Argentina Notches First LNG Sales Deal as Shale Patch Booms

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Argentina has secured its first agreement for long-term sales of liquefied natural gas, a key step in its bid to become a global supplier of the fuel as drilling ramps up in its Vaca Muerta shale patch.

A consortium of natural gas producers led by Pan American Energy Group, which is 50% owned by British supermajor BP Plc, agreed to sell up to 2 million tons a year of LNG to Germany’s state-owned SEFE for eight years.

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The deal, which still needs to be finalized, is “a key milestone for the future development of the Vaca Muerta gas resources,” Pan American’s Rodolfo Freyre, who heads the consortium called Southern Energy, said in a statement.

The LNG would start getting shipped to Europe in late 2027, covering most of the capacity of Southern Energy’s first floating liquefaction unit, which is being provided by Golar LNG Ltd. Golar will post a second unit to Southern Energy about a year later, boosting total annual capacity to about 6 million tons.

The agreement is further validation of Argentina’s shale ambitions. While oil and gas output in the Vaca Muerta are both booming, the outlook for gas has been more complicated given the larger infrastructure investments and long-term supply deals required to become an exporter.

A second project, led by state-run YPF SA, hasn’t yet been officially green-lighted. If it does go ahead, India has expressed interest in being a buyer.

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The accord comes as SEFE, or Securing Energy for Europe GmbH — a former Gazprom PJSC unit nationalized by Germany after the Kremlin’s invasion of Ukraine — plans to end its legacy contract with Russia by the start of 2027. That’s when the European Union’s ban on dealings with Russian LNG will comes into force, allowing companies to skip contractual obligations.

SEFE has been looking for new sources of supply in recent years as it seeks to cut ties with Moscow. The new deal with Argentina — which will be on a free-on-board basis — is contingent on the negotiation of a definitive supply contract, it said.