New program seeks to expand the natural gas pipeline network

Through Resolution No. 67/2022, published in the Official Gazette on February 9, 2022, the Secretariat of Energy (SoE) declared the construction of the “Gas Pipeline Néstor Kirchner” (NK Pipeline) as a “public interest” strategic project for the development of natural gas in Argentina, as well as its complementary works and the construction of works for the expansion and enhancement of the natural gas pipeline network.

The NK Pipeline will transport natural gas from Tratayén, Province of Neuquén, to San Jerónimo, Province of Santa Fe, evacuating production from the Vaca Muerta fields and other unconventional formations in the Neuquen Basin.

The SoE’s Resolution also created the Gas Pipeline System “Transport.Ar Producción Nacional” program (Program), under the jurisdiction of the Undersecretariat of Hydrocarbons, including a list of works to be executed for the expansion of the natural gas national transportation system. Works for the construction and execution of these pipelines will be carried out by Integración Energética Argentina S.A. (IEASA – former ENARSA, a state-owned company in Argentina), by itself or through third-party contractors.

During the first stage of the Program, the NK Pipeline must be prioritized according to the Resolution.

As stated in the Resolution’s recitals, the execution of transportation works will allow the country’s natural gas self-sufficiency, guarantee the development of non-conventional reserves in the Neuquén basin on a greater scale, optimize the natural gas transportation system, and secure the provision of natural gas for the internal market, allowing the substitution of imports and reducing supply costs.

In line with the SoE’s Resolution, the Executive Branch signed the Presidential Decree No. 76/2022 (DNU, after its acronym in Spanish), published in the Official Gazette on February 14, 2022, which grants IEASA a gas transportation license for 35 years for the construction, maintenance, operation and rendering of transportation services through the NK Pipeline, under the Hydrocarbons Law No. 17,319 and Natural Gas Law No. 25,076, as amended.

Through the DNU, the Executive Branch delegates to IEASA the powers and obligations provided by the Public Works Law No. 13,064 to call for bids, sign contracts, design, and execute the infrastructure works under the Program.

IEASA may enter into freely negotiated gas transportation agreements with producers and/or chargers for the construction and development of the NK Pipeline, subject to the approval by the Ministry of Economy and granting YPF S.A. priority for entering into those agreements. The transport capacity under these contracts will not be subject to tariff regulation determined by the Federal Natural Gas Regulatory Agency (“ENARGAS”, for its Spanish acronym).

Also, the DNU creates an administration and finance trust called “Argentine Natural Gas Development Fund” (FONDESGAS, after its acronym in Spanish) with the purpose of managing resources and financing the infrastructure works within the scope of the Program as well as the repayment of debt securities issued under such trust. Parties to FONDESGAS will be IEASA, acting as trustor and beneficiary, and Banco de Inversión y Comercio Exterior S.A. (BICE) acting as trustee.

FONDESGAS’ assets will be comprised, among others of:

•    Resources from the so-called “Solidarity Contribution” established by Law No. 27,605.

•    Credit transactions with the internal and external market, as authorized by the Ministry of Economy.

•    Resources from the sale of transport capacity agreements.

•    Resources assigned by the SoE from the exports account of the Wholesale Electricity Market stabilization fund created by SoE Resolution No. 1037/2021.

•    Other fixed fees and contributions determined by the enforcement authority.

It is expected that IEASA would call for bids for the construction of the NK Pipeline and start implementing projected works on the existing pipelines in the upcoming months.

According to the SoE, after full execution of the Program, with a total approximate cost of US$3,471 million, of which US$2,540 million will be allocated to the NK Pipeline, the natural gas transport capacity to the consumption centers and thermal electricity plants will be increased by an additional 44 million m3/d.

The construction of the NK Pipeline will constitute an important milestone in the road to the full development of Vaca Muerta.