Argentina's expansion of oil pipeline capacity seen driving production growth

The launch of additional capacity in March or April on a major oil pipeline is expected to accelerate production in Vaca Muerta, the biggest shale play in Argentina, by around 30% this year as producers step up drilling to fill the new capacity, experts said Feb. 27.

Oleoductos del Valle, the operator of that pipeline, is more than doubling the system's capacity to 540,000 b/d, making it possible to increase deliveries to the country and exports via the Puerto Rosales terminal in Bahía Blanca, Buenos Aires province.

The additional capacity will be 315,000 b/d, much of it for export, according to the pipeline operator.

"When the expansion is enabled, that's when the race will begin among companies to fill this capacity as soon as possible," Ernesto Díaz, senior vice president of research firm Rystad Energy, said in an energy webinar hosted by Econojournal, a local news outlet.

This race will push companies to step up drilling, contract more rigs, hire workers and widen their production in the play, including to new fields, Díaz said.

"And they will do this as quickly as possible," he added.

Díaz said oil producers in Vaca Muerta have been accelerating activity to prepare for the launch of the new capacity, which will help drive production growth in one of the world's largest shale plays.

The number of new wells connected in the play hit a record 46 in December, he said.

That was up from 10 wells per month before 2020. The play came into production in 2012-13, 20 wells per month in 2023 and 26 in 2024, Nicolás Arceo, director of consulting firm Economía y Energía, said at the event.

This increased activity pushed up production in the play 28% to 448,000 b/d in January from the year-earlier month, helping to compensate for a 6% decline in conventional output to increase the country's crude production 12% to 745,000 b/d, according to data compiled by Aleph Energy, a research firm.

The need for more takeaway capacity

While Oldelval's expansion is underpinning the growth in Vaca Muerta's oil output, more takeaway capacity will be needed, and perhaps sooner than expected.

Arceo said that while Oldelval's new capacity "will provide relief" for producers to increase output, that capacity will be saturated by the end of 2026 or mid-2027.

This has put attention on the next big midstream project: Vaca Muerta Sur.

YPF, the country's state-owned energy company, is spearheading this $3 billion investment, which includes building 500,000 b/d of capacity -- expandable to more than 600,000 b/d -- and an export terminal with storage capacity in Punta Colorada, Río Negro province.

"We are going to need Vaca Muerta Sur to guarantee crude transport for the rest of this decade," Arceo said.

Production growth

Arceo said there is a large potential for production growth in Vaca Muerta. Around 65% of the play's production comes from four areas -- YPF's Loma Campana, La Amarga Chica and Bandurria Sur -- as well as Vista Energy's Bajada de Palo Oeste, meaning that there is much more yet to put into production, he said.

"The potential for the development of Vaca Muerta is very, very significant," he added.

Arceo said he expects Argentina's average production to increase at least 15.5% to a range of 810,000 b/d-820,000 b/d this year -- with a yearend amount of 850,000 b/d -- from 701,000 b/d in 2024, and in 2027 surpass the nation's record of 840,000 b/d 1998.

"We are going to need Vaca Muerta Sur to guarantee crude transport for the rest of this decade," Arceo said.

Rystad's Díaz said Vaca Muerta Sur will be a game-changer for the play. "That is when you will need to add a lot more rigs and a lot more fields," including by creating a second production hub in Rincón de los Sauces in the north, expanding on the first in Añelo to the south, he said.

The key for this investment, however, is for Brent, the international crude reference price followed in Argentina, to remain profitable at above $70/b, as it is now at around $73.50/b.

"This is a momentum that everybody wants to take advantage of," Díaz said of the price. "There is a race to develop Vaca Muerta and produce as much oil as possible."