Energy Insights 2025
Argentina holds one of the world’s largest shale gas resources, concentrated in the Vaca Muerta formation. However, translating that potential into sustained liquefied natural gas (LNG) exports has not followed the traditional model of large onshore plants used by the world’s leading exporters.
According to research compiled in Energy Insights 2025, the annual report from the Baker Institute for Public Policy at Rice University, Argentina’s LNG development is moving toward a floating LNG (FLNG) model, conceived as a direct response to the country’s macroeconomic, institutional, and financial constraints.
The most detailed analysis of this strategy comes from Francisco J. Monaldi, director of the Baker Institute’s Latin America Energy Program and a specialist in the political economy of hydrocarbons. Monaldi has extensively studied the link between natural resources, institutional stability, and investment decisions, and is a frequent reference for governments, multilateral organizations, and energy companies.
In his contribution, Monaldi makes a key distinction between the geological potential of the resource and the conditions required for its monetization. From a subsurface perspective, he notes that Argentina’s shale gas resources rank among the largest in the world, with low geological risk, particularly in Vaca Muerta. The challenge is not the quality or scale of the resource, but the conditions under which it can be converted into stable export flows.
The main obstacle, according to Monaldi, is institutional. He notes that “historically, high above-ground risks, including macroeconomic instability, foreign exchange and export controls, domestic energy subsidies and price caps, as well as a history of contract reneging have limited the development of the hydrocarbons industry in Argentina.” These factors directly affect the cost of capital, access to long-term financing, and investors’ willingness to commit irreversible funds.
Why traditional LNG does not fit Argentina
Onshore LNG projects require extremely high upfront investments, with payback periods typically spanning 20 to 30 years. In this context, Monaldi emphasizes that “large LNG onshore projects … are very risky and hard to finance in a country with high costs of capital due to the above-ground risks.” In countries with a history of macroeconomic volatility and frequent regulatory shifts, such a structure is particularly fragile.
Economically, these projects concentrate risk early and reduce the ability to adjust to regulatory or macroeconomic shocks. Once built, the capital is locked in, altering the balance of power between the state and investors. This observation aligns with research by Gabriel Collins, Mark P. Jones, Jim Krane, Kenneth Medlock, and Francisco Monaldi, cited in the compilation.
Collins is a senior fellow at the Baker Institute and an expert on global energy markets; Jones is a political scientist focused on Argentine institutions and political economy; Krane is a specialist in energy geopolitics; and Medlock directs the Baker Institute’s Center for Energy Studies and is a leading analyst of gas and LNG markets. Together, they argue that shale development changes the traditional logic of natural resource investment.
Their work notes that shale development weakens the classic “obsolescing bargain,” since production drops rapidly if drilling stops, reducing governments’ incentives to opportunistically alter the rules. This feature explains why investment in unconventional upstream projects has advanced even under high uncertainty, as seen in Vaca Muerta during different macroeconomic cycles.
However, that logic weakens when moving from upstream production to export infrastructure. There, sunk costs dominate the equation again, reintroducing political risk as a central variable. Financially, this translates into higher risk premiums, difficulties structuring project finance, and growing dependence on sovereign guarantees or complex contractual schemes.
The shift to floating LNG
Given these limitations, Monaldi identifies FLNG as an alternative better suited to Argentina’s risk profile. While acknowledging that FLNG units have higher per-unit production costs, he notes that “Even though FLNG units have higher unit production costs, due to the lower economies of scale, they have the advantage of having lower sunk-costs and lower above-ground risks. They can be deployed faster and can be moved elsewhere if investment conditions change.” Financially, this flexibility reduces the irreversibility of investment and improves the ability to respond to changes in macroeconomic or regulatory conditions.
Monaldi stresses that the move toward FLNG should not be interpreted as an optimal solution in terms of static efficiency, but as a risk mitigation strategy. He writes that the shift to modular FLNG projects reflects an effort to align export ambitions with Argentina’s risk profile, rather than betting on a single large onshore plant. The modular approach allows export capacity to scale gradually, limiting initial capital exposure.
In this scheme, Vaca Muerta plays a central role as a flexible production base. Shale gas production can be quickly adjusted in response to changes in external demand or domestic conditions, facilitating supply to modular projects without compromising the local market. This flexibility also reduces the risk of mismatches between production, transport, and liquefaction.
Looking ahead, Monaldi notes that Argentina’s integration into the global LNG market will necessarily be gradual and dependent on the international context.
He issues a key warning: “Gas, and especially LNG projects, will be relatively harder to pull off than liquid projects, and they might fail if political risks do not continue to decline.” Ultimately, even the floating model relies on a sustained trajectory of macroeconomic stability and institutional predictability.
Overall, the Baker Institute’s research concludes that Vaca Muerta offers a concrete opportunity to integrate Argentina into the global LNG market—but only under a design adapted to the country’s constraints. FLNG thus emerges not as a definitive solution, but as an intermediate tool aimed at capturing resource value while minimizing exposure to structural risk.