Malaysia’s energy giant Petronas is teaming up with South American counterpart YPF to pursue a potential integrated liquefied natural gas project to help unlock unconventional gas reserves in the Vaca Muerta shale formation in Argentina.

The pair have entered into a joint study and development agreement encompassing upstream unconventional gas production, pipeline and infrastructure development, liquefaction, as well as commercialisation and international logistics, Argentina’s state-controlled company said in a stock market filing.

Argentina’s Vaca Muerta shale is routinely described as the world’s second-largest unconventional gas reserve, behind the Permian basin in the US.

YPF said the project aims to take advantage of YPF’s leadership in the development of Vaca Muerta and the experience accumulated by Petronas in the global operation of LNG liquefaction facilities, onshore and offshore, around the world.

Since 2014, the same two companies have been partners in the development of the La Amarga Chica block in Vaca Muerta, which is producing more than 40,000 barrels per day of shale oil and 1 million cubic metres per day of gas.

The proposed new project will include a 600-kilometre pipeline to deliver the feedstock gas from Vaca Muerta.

MoU signed

The two companies signed a memorandum of understanding to evaluate the feasibility of the LNG export project.

Initial volumes of 5 million tonnes per annum are envisaged with the project ultimately being scaled up to 25 million tpa of LNG being produced from Vaca Muerta shale reserves, if the project is approved.

“The final investment decision… will be undertaken after diligent technical and commercial assessment has been conducted, backed by conducive fiscal terms, legislation and policies,” Petronas said.

While it is still early days, first exports could start by 2029 if the companies elect to forge ahead.

Additional partners may be sought for the project, according to YPF chairman Pablo Gonzalez.

Unconventional gas resources

“Our expertise in integrated LNG and unconventional plays will add value to the intent and synergy of both parties in further exploring potential LNG opportunities in Argentina, leveraging on Vaca Muerta’s vast unconventional gas resources,” Petronas chief executive Tengku Muhammad Taufik said.

The LNG project will respond to the world’s demand for gas, replacing more coal-intensive energy systems and contributing to reduce greenhouse gas emissions, Petronas said.

This LNG project will unleash the full potential of Vaca Muerta, generating an enormous positive impact on the Argentine economywas upbeat about the potential impact of the project, stating: “This LNG project will unleash the full potential of Vaca Muerta, generating an enormous positive impact on the Argentine economy, creating thousands of jobs, multiplying economic activity and developing a new export business.”

Tango pilot

YPF embarked on a pilot project three years ago to export gas from Vaca Muerta via the Tango floating LNG unit, which was on a 10-year charter from Belgium’s Exmar.

However, this charter was terminated prematurely when the coronavirus pandemic affected demand and left YPF unable to pay.

While the Argentine company claimed force majeure due to the pandemic, it ended up losing the related arbitration and agreed to pay Exmar $150 million in consideration of the early termination of the FLNG vessel’s charter.

The MoU between YPF and Petronas also paves the way for the companies to collaborate in other areas, including upstream oil, clean energy solutions and petrochemicals.

“Petronas is focused on expanding and diversifying our integrated opportunities to capture key markets. This collaboration signifies a continued aspiration to achieve shared business growth, as well as providing sustainable and cleaner energy solutions,” Tengku Muhammad Taufik added.

Pipeline projects

Argentina is pursuing other pipeline projects in an attempt to unlock Vaca Muerta’s potential.

A competitive tender is on course to select contractors for the construction of the first phase of the President Nestor Kirchner Pipeline (GPNK).

The project’s first phase will run from Tratayen, in the prolific Neuquen basin, to the city of Salliquelo in Buenos Aires province, about 573 kilometres away.

The winning bidder will also be responsible for building ancillary infrastructure, such as the Mercedes-Cardales pipeline, which will connect with the existing Gasoducto Norte system. In total, phase one will encompass 680 kilometres of pipes.

Last month, Enarsa awarded Tenaris Siat, a Techint subsidiary, a contract worth about $436.6 million for the supply of 30-inch and 36-inch pipes for the first of two stages of GPNK.

The pipeline’s initial capacity would see it handle 24 million cubic metres per day of gas from the Vaca Muerta play, where unconventional hydrocarbons production is hitting record levels but remains constrained by infrastructure bottlenecks.

A second phase of the GPNK project would feature upgrades and integration work on the Gasoducto Norte system pipeline. Together, the two-stage project has a price tag of about $3.5 billion.

Crude terminal

YPF is also determined to move forward next year with a $1.26 billion project to build a 700-kilometre pipeline to carry shale oil from Vaca Muerta to a promised new crude export terminal to be built in southern Argentina.

The pipeline will ship about 370,000 bpd of crude per day, according to Argentina’s state news agency Telam citing participants of a meeting between YPF chairman Pablo Gonzalez and lawmakers from Rio Negro province.

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