Vaca Muerta: New Gas Pipeline

On July 10, 2019, Decree No. 465/2019 (the “Decree”) enacted by the Argentine Executive (the “PEN,” after its Spanish acronym) was published in the Official Gazette. The Decree instructs the Secretariat of the Government of Energy (the “SE”) to call for a national and international public bid to grant a license to provide natural gas transportation services. The new licensee will be required to design and construct the new pipeline to evacuate the natural gas production from the Neuquina basin.

This pipeline would constitute a third gas transportation system connecting, in its first stage, 570 km between the gas processing facility located in Tratayén, Neuquén, and Salliqueló, Buenos Aires, with access to the Transportadora de Gas del Sur system. In a second stage of 440 km, the new system will be extended to a final access point to the Transportadora de Gas del Norte system, in the surroundings of the City of San Nicolás de los Arroyos, Province of Buenos Aires.

The construction of new infrastructure responds to the need to develop the potential of non-conventional hydrocarbons in Vaca Muerta. In its recitals, the Decree highlights that in May 2019 the natural gas production coming from the Neuquina basin, as a result of the development of the non-conventional resources of Vaca Muerta fields, saturated the capacity of the existing transportation system, which, in turn, would impose a limit on the production capacity of the Neuquina basin.

According to the Decree, such capacity congestion could be relieved by the creation of a third transportation system, which is expected to become operational for the Southern hemisphere winter of 2021.

The license will be granted for a term of 35 years, with the possibility of extension for an additional 10-years term, as provided by Law N° 24,076 (“Gas Law”).The Decree provides for special conditions for this public bid, to be called  within the framework of the Gas Law. The Decree sets forth a Special Temporary Regime (Régimen Especial Temporario or “RET”, after its acronym in Spanish), for 17 years as from the granting of the license, which is half of the initial term of the license, which will be governed by the following guidelines:

a. The remuneration of the transporter and the corresponding adjustments will be freely negotiated with the shippers, without incurring in discriminatory behavior.

b. Under no circumstances will the values arising from the negotiation be passed through to the final tariff tables of the users of the priority demand for natural gas (residential users).

c. The bidding terms and conditions will provide the partial direct allocation of the initial transport capacity, and the rest of the capacity will be allocated through open procedures to ensure non-discriminatory open access.

During the term of the RET, the provisions of the Gas Law regulating the tariffs (Title IX) will not be applicable as long as they are in conflict with the provisions mentioned above. Upon expiration of the RET period and until the end of the term of the license, the regime provided by the Gas Law will be applicable in its entirety.

The conditions of the national and international public bid will be determined in the specifications of the terms and conditions to be approved by resolution of the SE, which officers of the SE have estimated will be issued within the next 15 days.