Argentina’s future lies in the balance as vast oilfields poised for extraction

The new bill that would allow the exploitation of vast oilfields will be, ecologists are certain, the nail in Argentina’s coffin. “We are facing the pinnacle of extractivism, the final adjustment of the screw so that Argentina is no longer a sovereign country over its territory,” says lawyer Enrique Viale.

The law being debated by Argentina’s national congress is designed to attract billions of dollars of investment into the oil and gas industry. Viale is president of the Argentine Association of Environmental Lawyers, one of 50 civil society organisations opposing the bill.

Ernesto López Anadón also has his eyes fixed on the legislation’s progress. As head of the Instituto Argentino de Petróleo y Gas (IAPG), a thinktank that conducts research and analysis in the energy sector, he has an interest in what lies ahead for the country’s oil and gas ambitions.

The bill would benefit the oil and gas industry and lithium extraction, leaving behind any serious energy transition ambitions and send the country headfirst into the Latin American oil rush .

Like Brazil, Guyana, Suriname, Venezuela, Ecuador, Mexico, and some Caribbean nations, Argentina, under President Javier Milei’s climate crisis-denying administration , is gambling that its next decades’ economic and social development will come from fossil fuels and minerals.

López Anadón believes the new law will benefit the economy, replace imports with exports of natural gas and gas oil, and “reduce Argentina’s aversion to private investment”, putting the country on the map of global investors.

Since taking office in December 2023, Milei has tried to pass a sweeping programme of economic deregulation and spending cuts. At the heart of this decision is the new mechanism to attract foreign capital – the Regime of Incentives for Large Investments (RIGI) – a law relaxing taxes, customs and currency exchange regulations and offering tax stability for the next 30 years for those investing more than $200m (£155m) in the country.

With the law, Milei aims to inject foreign investments into what he considers “strategic sectors” – essentially oil and gas production, mining and technology.

His final goal is to boost the country’s most valuable fossil fuel asset, the Vaca Muerta reserve, Argentina’s main oilfield .

Vaca Muerta primarily exploits shale oil and gas, covering more than 30,000 sq km (11,500 sq miles) in Neuquén province, north-west of Patagonia. The region is considered one of the world’s most substantial fossil gas deposits , and has one of South America’s most promising capacities for expanding gas and oil production.

With more than 1,000 active wells, it has attracted leading multinational companies such as Vista, Chevron, Shell, Petronas, Equinor, PAE, Tecpetrol, Exxon, and Phoenix, as well as YPF (Yacimientos Petrolíferos Fiscales, SA), the majority state-owned energy company.

The rise of Vaca Muerta and the prospect of exporting could reach 1m barrels daily

Luciano Fucello

Luciano Fucello, of the energy consultancy firm NCS Multistage, says: “By 2030, Argentina could have an energy trade balance of $20bn due to Vaca Muerta’s production” – a cure-all solution in a country undermined by successive economic crises, stagnation and hyperinflation, which reached 289.4% in the last 12 months .

Due to a number of modifications, the RIGI must return to the lower house for final vote. If approved, it will come into effect later this year.

“It is common for investors to consider Argentina a difficult terrain for making investments due to its problems in ensuring fiscal and monetary stability, the possibility of importing equipment, and having dollar reserves,” says Benjamin Gedan, director of the Latin America program at the Woodrow Wilson Center. “In this sense, RIGI could change the environment, making it more favourable for foreign investment in the oil sector.”

Argentina’s oil production jumped 27% from 2022 to 2023 and some even believe the country has the potential to quintuple its oil output .

“It is not unthinkable to imagine that oil exports might come to match the extent that agribusiness has today – the main source of export revenues for Argentina,” says Fucello. “The rise of Vaca Muerta and the prospect of exporting could reach 1m barrels daily. This year, the energy balance will close in positive figures, around $2bn to $3bn.”

Milei’s hydrocarbon policy is widely praised in the oil industry. “With its more liberal approach, the current government managed to raise the oil price by 120% right off the bat, in less than two months, just with the devaluation of the peso,” says Daniel Dreizzen, director of the consultancy Aleph Energy and former secretary of energy during Mauricio Macri’s administration.

Argentina exports about 20% of its oil output while the remaining 80% is allocated for the domestic market. Should Milei’s plans materialise, increasing production could lead to a rise in the export volume. “Still, it depends on the greater ease of purchasing imported inputs, a key factor that could be facilitated by dollarisation, as well as the enhancement of transportation,” says Dreizzen.

Despite being a key feature of the 2023 election campaign, the plan to dollarise the country was put on hold due to a lack of support in Congress, where Milei’s party, La Libertad Avanza, does not have a majority.

According to economist Martín Kalos, even if oil and gas production “is the strongest and fastest growing sector in Argentina”, new foreign investment – and the future of Vaca Muerta – hinges on the stabilisation of the country’s political context.

“Whether the production of Vaca Muerta increases depends on them [the political parties],” Kalos says. “Investing in roads and gas pipelines is essential to use Vaca Muerta well. Otherwise, they can’t transport the product, as Vaca Muerta is located far from any major city.”

Environmental advocates, however, do not see things so optimistically. A study published by the Argentine NGO Fundación Ambiente y Recursos Naturales (Farn) found that Vaca Muerta causes significant atmospheric pollution resulting from the increase in greenhouse gas emissions – which could account for 57% to 67% of the country’s national emissions by 2030.

The NGO also cites methane emissions, soil degradation due to erosion and contamination, and severe water use and pollution leading to possible water crises and contamination from toxic chemicals used in hydraulic fracturing processes.

Vaca Muerta also poses risks of induced seismicity due to the injection of fracking fluids and disrupts local communities, say critics. The study mentions health problems from prolonged exposure to pollutants, increased cost of living, social fragmentation and adverse effects on Indigenous territories without proper consultation.

Fernando Cabrera, coordinator of the Observatorio Petrolero Sur , says the regulatory framework is one of the main concerns of environmentalists. The responsibility for enforcing it lies with the provinces, which may lack the necessary resources or political will to monitor and punish violations.

“It is impossible for the province of Neuquén, for example, to measure spills, how much water was used, how much of the rivers are contaminated,” he argues. “There are no resources to carry out this monitoring.”

Cabrera refutes the argument that exploitation occurs far from towns or villages, as Vaca Muerta supporters argue. “There are wells 5km from the city of Neuquén; you can smell the smoke.”

Gabriel Blanco, from the Centre for Environmental Technologies and Energy at Central University and former national director of climate change in Argentina, sees Vaca Muerta’s development as akin to creating “a new Potosí” – a reference to the once-wealthy Bolivian city that, as a result of mining exploitation during colonisation, now has a poverty-stricken population.

Blanco warns that this is just the most immediate consequence of Argentina’s growing ambition for oil and gas. He also criticises the country for persisting with an outdated resource exploitation model “that only harms the planet”.

“Extractivist policies like these leave nothing behind, just like in Potosí. The people of our country will continue to live below the poverty line, especially in the local province, if we continue extracting oil and gas. We are in times of climate change. How can we justify the expansion of hydrocarbons?”