Latin America just seems to be unable to synchronize its long-mooted upswing with global energy trends. Venezuela boasts the largest reserves on earth yet just as it starts to recover from the havoc US sanctions cripple its entire oil and gas industry, Argentina was assumed to be the next non-US shale oil sensation yet just as international majors started drilling in earnest and exports started to flow out of the country COVID-19 has upended everything. Now Venezuela might be quite a challenge to save under the current circumstances, Argentina, however, is far from being a lost cause despite all the political infighting that surrounds YPF’s activities. A recent infrastructure deal between Argentina and Chile might provide another ray of hope for Buenos Aires. The embattled Argentinian government concluded on January 26 a hope-revamping policy move, having officially signed up to the refurbishment and recommissioning of the Trans-Andean crude pipeline (TAP). The 115kbpd capacity crude conduit running some 425km from the Neuquen Basin to the Chilean city of Concepcion was commissioned in 1992 and was specifically designed to withstand the hardships of transporting via the Andean Mountains. Its utilization, however, lasted for a bit less than 15 years, shutting down in 2006 after the Argentine government saw off the Chevron supply contract and decided not to continue with Argentinian crude exports towards Chile.
Concurrently to the idea of restarting the TAP pipeline, Argentinian authorities are also intent on ramping up heavy crude exports in the northern provinces. A couple of weeks before the TAP announcement, EMESA, the state-owned energy company of the Mendoza province, has stated its interest in building a new storage hub for crude in Malarque, to be used as a transshipment point for further truck transportation towards Chile. The Vaca Muerta shale play extends from Neuquen into Mendoza, though drillers have heretofore preferred drilling in the former province due to its ready infrastructure. The initial idea came about as a means of maintaining production in times of depressed domestic demand (i.e. COVID-impacted 2020) but with the Argentino-Chilean synergies gaining traction, it might create a platform for further trades.
Unlike its closest neighbors almost all of which boast sizeable reserves and can look back onto almost a century of exploration and production, Chile’s fossil fuel bounties are uninspiring. In the far south the Magallanes Basin sees some production (13-14kbpd), however, Magallanes’ assumed shale deposits have heretofore not gone the Vaca Muerta way and remain unconfirmed. If one is to entertain the possibility that Chile might become the next shale sensation, it needs to be noted that the Neuquen Basin was for many decades a conventional hotspot and by the time it started to naturally decline, the prospect of a shale renaissance in the form of Vaca Muerta has saved the oil-producing region. Chile never experienced anything similar.
Chile has traditionally been a net importer of fossil fuels. Having tried its luck with its oil and gas reserves in the Magallanes, as well as with its low-quality coal deposits, its fossil endeavors could not really replicate the success of its copper industry. Chile’s gas consumption of 6.5 BCm per year, its oil consumption of some 380kbpd have been overwhelmingly met by means of imports. Chile’s imports have demonstrated a really noteworthy susceptibility to change. In the 2000s, ENAP imported crude mainly from West Africa, most notably Nigeria and Gabon, but also purchased cargoes from Argentina, Venezuela, and Peru. The 2010s have witnessed the entry of Brazil and Ecuador into the Chilean oil market, fully supplanting declining Argentinian crude as well as the West African exporters.
Interestingly, Chile has 3 functional refineries – the 116kbpd Petrox Refinery in central Chile, the 95kbpd Concon Refinery next to the capital Santiago and the rather marginal 15kbpd Gregorio Refinery in the southern part of the country that mostly runs on domestic crude from the Magallanes Basin. Thus, despite having a total of 230kbpd nominal throughput capacity, i.e. exceeding monthly average crude imports, Chile has sizeable product imports, especially from the United States. Partially, the imports are caused by the usual Chilean headache, the geographic breakdown of production sites, and demand hubs. For instance, Chile maintains product exports into southern Peru as economically such a scenario is more preferable to transporting barrels from the Rincon Refinery to the south of Santiago.
Hypothetically, after the Chilean markets’ saturation, the pipeline might serve as Argentina’s prime export outlet towards the Pacific region. In its current setup, the TAP pipeline ends at the Petrox Refinery (also known as Bio Bio) which is located a couple of kilometers from the seashore. The Talcahuano crude terminal, used for the seaborne crude supply of Petrox and located 5 miles from the refinery itself, has already seen a couple of transshipments over the course of past years, hence if Argentinian exporters could find a way to accommodate their export-oriented interests with the necessities of supplying the Bio-Refinery, the synergies between the two states might become even more profound. But for that to happen, Argentina would need two of the most precious commodities for any Argentinian decision-maker – time and money.