In Argentina’s Patagonia, a shale boom drives big promises and deep doubts

BUENOS AIRES (CN) — When the Texan-Argentine Chamber of Commerce proposed a tour to the Vaca Muerta shale reserves in 2022, fewer than 10 U.S. companies joined. By mid-October this year, there were more than 50, including a plethora of company representatives, U.S. government members and financial providers.What changed was not just the global demand for shale oil and gas, which the opulent reserve has by tons, but also the country it’s in.“The world is looking at Vaca Muerta and its opportunities,” said Ariel Bosio, an executive director at the chamber.Vaca Muerta, “dead cow” in Spanish, spans roughly 11,500 square miles across northern Patagonia. Since 2010, the area has evolved from a local energy hope into a critical engine for foreign exchange, attracting billions in infrastructure investments, expanding pipeline networks, and positioning South America’s second-largest economy as a key player in the global energy market.Workers from across the country have flocked to the area in search of jobs. The slow pace of development, however, raises questions about whether it is reasonable for a government on the verge of recession to rely so heavily on one project — and whether deregulation efforts can benefit the local economy before profits fly far from home.Javier Milei, Argentina’s libertarian president, is famous for touting his successes in office, despite recent weak macroeconomic results. But his relentless optimism still draws attention when it comes to the world’s largest shale and oil reserves.“Vaca Muerta was always there, what changed were the rules,” said Milei recently at an oil and gas conference where he outlined his government’s deregulation in the sector. Since taking office in late 2023, his administration has pushed key regulatory overhauls aimed at turning Argentina’s massive shale reserves into an export-driven foreign exchange engine.By removing capital controls and shifting toward market-driven energy pricing, the government seeks to clear structural bottlenecks and attract the tens of billions of dollars in private investment needed to scale infrastructure and pipeline capacity.The administration’s cornerstone move was dismantling the “barril criollo” — a long-standing domestic crude price cap — by executive decree. Freed from state interference, local oil production grew rapidly. Production in Vaca Muerta, which averaged around 310,000 barrels per day in 2023, has more than doubled.Today, total national output sits near 800,000 barrels per day, with officials declaring Argentina close to reaching the milestone of 1 million barrels per day.Questioning overrelianceYet independent economists challenge the administration’s claim that current growth is solely a product of recent deregulation.“What allowed Vaca Muerta to start developing is technology,” said Daniel Schteingart, an economist from Fundar, a local public policy think tank. He points out that 21st-century hydraulic fracturing lowered costs and made the formation commercially viable long ago.“Vaca Muerta began to develop under Cristina [Fernández de Kirchner], continued under [Mauricio] Macri, continued under Alberto Fernández, and now also under Milei. It has been a state policy, and Vaca Muerta was already growing strongly before. Now it’s stepping on the accelerator, but it was already growing,” Schteingart said.Oil pump jacks are seen at Vaca Muerta shale oil and gas drilling, in the Patagonian province of Neuquen, Argentina Feb. 15, 2023. (Matías Baglietto / NurPhoto via AFP)For proponents of the deregulatory model, however, this accelerated pace represents a permanent structural shift for a chronically unstable economy.“Argentina is going from not being an oil exporter to being a hydrocarbon-exporting country,” Bosio said, noting that in five years, Argentine exports could account for 1% of global oil production.He emphasized that geopolitical conflicts in Ukraine and the Strait of Hormuz have forced Western nations to prioritize safe energy suppliers. “Argentina became a secure supplier for Europe, the United States, and the rest of the region,” he said.Bosio pointed to new policy frameworks like the RIGI (Incentive Regime for Large Investments) and the omnibus “Ley Bases” as proof that legislative and market forces are finally aligned behind projects like the Vaca Muerta Sur pipeline, designed to export 700,000 barrels daily.Schteingart acknowledges that overcoming energy trade deficits provides crucial foreign currency for exchange rate stability and inflation control but cautions against viewing it as a panacea.“It is a precondition for growth, not a guarantee of growth,” Schteingart warned. “Even with the Vaca Muerta boom, GDP this year is flat and formal employment hasn’t stopped falling.”While energy and mining act as rare bright spots, vital domestic sectors like manufacturing and construction face severe contractions. Schteingart argues that an economy of 46 million people cannot rely solely on raw resource extraction to achieve high living standards.“Resource exports per capita will rise, but that won’t transform you into Norway, Australia or Canada,” Schteingart noted, explaining those nations built dense industrial value chains through public investment and research. “For that, you need public policy, state support, R&D subsidies, public universities and a scientific system — and Milei is destroying all of that. Optimistically, this model as it’s going can lead you to Chile. Pessimistically, it can lead you to Peru.”Environmental concernsEnvironmental economists take the critique further, arguing the push for rapid extraction creates a dangerous economic and socio-environmental trap.“Fossils are Argentina’s bet. It is like opening a VHS factory,” said Ariel Farn, research coordinator and economist at the Environment and Natural Resources Foundation. “Technologically, betting on fossils is buying an old tape machine. Betting on the past.”Farn contends that linking domestic energy pricing directly to international export rates penalizes everyday citizens, driving up living costs during currency devaluations. Moreover, under the RIGI framework, operating companies can retain 100% of their foreign currency earnings offshore after three years, undercutting the promise of immediate dollar inflows into the central bank.“Vaca Muerta is not just an error from an ecological or socio-environmental impact perspective, but an error in terms of employment and income distribution,” Farn added. “It is more what it breaks than what it builds.”Some findings in Neuquén province, where most of Vaca Muerta lies, reinforce these warnings. Scientists from Argentina’s National Scientific and Technical Research Council established a direct link between fracking and a sudden surge in seismic activity in nearby towns like Añelo between 2015 and 2020, concluding that fluid injection triggers fault slips in stress-critical zones.Environmental watchdogs also report chronic failures in waste management. According to data from Dialogue Earth, roughly 95% of contaminated water in Argentina’s shale fields is stored underground rather than reused, while toxic semisolid waste volume expanded by 35% between 2022 and 2023.In Neuquén, treatment providers like Comarsa had their licenses revoked after accumulating unmanaged sludges near residential areas, prompting persistent health complaints from locals suffering from respiratory irritation and chronic headaches.Simultaneously, field investigations by U.S. environmental group Earthworks utilized optical gas imaging to document widespread, unregulated leaks of methane and volatile organic compounds across fracking sites, processing facilities and refineries near residential communities.Lucía Cholakian Herrera is a Courthouse News correspondent covering Latin America. She is based in Buenos Aires, Argentina.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads