Argentina LNG suffers setbacks, raising red flags

Argentina hopes to enter the global LNG race to monetise its enormous gas reserves before the world moves on from fossil gas and the window of opportunity slams shut. Argentina LNG — a small floating LNG vessel — is expected to become operational in 2027, but recent setbacks to a larger proposed export terminal raise red flags about the country’s prospects of becoming a major gas exporter.

Often likened to Texas’ Permian basin, Argentina’s Vaca Muerta shale formation in northern Patagonia holds enormous reserves of oil and gas, and production has been steadily increasing in recent years. But it is more expensive to drill in the Vaca Muerta than it is in the Permian — Chevron estimates costs are 35 percent higher — with added financial and political risk.

The next phase of growth depends on building out export infrastructure to connect the Vaca Muerta to global markets.

The push to establish an LNG export industry in Argentina consists of several phases. The first phase would include two floating LNG (FLNG) ships, backed by Southern Energy, a joint venture made up of Pan American Energy, Pampa Energia, Harbour Energy, YPF, and Golar LNG. The first ship is set to arrive in early 2027, and the second would follow in 2028. Combined, the two vessels would bring a relatively modest 6 million tonnes per year of capacity online.

In December, Germany’s SEFE agreed to a preliminary deal to purchase cargoes from the project. The agreement is not a binding contract, at least not yet. But if it moves forward, it would represent the first long-term contract for Vaca Muerta-sourced LNG.

“The 15-year LNG supply deal between SEFE and Southern Energy (SESA) reflects early market confidence in Argentina’s LNG export potential, though SESA’s success is not necessarily indicative of the success of future Argentine projects,” Ángeles Rodríguez, Latin America LNG reporter at S&P Global Energy told the Inter-American Dialogue.

The project is relatively small, its sponsors have gas holdings in the Vaca Muerta, and in the case of Golar LNG, are supplying the floating LNG vessels. That allowed the project to reach FID without having secured binding offtake contracts, Rodríguez noted.

“Ultimately, the success of Argentina’s broader LNG ambitions will depend on securing financing, building critical infrastructure and finalizing robust long-term commercial agreements,” Rodríguez said.

For the initial FLNG project, the feed-gas will be sourced from an existing pipeline network. Any expansion of LNG in Argentina will require brand new long-distance pipelines from the Vaca Muerta formation in Rio Negro and Neuquén provinces to the coast. As such, the larger phase will be more complex, risky, and subject to delays.

Favourable policies implemented by the Argentine government in the past few years have increased industry interest, but chronic macroeconomic and political instability has continually plagued energy development in the country over the past decade.

The Argentine domestic market is adequately supplied with oil and gas, so growth in the Vaca Muerta depends on unlocking exports. “Everything that is being done today and what will be done in the future is only justified as a pure project of export of gas and oil,” the president of the Argentine Institute of Oil and Gas (IAPG), Ernesto López Anadón said late last year.

However, the second phase of the Argentina LNG project, backed by YPF, is still up in the air. At 10-mtpa, it would be significantly larger in capacity. In January 2025, YPF signed a memorandum of understanding with three companies from India, exploring commercial interest for Argentine gas.

An aerial view of Argentina’s Atlantic coast (Photo: Luciano Cutrera)

But in a significant blow to Argentina LNG’s fortunes, Shell backed out in December, raising questions about the project’s future.

“Given there has been significant change in the project scope, Shell will not be participating in the initial phase of the Argentina LNG project. Shell will continue to explore future expansion options at a later stage,” a spokesperson for Shell told Gas Outlook.

It was not the first major partner to exit the project. Malaysia’s Petronas had been heavily involved in developing the concept with YPF several years ago. But in late 2024, Petronas backed out.

The rotating cast of characters leaves YPF searching for a big partner that can provide investment and help the project secure buyers and financing.

“It will be really hard for them to get money without Shell,” Hernán Pérez Orsi, an Argentine environmental researcher and consultant, and coordinator with the Energy Group of the Forum for the Conservation of the Patagonian Sea, told Gas Outlook.

“I don’t see many local players or any big player from outside really interested in jumping into this,” he said. By contrast, there was a lot more interest in the first FLNG project that is currently underway.

The scope and vision appear to be shifting. In December, YPF CEO Horacio Marin told Reuters that the phase that Shell was involved in had shrunk from 12 to 6 mtpa, and that for YPF, the focus now was on another phase of the project, one that involves Italy’s Eni and XRG, a unit of the UAE’s Adnoc.

Last October, YPF signed a memorandum of understanding with Eni. YPF trumpeted the US$20 billion project as “largest private investment in Argentina’s history and one of the most significant energy developments in Latin America.”

The concept, a larger 12-mtpa project, would not begin production until the early 2030s, if it moves forward at all. Marin said he expects the company to announce a final investment decision by mid-2026.

But it does not have financing secured, nor has it lined up customers. Its fate remains unclear.

On the coast of Rio Negro province, there is no major port or other infrastructure that could serve the gas industry. Everything needs to be constructed from scratch, and it needs to be done in an area that doesn’t have adequate industry services or labour.

“Everything needs to be built. Roads, electrical wires…it’s a huge development for this project that will take a lot of provincial and federal resources to support the oil industry to expand into there,” Pérez Orsi said.

Meanwhile, there is also a reshuffling of players further upstream in the Vaca Muerta shale formation. In late 2024, ExxonMobil sold its assets and exited Argentina. Last year, TotalEnergies sold off stakes in the Vaca Muerta. More recently, Shell is weighing an exit from the Vaca Muerta and has approached buyers, according to Reuters, and Equinor has agreed to unload its Vaca Muerta business as well.

At the same time, there remains significant interest from a series of companies, especially U.S. companies who have said the best parts of U.S. shale have been picked over and heavily drilled.

U.S.-based Continental Resources is stepping up investments in the Vaca Muerta. CEO Harold Hamm — a major financial donor to President Trump — has suspended drilling in the Bakken formation in the U.S. state of North Dakota because margins have vanished and he is shifting his sights to Argentina. Continental purchased non-operating stakes in four different blocks in the Vaca Muerta in early January.

But if he and other Vaca Muerta-focused drillers are to succeed, they desperately need LNG export terminals on the coast to be built.

YPF did not respond to questions from Gas Outlook.

LNG threatens sensitive coastline

The multiple LNG projects, along with a crude oil export terminal, are planned for the coast of Rio Negro province in an area called the Gulf of San Matias. At the southern edge is Península Valdés, which is recognized by UNESCO as a site of global significance for the conservation of marine mammals, home to the breeding grounds of the endangered southern right whale.

The Gulf of San Matias is a unique marine environment, home to whales, seals, sea lions, dolphins, birds, and even penguins.

“It is probably one of the two or three most sensitive areas of the entire coast of Patagonia,” Claudio Campagna, former researcher for National Research Council of Argentina, told Gas Outlook.

A whale photographed on Argentina’s Peninsula Valdes (Photo: Macarena Agrelo/Instituto de Conservacion de Ballenas)

Argentina has a long coastline, but much of it does not have the high concentration of biodiversity that is found in the Gulf of San Matias.

“Between Golfo San Matias and Peninsula Valdés, you have the most important habitat for many species — for southern right whales, for elephant seals, for penguins,” Campagna said. “You have those species in some other places along the coast. But not many, and mostly on islands. So, from a coastline perspective, this is one of the most important coast lines in all of South America, certainly in the Atlantic.”

The coastline of Rio Negro used to have industry, particularly mining, but mine closures have left small towns receptive to new sources of economic development. But the region is also a haven for tourism, mostly because of the wildlife.

“Las Grutas is a town that depends 100 percent on tourism,” Pérez Orsi said, referring to one of the small fishing communities that would be impacted by the LNG buildout.

Campagna said the LNG and crude oil export terminals would bring noise, pollution, collision risks, and of course, greenhouse gas emissions.

“It is too special to be acceptable. For me, I will fight against this, even if they have 20 boats loading oil,” Campagna said.

He said the opposition is still relatively small, and that the national narrative around oil and gas – and the Vaca Muerta in particular – is one of economic growth, placing the expansion of the fossil fuel economy as central to revival of the economy in a country where macroeconomic instability has been the norm.

But the economic tradeoffs would be significant, and there is very little discussion of the downsides at the national level.

Spoiling an ecologically rich coastline may come in service of an industry whose prosperity and even longevity are highly uncertain. The global gas market is facing a glut in the short- and medium-term, and the relentless onslaught of the energy transition in the long-term. 

“It’s a crazy idea to bring oil and gas infrastructure to a pristine area that will devastate local communities and biodiversity,” Pérez Orsi said. “And being optimistic, how many years will LNG be a producing business? Twenty?”

(Writing by Nick Cunningham; editing by Sophie Davies)