Milei sees energy policy take shape as plans for YPF S.A. (NYSE: YPF) LNG plant advance in Argentina

Argentina’s President Javier Milei is beginning to see results from efforts to attract major new investment in the country, with state controlled oil company YPF S.A. (NYSE: YPF) and its Malaysian counterpart Petronas saying late last month that they would locate a massive plant to liquify natural gas in southern Rio Negro province. At a cost of $30 billion, the facility will turn the country into one of the largest producers of the clean-burning fuel in the world.

While Milei has been successful in eliminating the country’s fiscal deficit by drastically slashing spending, boosting the economy by attracting investment will be even more important as he works to restore growth. The South American country earlier this year approved tax incentives that S&P Global says will be key for the development of the LNG project capable of exporting 120 million cu m/d by 2031.

“The energy industry has been lobbying for the incentives to build oil and gas pipelines, as well as export terminals, to take advantage of rising output from the Vaca Muerta shale play,” S&P Global wrote in a report, referring to the large natural gas reserve that will supply the export plant.

Argentina has historically been a large producer of natural gas, but it’s typically had to sell what it produces into the domestic market at subsidized prices. The liquefaction facility will allow the country to export the fuel at much higher international prices, with McKinsey & Company saying that demand for LNG will rise 3.4% a year through 2035. It should also help diversify export revenue that’s currently heavily influenced by the price of soybeans (CME: ZSX4).

The export facility will be built using a project finance model, which means that future sales contracts will be used as collateral to obtain construction loans. It’s a win-win that will allow YPF S.A. and Petronas, which together will control 50% of the eventual exports, to build the plant without having to tie up much of their own money.

YPF S.A., which is majority-owned by Argentina’s government, has seen its shares surge 39% over the past year as Milei has worked to reinvigorate the economy. That’s quite a run considering that crude oil futures (CBOE: CLU4) have declined 8% over the same period. Milei has so far not been able to deliver on his earlier promise to completely privatize the company as he still faces considerable opposition in Congress. But with the outlook starting to change for the better, he may not even want to anymore.