Argentina will use proceeds of electricity exports to fund gas pipeline construction

Argentina’s Energy Secretariat has indicated that it expects to use the proceeds of electricity exports to Brazil to finance several major infrastructure projects that will facilitate the development of the Vaca Muerta shale formation.

News of these plans emerged last week, when the Energy Secretariat adopted a new ruling governing the use of export revenues. Under this ruling, known as Resolution 1037, the government department will be able to cover the cost of building new energy infrastructure networks.

These networks will include a new natural gas pipeline and high-voltage power transmission lines that will serve the Vaca Muerta fields. The pipeline, which will follow a route from Vaca Muerta to Salliqueló to San Jerónimo, is expected to carry a price tag of $1.8bn. Meanwhile, the transmission lines will be built within the framework of Argentina’s Federal Plan for Electric Transportation Works, which will require about $3bn worth of investments.

Pablo González, the CEO of Argentina’s national oil company (NOC) YPF, pointed out last week that the pipeline would help support upstream development operations at Vaca Muerta fields. This project is among “the most urgent in the country,” as it will give producers the ability to deliver gas from the shale formation to consumers in other regions of Argentina, he explained.

Without the pipeline, Vaca Muerta’s hydrocarbons will be difficult to monetise, he added. “We have the second-largest unconventional gas reserve in the world and the fourth-largest for [unconventional] oil, in terms of resources,” he was quoted as saying by Mercopress. “What we lack is transportation capacity.”

According to anonymous market sources cited by Mercopress, Resolution 1037 is likely to generate about $100mn per year in additional revenues. The Energy Secretariat will be able to use these funds to supplement the proceeds of the so-called “wealth tax,” which generates about $500mn per year, the sources said.

Mercopress also noted that electricity export earnings would be deposited into a special separate account. Citing a report from the Argentinian business daily El Cronista, it said that Resolution 1037 had provided for the creation of an export account within the country’s Wholesale Electricity Market Stabilisation Fund (MEM).

This account will only be able to disburse funds for energy infrastructure projects, the newspaper stated. The first deposits into the account will be the proceeds of electricity sales to Brazil in September 2021, it added.

Argentina is on track to export around $1bn worth of electric power to Brazil this year. In September alone, it delivered $258mn worth of power to the neighbouring country, which is experiencing extensive fuel and power deficits. These shortfalls stem from a ongoing drought that has prevented Brazilian hydroelectric power plants (HPPs) from operating at full capacity.