Argentina Strives for Energy Independence with Unconventional Resources

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As conventional oil and gas become less available, countries tend to fulfill their energy needs via other unconventional sources. And, when it comes to natural sources, such as oil and gas, shale oil and gas is one of the major resources that is going to change the rules of the game.

A study by Wood Mackenzie suggests that within 15 years all the world’s extra oil supply is likely to come from unconventional sources (Financial Times).

These unconventional sources are more labor- and resource-intensive to extract; therefore, these sources result in higher production costs that make countries depend on foreign investments to develop production. This is the case for most Latin American developing countries. According to EIA, these countries ranked high in technically recoverable shale gas resources but as extracting unconventional sources are costly and need modern technologies, they haven’t reached their full potential. (To read more about energy independence from shale gas, see our blog The Global State of Fracking: Who’s Playing Catch Up With The U.S.?)

High Production, Yet High Demand and High Import

Among South American countries, Argentina is the largest natural gas and oil producer and it’s also one of the biggest consumers (net importer). The energy industry is in a sad state in Argentina; despite having the second largest recoverable shale gas resources in the world – and vast shale-oil and gas reserves – the heavily regulated energy sector includes policies that limit the industry’s attractiveness to private investors.

Consequently, growth in energy demand and decline in production lead Argentina to heavily dependent on imports.

Oil prod and cons 2011

Government Intervention

To reach self-sufficiency and end dependence on imports,  Argentina’s government has to rely on policies that attract international funds and expertise. Toward this development, the government announced the nationalization of YPF, an oil company owned by Spain’s Repsol, and agreed on a big joint venture between YPF and oil giant, Chevron.

Developing Vaca Mureta – one of the biggest conventional oil and gas reserves that is estimated to have 16 billion barrels of shale oil and 308 trillion cubic feet of shale gas (EIA) – needs around $68-89 billion in investment (The Economist). Chevron has promised $1.24 billion in investment after announcing the New Investment Promotion Regime, which states that energy companies who invest over $1 billion will be allowed to sell 20% of their production abroad without paying export taxes or being forced to repatriate profits after five years.

This new investment promotion regime for the production of shale oil and gas is offering great concessions for potential new investors and hopefully will improve oil discovery and production in Argentina in order to pave the path to energy independence.

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