On Thursday, Argentina passed a raft of oil and gas reforms aimed at kickstarting the country’s fledgling, near non-existent shale industry. The FT reports:
Companies complain of a tangled web of state controls and restrictions on imports, access to hard currency and energy prices that make investing in Argentina uncertain, as well as powerful trade unions, high inflation and a generally hostile attitude from the government towards the private sector. […]The reforms will cut the minimum investment needed for companies to be exempt from import controls to $250m from $1bn, while investments of at least $250m will allow producers to keep 20 per cent of the hard currency generated by exports.
Argentina’s Vaca Muerta shale formation is one of the largest in the world, and as a result the country can lay claim to the world’s second largest reserve of technically recoverable shale gas, and fourth largest reserve of tight oil. But the prospect of drilling in the rock formation has, as befitting its name, looked lifeless thus far.Buenos Aires is importing more energy as a share of its overall mix by the year, providing a strong incentive for the Argentinian government to prune the red tape surrounding drilling processes in Vaca Muerta. But while this new law does dangle incentives in front of foreign firms to encourage investment in Argentinian shale, it does little to curb the power of the country’s state-controlled energy major YPF. In fact, the FT reports that the reforms actually strengthen YPF’s hold over the sector—a worrying sign for private companies wary of price and currency controls that have so far made it difficult to do business in Argentina.Even if the investment starts to flow, there’s no guarantee that oil and gas will. If there’s one thing we’ve learned in the past few years as we’ve watched the rest of the world attempt to imitate U.S. shale success, it’s that there is a long check list of favorable factors that companies or countries need to check off if they want to profitably tap these formations. Still, if Buenos Aires can pull this off, Vaca Muerta could be a huge boon to its struggling economy.