in the Neuquina basin and, in turn, supporting output growth so that costly imports can be substituted with cheaper domestic production.
The Vaca Muerta fracking megaproject poses grave risks to the world's climate as well as to indigenous communities. The UN Economic and Social Council recommends against fracking in Vaca Muerta in order to align with the Paris Agreement as well as to preserve the economic and social rights of future generations. The megaproject threatens the rights of the Mapuche indigenous community, who oppose the fracking activities on their land.
Banks should avoid financing new oil and gas extraction projects in the Vaca Muerta Shale Basin, and phase out their support for existing fossil fuel projects in the area. Banks should also demand that the companies they finance refrain, or withdraw, from involvement in Vaca Muerta. In general, banks should phase out their support for fossil fuel companies on a timeline consistent with what is necessary to meet the Paris targets.
Indigenous rights Indigenous communities living on the land are heavily opposed to the fracking activities taking place. They have not been asked for, and thus have not given, their free, prior and informed consent for the activities taking place on their lands. According to The Guardian, The Mapuche's cultural identity is being denied with the purpose of refusing community legal rights. Already at this stage of development, their ancestral lands are irreversibly damaged: water and air have been contaminated, plants have dried up, and new diseases have appeared.
Public health In 2018, the Mapuche filed a lawsuit against ExxonMobil, Total and Pan American Energy, accusing the companies of dumping toxic waste too close to the town of Añelo, indigenous lands and the region's principal river. The toxic waste is not being treated according to laws and therefore threatens human health. It contains high levels of hazardous elements that pose risks to reproduction and inhalation.
Workers safety In March 2019, a strike was called after the death of a worker in one accident and another that caused three injuries in Vaca Muerta.
Local disruptions
Local groups working on Vaca Muerta
Climate change In order to align with the Paris Agreement and avoid climate disaster, oil and gas production needs to be phased out as soon as possible. The carbon emissions from existing oil and gas operations would already push the world beyond 1.5°C warming - thereby making it impossible to meet the demands of the Paris Agreement. The Argentinean gas reserves alone could already eat up 11.4% of the world's remaining budget required to keep global temperature rise to below 1.5º. If the Vaca Muerta megaproject would receive the investments and support needed for expansion, the cumulative emissions are expected to quadruple by 2050 - exceeding 8 gigatonnes of carbon dioxide in total. In order to make exports viable, extraction operations from Vaca Muerta would need to be doubled in the next five years, which would mean that the reserve is responsible for an export of more than 500,000 barrels of oil every day. This extraction would have environmental repercussions in the form of increased carbon dioxide emissions from the reserve and excessive emissions from transporting operations required to move the surplus barrels of oil.
Pollution Hydraulic fracturing, or fracking, is the technology being used to develop unconventional hydrocarbon reservoires. Scientific research shows that the employment of fracking negatively impacts public health, water, soil and air. The technique makes use of several dangerous chemicals that are released during the process causing pollution. In the Vaca Muerta Shale Basin, fracking has caused leaks causing both air and water pollution.
Methane leaks It was found that methane leaks often occur during operations in Vaca Muerta. This potent greenhouse gas heats the planet 86 times more intensely than CO2 over a period of 20 years.
Oil spills Oil spills often occur in Vaca Muerta. Reportedly, an average of three oil spills per day took place between January 2018 and October 2018. In November 2018, Argentinean authorities suspended the license of the YPF/Schlumberger partnership that was operating at a shale well in the Vaca Muerta. The suspension followed a major well blow-out that contaminated 85 hectares of land with oil and drilling mud.
Enverus, a global energy data analytics and SaaS technology company, anticipates activity levels within the Vaca Muerta field to keep climbing. YPF (Yacimientos Petrolíferos Fiscales) planned to spend $1.5 billion in 2021, PAE (Pan American Energy) is investing ~$150 million in infrastructure through mid-2023 and Royal Dutch Shell intends to spend $1 billion to drill 100 wells through 2022.
The Argentinan government has launched tenders to acquire 656km of pipes for the construction of the project's first stage, which is estimated to cost $1.6bn. The first stage of the construction work is planned to be completed in approximately 18 months. It is expected to add 24 million cubic meters more per day of gas into the country's network, by the winter of 2023.
The project will see the construction of a 1,430km-long pipeline from the Vaca Muerta reserves to Uruguiana, Brazil. From there, another 600km-long pipeline is planned to be built to the city of Porto Alegre, to connect to the gas distribution netywork of southern Brazil.
ConocoPhillips has sold its Argentine interests to Vista Oil & Gas, a local oil producer.
The local oil producer acquired 50% stake in 2 oil concessions in the Vaca Muerta field and 100% of the capital stock in ConocoPhilips Argentina. The concessions – granted by the regional government of Neuquén – expire in 2050.
Miguel Galuccio, chairman and CEO of Vista, said: “This is a unique opportunity to strengthen our position as one of the leading producers in Vaca Muerta. We are not only adding core assets to our existing portfolio, further enhancing our growth potential and shareholder value, but will also contribute our know how in efficient developments, as well as safe and sustainable operations.”
The International Monetary Fund approved a new loan program for Argentina, gaining the country more time to pay the $45 billion it owes. The agreement includes a serieus of fiscal and monetary targets that should help stabilize the economy and widen access to international financing.
The deal must be approved by Congress, but, if ratified, debt repayments will begin again and full repayment is scheduled for 2034.
Argentina plans to develop Vaca Muerta as one of the pillars of the administration's energy policy, reducing the need to import gas. But to generate both gas flow and cash flows from Vaca Muerta would require a lot of investment. the area is remote and, while existing infrastructure is suitable for some expansion in oil production, it is not suitable for the area's real asset: natural gas.
YPF planned the redeployment of 46 oil rigs at the basin from October 2020 to February 2021. This is being done to revive the oil and natural gas output after seeing a plunge in production due to the COVID-19 pandemic.
A decline was seen in fracking activities in the basin due to the COVID-19 pandemic, but things have been picking up since August 2020. The number of frack stages rose from 44 in July to 98 in August, with the number constantly increasing every month. This development is led by Shell and Vista Oil & Gas.
Banks finance the operations in Vaca Muerta in different ways. Banks mostly finance the companies that are active within the region, either through corporate lending or through equity investments. Some banks have also provided finance to companies for specific projects in Vaca Muerta. See below for more details.
More than 25 oil and gas companies are active in Vaca Muerta. The Argentinean energy company YPF is the main actor in the region. The company is involved in most of the projects, either alone or in joint ventures. Together they are extracting 30% of Argentina’s annual oil and 45% of the country’s annual gas production in Vaca Muerta. With more than 1,000 drilling sites, the companies are destroying the environment, poisoning the people and fueling the climate crisis.
Patagonia: existing and planned oil pipelines, exploration and production blocks. Source: Stockholm Environment Institute, 2022.
Due to economic crises, Argentina lost energy self-sufficiency and was forced to import large quantities of LNG and Bolivian gas. In order to solve the country's energy and economic issues, the government set a goal in 2011 to drastically increase the country's oil and gas output. The government nationalised the energy company YPF and put the company in charge of achieving this goal.
YPF and other Argentinean companies had been operating in the Vaca Muerta region for decades already when in 2013, an agreement between YPF and Chevron opened up the area to the global oil and gas industry. Besides Chevron, oil and gas giants such as Shell, Total and ExxonMobil now also started operations in Vaca Muerta. This development caused a significant increase in the number of extraction sites in Vaca Muerta, which also led to several disputes between companies and local communities (see: issues).
The international energy companies operating in the area mostly work in partnerships with YPF. As of March 2019, most projects were still in pilot phase. This can be attributed to the fact that the government has been unable to meets its promise to subsidise global oil and gas companies. The government will require substantial investments from foreign companies in order to be able to succeed in accelerating development in Vaca Muerta.
The developments in Vaca Muerta have been the target of protests by unions, environmentalists and indigenous groups. In September 2019, the Argentinean Ministry of Security announced that Vaca Muerta will be placed under the jurisdiction of the military police.