Argentina has a gigantic gas field called Vaca Muerta, and the BNDES plans to finance the operations of this field; Brazil's expectation is to reduce dependence on Bolivian gas

Vaca Muerta, a natural gas megafield discovered in Argentina, raised the possibility of BNDES financing for the new section of the Néstor Kirchner gas pipeline with the aim of supplying the Brazilian market.

However, many questions hover over costs, deployment time and even availability of the production for Brazil. Located in the Province of Neuquén, Vaca Muerta is a large area of ​​unconventional oil (shale gas) with several producing fields and contracts with different operators. The plan may be doable in theory, but the ultimate green light depends on understanding the risks involved and other factors for it to be beneficial to the Brazilian economy.

Argentine gas pipeline: how the Vaca Muerta scheme will work 

the field of Dead cow set a new hydrocarbon production record in June 2022, with 706 thousand barrels of oil equivalent per day (boed). 

YPF leads field exploration, but large foreign oil companies, such as Shell (SHEL), Total (TTE) and ExxonMobil (XOM), are also present. If estimates hold true, the field will reach a peak of 1,2 million boed in 2033.

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The significant increase in oil and gas production in the Latin America region requires greater transport capacity for associated fuels. Research director Marcelo de Assis highlighted that, if this does not happen, the volumes produced in Dead cow may suffer limitations. That is why, according to the specialist, the construction of a new gas pipeline is so important to support this growth.

Néstor Kirchner Gas Pipeline

The old dream of the gas sector and the governments involved is an integration in the area between Brazil, Bolivia and Argentina. The first snippet of Néstor Kirchner gas pipeline, which will connect Neuquén to Buenos Aires, is expected to be completed between 2023 and 2024. A second section would take the input from the Argentine capital to the Province of Santa Fé, where there is a pipeline connection to Uruguaiana, in Rio Grande do Sul.

The founding partner of the Brazilian Infrastructure Center (CBIE), Adriano Pires, stated that, to make the Vaca Muerta gas distribution project for Brazil economically viable, it is necessary to have a connection between Uruguaiana and Porto Alegre, and there are so-called anchor consumers who request gas all year round. 

In addition, Porto Alegre could house a petrochemical complex in Triunfo and also a new thermal plant. The new infrastructure can also connect to the existing Brazil-Bolivia gas pipeline, thus allowing the delivery of gas to Santa Catarina and Paraná. However, Pires stressed that Argentina and Bolivia are not reliable partners to make this project a reality. 

The CEO of Gas Energy, Rivaldo Moreira Neto, warned that changes in gas supply contracts for Brazil, with unforeseen price increases, threats of supply cuts and the end of incentives for the production of the input, greatly limited the available supply. . Thus, he pointed out that the project to connect Uruguaiana to Porto Alegre would have around 600 kilometers and would cost billions of reais. 

Also according to the CEO of GasEnergy, the Argentine government's plans to expand the infrastructure for the disposal of Vaca Muerta had their development hampered by the exchange rate crisis in the neighboring country. Therefore, without legal certainty and regulatory stability, the integration never took place. “The idea is good because we need gas, but if all this infrastructure is not done, it is useless”, said Moreira. 

Therefore, due to the lack of the necessary regulatory stability and legal certainty between the two countries involved in the project – Brazil and Argentina – the future of this important initiative remains uncertain.

gas shock

The whole world faces an urgent need to diversify your energy sources. The natural gas megafield Vaca Muerta, in Argentina, offers the opportunity for Brazil to reduce its dependence on inputs imported from Bolivia. However, high costs and the lack of production availability in the country in certain seasons of the year are challenges that need to be overcome.

In addition, the regulatory risk and the legal environment between the two countries involved are also important factors that cast doubt on the realization of this project. A promising alternative is the liquefied natural gas (LNG), which can be transported by ships to meet Brazilian demand.

However, for this option to be viable, it is necessary to have liquefaction plants (at the source) and regasification plants (at the destination). Brazil already has terminals of this type spread across several states and there are studies on new installations in other locations. But Walter de Vitto, an analyst at Tendências Consultoria, warned that this does not mean that LNG can completely replace dependence on Bolivia. “We still have significant consumption coming from domestic production,” he said.

Finally, Paulo Moreira added that, even with the advantages of LNG, international prices could compromise Brazilian competitiveness. “If we want to buy LNG, we will have to compete with Europe”, he explained. Still, this feature is expected to play an important role in the Brazilian market in the near future.