- Argentina’s Vaca Muerta shale play has led to a record surge in oil and natural gas production, challenging established leaders in South America.
- Despite recent declines in drilling activity due to fluctuating global oil prices, the Vaca Muerta’s low carbon intensity and breakeven costs make it an attractive prospect for international energy companies.
- With planned pipeline development and increasing production, Argentina aims to become a major oil producer in the region, bolstering its economy and potentially shifting South America’s energy landscape.
Exploitation of the vast Vaca Muerta shale in Argentina’s central southwest has unlocked a gargantuan unconventional hydrocarbon boom for the crisis-riven South American country. Rising oil and natural gas production from the 7.7-million-acre shale play is responsible for Argentina’s burgeoning hydrocarbon output, which is proving to be a silver bullet for the crisis-prone economy. President Javier Milei’s economic shock therapy, coupled with soaring oil and natural gas production, has put Argentina on the path to recovery. Growing petroleum output will eventually see the country overtake Colombia to become South America’s third-largest oil producer.
The Vaca Muerta, a vast shale oil and gas play ranked in the top five globally for its hydrocarbon resources, went unnoticed for a decade until the leftist Peronist President Cristina Fernández de Kirchner pushed for its development. Due to the failure of Spanish integrated energy company Repsol, the owner of Argentina’s YPF, which controlled the oil acreage, to exploit the Vaca Muerta, President de Kirchner opted to nationalize YPF in early 2012. The government of Argentina acquired 51% of the integrated energy company, with the remaining 49% held by private investors.
Despite the uproar surrounding YPF’s nationalization and fears Buenos Aires would pillage the company, it was a move crucial to igniting the Vaca Muerta’s unconventional hydrocarbon boom. Indeed, in recent years, Argentina’s national oil company has proven to be among the best-managed national oil companies globally with minimal interference from a succession of leftist Peronist governments. This is responsible for the successful exploitation of the Vaca Muerta and Argentina’s surging oil production, which for December 2024 hit a record high, seeing output, for a moment, beat Colombi,a making the country South America’s third-largest petroleum producer.
During December 2024, Argentina pumped a record 757,122 barrels per day, slightly greater than Colombia’s 755,469 barrels per day. This outstanding number was 59.79%, comprised of unconventional petroleum, the highest ratio ever until February 2025, when shale oil made up 60.19% of Argentina’s oil output, which was then surpassed during March 2025 when it hit a new high of 60.35%. It is the Vaca Muerta’s surging unconventional hydrocarbon production that is responsible for Argentina’s soaring oil output. Shale oil production hit an all-time high of 452,667 barrels per day for December 2024, and this has yet to be surpassed.
Economically crucial natural gas production is also increasing, hitting a record high of 5.4 billion cubic feet per day during August 2024. Since then, natural gas output has declined, although it still averaged a respectable 4.7 billion cubic feet per day for March 2025, representing a 13% decline from that all-time high.
Though Argentina’s hydrocarbon output is projected to grow over time, oil industry activity has declined recently. A key measure of industry operational tempo, the Baker Hughes rig count, shows drilling during the first four months of 2025 had fallen when compared to the same period a year earlier. April 2025 data shows 44 active rigs, comprised of 32 oil and 12 natural gas, that month against 49 active rigs (39 oil and 12 natural gas) a month earlier and 51 active rigs (39 oil and 12 natural gas) for April 2024. This decline is also reflected in the number of wells drilled during March 2025. According to Argentina’s Ministry of Economy, 64 wells, made up of 4 exploration, 51 production and nine service wells, were drilled during March 205.
The marked reduction in drilling activity can be blamed on weaker petroleum prices since the start of 2025. The March 2025 international Brent benchmark price averaged $72.73 per barrel, which was 15% lower than the $85.41 pr barrel recorded for that period a year earlier. The April 2025 average Brent price declined further to $68.13 per barrel, which is a whopping 32% less than the $89.94 per barrel recorded for that month in 2024. For the immediate term, oil prices will remain soft due to the economic uncertainty unleashed by U.S. President Donald Trump’s tariffs and OPEC’s focus on lifting production. This will impact investment in drilling and other operational activities in Argentina’s energy patch, explaining why, since the start of 2025, oil output fell and is again lagging Colombia.
Activity in the Vaca Muerta is tipped to soar because of strong global demand for lighter, sweeter oil, which is easier and cheaper to refine into high-quality, low-emission fuels. The shale oil lifted in the Vaca Muerta has an API gravity of 39 to 42 degrees, indicating it is light, with a sulfur content of less than 0.5%, which is particularly sweet, making it highly desirable for refiners seeking to produce low-cost fuels complying with strict modern emission requirements. Furthermore, Argentina’s main conventional crude oil grades, Medanito and Escalante, with API gravity of 40.8 and 24.1 degrees, respectively, are popular in China and the Middle East because of their extremely low sulfur content of 0.15% and 0.91%.
The Vaca Muerta’s appeal to energy companies is further enhanced by it possessing one of the lowest carbon intensities of any hydrocarbon operations globally. According to industry consultancy McKinsey & Company 15.8 kilograms of carbon dioxide (CO?) is released for every barrel of oil equivalent (BOE) produced, compared to 23.0 kg CO? per BOE. On top of those desirable characteristics, the Vaca Muerta is among the lower-cost crude oils to extract globally. The formation has an estimated breakeven cost of around $36 per barrel. This is significantly lower than Colombia’s $45 per barrel and Brazil’s $40 per barrel. This makes the Vaca Muerta’s shale oil profitable to lift even with Brent trading at $65 at the time of writing.
Those characteristics make the Vaca Muerta an attractive prospect for international energy companies, which will drive greater investment and activity in the shale play. This is being bolstered by the construction of much-needed infrastructure to improve storage and takeaway capacity. Indeed, the development of crucial hydrocarbon processing, storage and transportation facilities will govern production growth. The most important facility currently being developed is the Vaca Muerta Sur pipeline. The $3 billion, 550,000 barrel per day pipeline will transport crude oil from the Vaca Muerta shale play across Patagonia, one of the world’s most sensitive ecological areas, to the Atlantic port of Punta Colorado. On completion in 2026, the pipeline will significantly boost takeaway capacity from the Vaca Muerta, not only lifting Argentina’s oil exports but crucially facilitating further production growth in the shale play.
For these reasons, Argentina will be lifting at least one million barrels per day by 2030, with industry analysts claiming production could climb to as high as 1.2 million barrels daily. This could very well make Argentina the second-largest oil producer in South America after Brazil, particularly with Colombia and Venezuela’s hydrocarbon sectors in decline. Greater oil and natural gas production will give Argentina’s crisis-prone economy, particularly gross domestic product, a solid boost while reducing a dangerously lopsided current account balance. This is apparent from Argentina’s March 2025 economic data where exports exceeded imports by $323 million because of rising hydrocarbon production. Growing oil production and exports, along with controversial President Javier Milei’s economic reforms, will stabilize Argentina’s crisis-prone economy and bolster growth.
