YPF’s export agenda

The company’s plan to build Argentina’s biggest oil export terminal in Rio Negro may not be enough to ensure that Vaca Muerta realises its full potential

WHAT: YPF has rolled out a plan to build a 425,000 bpd oil export terminal offshore Rio Negro Province.

WHY: The project is part of a wider effort to make more transportation capacity available to producers working at Vaca Muerta oilfields.

WHAT NEXT: The outcome of Argentina’s economic stabilisation measures will be at least as important to Vaca Muerta’s future as the pipeline and terminal projects.

In a bid to expand its access to world energy markets and move toward becoming a net exporter of hydrocarbons, Argentina’s national oil company (NOC) YPF has announced plans to build a new crude oil export terminal at the port of Punta Colorada de Sierra Grande in Rio Negro province.

YPF’s CEO Pablo González made the company’s plan public after a meeting with provincial officials, Ámbito reported on August 26. In remarks reported by the financial daily, he said the facility would be the country’s largest oil export outlet.

The terminal will cost a total of $1.26bn, with costs split between a $600mn onshore facility and a $660mn offshore facility, Ámbito reported. The onshore facility will consist of a storage depot housing 20 storage tanks with a capacity of 1mn cubic metres, equivalent to 6.2mn barrels, and will be built on a 2.5-square km site on the coast, it said.

The offshore component, meanwhile, will consist of a pipeline connecting the onshore storage depot to a monobuoy – that is, a loading facility – that will be installed about 6.7 km from shore, Ámbito said. If finished on schedule, it added, this facility will be capable by 2025 of handling 155mn barrels per year of oil, equivalent to nearly 425,000 barrels per day (bpd). It will be able to load the equivalent of one 390,000-cubic metre tanker to full capacity every five days, it said. YPF will need to hire about 100 new employees to manage the offshore facility, it added.

The bigger picture

González stressed that the terminal would be part of a wider system serving the country’s oil industry.

That is, he said it would serve as the terminus of a pipeline that YPF will construct to facilitate exports of oil from fields in Vaca Muerta, an unconventional hydrocarbon formation located mostly in Argentina’s Neuquén Province. Vaca Muerta is one of the largest shale basins in the world, containing both crude and gas, and Argentina’s government has estimated its total oil reserves at more than 27bn barrels.

To date, though, it has not realised its full potential. Although major international oil companies (IOCs), including but not limited to Equinor (Norway) and TotalEnergies (France), are working in Vaca Muerta, the shale formation’s production rates are still relatively low. They are rising, but they have yet to climb quickly enough to allow the country to shed its dependence on imported crude and petroleum products – and this continued dependence has proved quite burdensome this year, due to the extreme price increases and supply disruptions that have followed Russia’s invasion of Ukraine.

YPF wants to change all of that – and it knows that part of the obstacle to raising output has been that Argentina does not possess the infrastructure to move large new production streams to market. As such, González said, the NOC has decided to build the new link. Existing alternatives for bringing Vaca Muerta oil to market – including domestic pipelines, as well as the 225,000 bpd Oleoductos del Valle (Oldelval) system, which runs from the shale formation to Puerto Rosales – are simply not sufficient to meet the country’s long-term needs, he explained.

“It is essential to look for new alternatives for export [that are] complementary to the commissioning, scheduled for next year, of the Trans-Andean Oil Pipeline after two decades of paralysis,” he added. He was referring to the NOC’s plans to resume shipments through cross-border pipeline that runs from Neuquén Province to the Chilean port of Concepcion. The link has been idle since 2006.

According to Ámbito, YPF’s new pipeline from Vaca Muerta to Punta Colorada de Sierra Grande will have a throughput capacity of 372,000 bpd. It will be about 700 km long, and most of the route, or about 635 km, will run through Rio Negro Province.

The project is also expected to have economic benefits, as it will directly create about 1,000 new jobs during the construction phase, the financial daily said. It may also lead to the creation of around 3,000 more jobs indirectly, along with contracts for suppliers in multiple sectors of the economy.

Changing laws

YPF has had to do a certain amount of footwork to make this project happen. The Ámbito report noted that González’s meeting with local officials had taken place about a week after Rio Negro’s legislature took steps to start revising the province’s laws for the purpose of supporting such an undertaking.

Under the current legal regime – and more specifically, Law 3,308, which has been in force since 1995 – hydrocarbon exploration and production operations are prohibited throughout Rio Negro’s offshore zone, including the San Matías Gulf as well as the ocean waters beyond it. The relevant laws also include specific legal restrictions on the construction and/or installation of pipelines for the transportation of crude oil, natural gas or any of their derivatives, and there are also limits on the construction and/or installation of marine terminals that can load or unload ships that handle these materials.

González indicated that YPF had been ready to make a case for its projects, as it saw Rio Negro as its best alternative for sending more oil to market. “It was determined that Punta Colorada offers the best conditions for this purpose due to the depths of the coastal waters, which allow the operation of deep-draft vessels, as well as the availability of land for complementary facilities,” he said.

The company appears to have made a convincing argument. Ámbito noted that proposals for amending Law 3,308 had passed in the first reading in the provincial legislature and would now be opened up for public discussion until the legislators convened again, 15 days later. Sebastián Caldiero, a member of the majority Juntos Somos Río Negro faction, indicated that he hoped the second vote would have similar results.

The province is facing the challenge of balancing a law that is designed to protect the public interest with the chance to become “the logistics centre” for the export of oil from Vaca Muerta to the Atlantic market, he remarked. “We understand the opportunity that is being created for Rio Negro, especially in the context of the need for the country to achieve self-sufficiency and become an exporter of hydrocarbons,” he said.

The bigger problem

Assuming that the final vote goes in YPF’s favour, then, Argentina will be one step closer to establishing a new export outlet for oil from Vaca Muerta – and, therefore, a step closer to making the basin more attractive to potential exporters who might be able to ramp oil output up in satisfyingly rapid fashion.

But the country will need more than YPF’s terminal to achieve its goals. Frankly, it will also need more than YPF’s terminal and pipeline combined. Argentina is not just short on export capacity; it is also short on the credibility needed to execute these projects without a hitch.

Buenos Aires – and, by extension, YPF – is likely to experience at least some difficulty finding the billions in dollars in loans needed to finance these projects, given that its sovereign debt load has been growing at the rate of around $3bn per month over the last year. Likewise, it may have at least some difficulty convincing IOCs to make the kind of large-scale commitments needed to ramp up production at the desired rate.

These difficulties are, of course, the reason why Argentina’s President Alberto Fernandez recently granted Sergio Massa, his newly appointed economy minister, extra authority in a bid to stave off an economic and fiscal crisis. And if the country does not succeed in overcoming these hurdles, plans for building the pipeline and terminal may not be enough to tip the scale – especially now that global crude prices are trending downward and making higher-risk and higher-cost projects less attractive. As such, YPF should keep a close eye on government policy.