Investing in an Argentine gas pipeline makes no economic and environmental sense, say experts

The project involving the Argentine reserve rich in shale gas of Vaca Muerta, despite the praise made by the Brazilian government on its visit to the neighboring country, is not considered economically and environmentally viable for the Brazilian reality, according to specialists in the sector on this side of the border.

The joint declaration signed by Luiz Inácio Lula da Silva (PT) and Argentine President Alberto Fernández qualifies the project, including the Néstor Kirchner gas pipeline, which crosses Argentina and includes a connection with the border of Brazil, as a binational priority.

Lula declared that there will be urgency in guaranteeing Brazilian financing for the project. The works of the first stage are still in progress. Bidding for the second phase should take place by April. The gas pipeline has already received 180 billion pesos in investment, nearly R$5 billion, and the demand for capital is growing. This year, it will demand 300 billion pesos, around R$8.2 billion.

The Minister of Finance, Fernando Haddad, stated that the Brazilian investment is justified because the product, when it arrives in Brazil, will benefit Brazilian industry, including the production of fertilizers.

Although political intentions are positive within regional diplomacy, more technical issues, according to energy specialists, do not guarantee that Brazil will have concrete returns with the financing of the project. There is not even a guarantee that the gas will reach here, explains Rivaldo Moreira Neto, partner at Gas Energy, a consultancy specializing in the area for Latin America.

In Argentina, gas is a much more relevant fuel than in Brazil. It has a broad and structured market and an extensive and dense gas pipeline network. Gas supplies industry and families, not only in the generation of electricity, but also sustains the heating of homes in winter.

However, the country needs to import the product, mainly to meet the strong demand when the temperature drops below zero. In the colder months, many industries run out of the product and have to burn diesel, which is more expensive and polluting, because of this lack of supply.

Last year was especially painful because of this international dependence, as Russia’s war in Ukraine affected global supply and put pressure on prices, contributing to worsen Argentina’s internal financial crisis. There were people without money to keep warm.

The Néstor Kirchner gas pipeline is vital because it will transport gas from the province of Neuquén to San Jerónimo, in the region of Buenos Aires, which concentrates consumption, crossing more than 1,400 kilometers, including the installation of branch lines and compressor plants along the way. The exits for eventual exportation are further north.

Thus, local production from a reserve such as Vaca Muerta is, before any other discussion, the promise of low-cost gas self-sufficiency for the domestic Argentine market. The government even controls the price at the wellhead, a factor that even made it difficult to attract investors.

“Essentially, the entire Vaca Muerta project is aimed at Argentina, and seeks to meet the needs of the country, which is very deficient”, says Moreira Neto. “We still don’t know the volume or how long the country will be able to export this gas.”

In the already distant offer for the foreign market, Brazil is at a disadvantage in the queue. The preferred customer is Chile. Another important consumer of gas, he has already built a structure of gas pipelines to receive the Argentine product, and most of the pipes are even empty.

There is even an initial system connecting Argentina to the Uruguaiana thermal in Rio Grande do Sul, because of a previous project, which did not materialize. Despite the fact that the governments of both countries have been talking about integration through gas for years, the fact is that Argentina has not been able to supply the product.

The project to take gas from Uruguaiana to Porto Alegre is also paralyzed, as it requires the construction of a 600 km pipeline. The expansion plan for the Brazilian gas pipeline network, released in 2019 and which never got off the ground, foresaw an investment of BRL 4.6 billion at the time.

The ambition to take Argentine gas to the Southeast is even more distant, as this region of Brazil can be supplied by pre-salt gas, which is off the coast of Brazil.

“Brazil needs more competition in gas. Any other offer that proves to be competitive can help the recovery of the national industry”, says Paulo Pedrosa, president of Abrace (Brazilian Association of Large Industrial Energy Consumers and Free Consumers).

“But our great opportunity is in pre-salt gas, which we are reinjecting in huge amounts.”

Although the topic was widely discussed during the previous government and a law was passed to open the market, the fact is that transactions are slow and the construction of infrastructure to take advantage of the pre-salt layer has not yet taken off. However, transporting the product via pipelines is part of the final cost, and the closer to the consumer market, the cheaper it is, which gives an advantage to the local and national product.

“Gas from Vaca Muerta can be very cheap”, says Luiz Augusto Barroso, CEO of PSR, a consultancy in the area of ​​energy. “But there is also pre-salt gas and Bolivian gas, and the option will depend on competitiveness in terms of delivery cost.”

The Argentine product loses many points when considering the environmental issue.

“Gas or shale oil are the worst choices anywhere in the world,” says physicist Shigueo Watanabe Júnior, an expert on climate change and energy. He is not an enthusiast of any gas, because they all worsen emissions, but products like Vaca Muerta, in comparison, are more harmful than the pre-salt, for example. Methane emission is high.

Clay shale is a type of sedimentary rock, and to separate the oil or gas from this structure, high pressure water must be applied. In addition to this high water consumption, the pressure itself affects the soil in different ways.

Watanabe says that in Argentina itself, exploitation harmed indigenous communities. In shale exploration in the United States, there are records of contamination of groundwater and damage to the structure of houses close to the extraction areas. In China, there are studies showing that pressure on shale exploration sites has led to earthquakes.

“Brazil has shale reserves”, says Watanabe. “In Paraná, a mobilization prevented extraction. I hope that the reserves in Maranhão and Piauí are never considered.”

For now, however, nothing concrete has been defined in relation to the Argentine project. The BNDES press office informed, through a note, that it is still awaiting details on the proposals.

“President Lula’s speeches are very welcome and value the BNDES”, stated the text of the note. “The new board of the Bank will await the return of the Brazilian delegation to obtain more information about partnerships, referrals and possible participation in projects.”

With people close to the bank, the Sheet found that there are no formal requests for credit for projects associated with Vaca Muerta or its gas pipeline. Internally, there is no prospect that the bank will work again with financing works abroad. The BNDES suspended this modality. The perspective is that there will be financing of equipment for works abroad, which seek to promote the Brazilian industry in the domestic market.

The credit may be provided to the company in Brazil or to the government abroad for the acquisition of products, depending on the analysis of the project and the partner.

BNDES financing for works abroad, including the concession of equipment, was questioned and became the target of investigations. According to sources at the bank, the support process for export projects tends to be more meticulous.

WHAT IS IN THE BRAZIL-ARGENTINE JOINT DECLARATION IN THE ENERGY AREA

Energy integration is highlighted in the text signed by presidents Lula and

• They undertook to evaluate jointly, with a sense of priority and urgency, the financing of strategic projects of binational interest, such as the Presidente Néstor Kirchner Gas Pipeline.
• They instructed their work teams to encourage the development of projects related to offshore exploration (on the high seas)
• Determined the setting up of a Working Group coordinated by senior authorities from both countries to deepen discussions on the bilateral energy integration, including the natural gas market and possibilities for joint development of the sector
• In terms of energy transition, they instructed their technical teams to study projects to encourage binational and regional production chains and complexes based on financing, convergence on common standards and commercial tools, with particular emphasis on the sectors of biofuels, hydrogen, hydroelectricity and wind and solar energy, as well as on lithium chains.
• They reaffirmed their interest in develop binational hydroelectric potential and agreed to reactivate the Mixed Technical Committee (CTM), with the aim of resuming the technical studies related to the binational undertakings, within the framework of the Treaty for the Use of Shared Water Resources of the Bordering Sections of the Uruguay River and its tributary, the Peperí-Guaçú River .
• woke up promote a South American energy market and increase the exchange of natural gas, liquefied petroleum gas (LPG) and electricity between the two countries under the Energy Exchange Memorandum signed on November 16, 2022, thus contributing to strengthening energy security.
• They agreed to strengthen the Mercosur Energy Working Subgroup (SGT-9), seeking to promote synergies with the SOUTH Energy Integration System (SIESUL) and encourage other initiatives related to gas integration and new technologies that could support the SGT- 9 with elements related to the design of energy exchange policies in the short and long term, including tax aspects and support mechanisms in critical operating conditions.