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Argentina gets bid for new pipeline project as it seeks to widen gas exports

Highlights

Tenaris made sole offer to supply steel pipes

First stage of pipeline is to add 13 mil cu m/d of capacity

Decision comes as gas import prices surge

Argentina is pressing ahead on a $2.3 billion project to build a natural gas pipeline, a key for increasing production from the Vaca Muerta shale play to reduce costlier gas and diesel imports and widen exports

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IEASA, a state-owned company that handles the nation's gas imports, received a sole bid in a March 31 auction to supply 656 km of steel pipes for the first leg of the pipeline, according to a webcast of the auction.

Tenaris, a Luxembourg-based steel pipe maker that is part of the Argentinian-Italian industrial conglomerate Techint, offered to supply the pipes for $567 million, according to the webcast.

IEASA said the auction is "a big step" toward building the pipeline, according to a message on Twitter.

A source at IEASA, who asked not to be named, citing company policy, said the bid is under analysis, but added that the company is "working at full speed" to eventually award the contract if it meets the requirements of the auction.

Boosting output

There is a sense of urgency to build the line so that producers in Vaca Muerta, one of the world's biggest shale plays, can step up gas production.

Vaca Muerta, which came into development in 2012-13, has surged in production, taking its output -- along with a few smaller tight plays -- to 52% of the country's 130 million cu m/d of total gas output in February, according to Energy Secretariat data.

"If we don't do anything with infrastructure, production will hit a ceiling in the next couple of years," Rodolfo Freyre, vice president for gas, power and business development at BP-backed Pan American Energy, the country's fourth biggest gas producer, said last at a recent oil conference in Buenos Aires.

The first stage of the line will run from Vaca Muerta in Neuquen province to Buenos Aires province, a $1.6 billion project that will add 13 million cu m/d of capacity in 2023 and another 11 million cu m/day in 2024. The second stage will take the line to Santa Fe province in the middle of the country with an additional investment of some $700 million, expanding the total capacity to 44 million cu m/d in 2025, according to IEASA.

At first, the pipeline will make it possible to reduce imports of gas and diesel as an alternative for power plants.

Argentina imported 22.6 million cu m/d of gas in 2021 from Bolivia and off the global LNG market, up 13.6% from 19.9 million cu m/d in 2020, according to data from the Energy Secretariat. Of the imports last year, most of the growth was in LNG, which rose 91% to 9.7 million cu m/d from 5.1 million cu m/d in 2020, in part because Bolivia's production is in decline.

On March 31, the government said it wants to reduce LNG imports this year because tight global supplies in the wake of Russia's war on Ukraine have pushed up prices.

IEASA has awarded contracts for importing eight cargoes of LNG in May at $39/MMBtu, according to recent local media reports. That was far more than the $7-$13/MMBtu that it paid last year to import a total of 56 cargoes. With needs for importing some 60 more cargoes this year, the cash-strapped country is seeking to trim purchases, including through energy conservation measures that the government is expected to announce in coming days.

Export potential

After building production to meet at least the 140 million cu m/d of average demand, which peaks at 180 million cu m/d in winter, the next step will be to increase exports to Brazil, Chile and Uruguay, and then build liquefaction capacity for LNG exports.

The window for exporting gas is wider than that of oil, as the world transitions to net-zero carbon emissions, an incentive to bet on Vaca Muerta for gas.

The window for gas will be "open for many years," Sean Rooney, president of Shell Argentina, said at the oil conference. "There is a lot of gas in Argentina so that we have to start taking advantage now."