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Foreign Fracking
Argentina Chases After the American Shale Bandwagon

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.

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  • Josephbleau

    “The dog returns to his vomit, the sow returns to her mire, and the burned fools bandaged finger goes wabbeling back to the fire.”

  • Jacksonian_Libertarian

    This has a much chance of improving things as the Mexican reforms to their oil industry, which is to say none. Why should any business invest in these places when much more profitable opportunities are sitting in the US, and incur much less risk. Argentina has been stealing developments from foreign businesses, so what idiot is going to develop anything there? So if I invest $250 million I will get to keep 20% of the hard currency it “might” earn, oh so generous, but I think I’ll pass for an investment that lets me keep all my profits less any taxes, and has 0% risk of having my entire investment stolen by the Government.

  • John Tyler

    Argentina is fast on its way to becoming Venezuela and Cuba and the only folks in Argentina doing just fine are the Castro loving Kirchner, her close aides and their Swiss bank accounts.
    The Spanish oil company REPSOL had their assets stolen by Kirchner and company recently, and Argentina has defaulted on their bonds TWICE in the last 15 years. The real inflation rate there is about 20% per year. Only an idiot would invest in Argentina.
    For Argentina to attract any investments, the existing government has to be overthrown; not un-elected, not voted out of office, but totally and completely overthrown and the top leadership there has to be liquidated; there simply is no other way to rid that government of it’s pro-Castro politicians.
    What a shame. In the early 1900s, Argentina had one of the highest standards of living in the world and a world class economy. But, the Latin American disease – populism / socialism – infected Argentina, and ever since then it has been downhill.
    Argentina will not recover . The government is to corrupt and the voters there, in their stupidity, have voted for economic and political suicide, repeatedly.
    Just watch, the worse things get in Argentina – and they will get worse, Kirchner will get closer to Cuba’s Castro, Maduro of Venezuela, to Iran and Russia.
    Losers love hanging with other losers.

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