Argentina is sitting on one of the world’s largest shale formations—called the Vaca Muerta—and it’s hoping to replicate the American experience and frack its way to an energy renaissance. The FT reports:
[T]he jewel in the crown for investors [in Argentina] is Vaca Muerta, which holds the second largest reserves of shale gas in the world after China, and the fourth largest reserves of shale oil. This has triggered high hopes that Argentina will be the next big shale play, emulating the groundbreaking success of the US.
Aldo Guerrero, a rig manager at YPF and Chevron’s Loma Campana joint venture who previously worked at the Eagle Ford field in Texas, which is at the heart of the US shale boom, predicts a bright future for the Belgium-sized shale formation whose name means “Dead Cow” in Spanish, because of its shape on a map.
“This project could be even better than Texas,” says Mr Guerrero, a Texan of Mexican descent, as he raises his voice over the whirr of heavy machinery that is boring a hole more than 4,000m beneath the desolate semi-desert of Patagonia.
Vaca Muerta promises to be a game changer at the local, national, regional, and global level. There’s no doubt that a system of private ownership of mineral rights would make things better for Argentina—communities with oil resources often end up being damaged as they undergo lots of change while little of the wealth that comes from the oil or gas stays in the community. It’s a bad thing if you live outside the U.S. and oil is discovered on your farm or in your town; that’s one of the reasons why the U.S. has been so quick with shale and other innovations stretching back to the 19th century. And it actually works better for national prosperity than the seemingly more benign system of having the resources owned by ‘the state’, ostensibly in the name of all, but really promoting corruption and exploitation.
Vaca Muerta’s promise could presage Argentina getting another chance: the Cristina Fernandez regime is leaving—her efforts to amend the constitution so that she could have more time to destroy the country’s economy fell flat as voters grew disillusioned—and hopes are high for a less destructive government. Argentina could see a significant improvement as foreign investment returns.
At the global level, this is yet more evidence that there is still a lot of shale gas and oil to come on line. The long term consequences for the global energy market are only beginning to be felt, but OPEC is likely to continue to suffer as more sources emerge in more countries.
In South America we can see progress in both Brazil and Argentina. Both countries are disappointments historically: that is, both have immense resources but neither has been able to do what the U.S. did in the 19th century—to convert the wealth that comes from commodity production into a diversified, competitive modern economy that can support a first world living standard for the majority of the population. Both also suffered from a kind of bipolar political disorder—power tended to swing between irresponsible populists and repressive oligarchical and military rulers. The problems in the political systems were both symptomatic of and contributing factors to the continuing economic failure.
Those cycles are still with us: both Kirchner and Dilma represent the populist pole in the political history of their countries, and both have undermined their country’s prosperity with the familiar mix of ineffective populist nostrums and institutionalized political corruption. But in both cases, the rise of countervailing forces—a better educated public with higher expectations, better press, stronger legal systems and more coherent political opposition—has limited the damage this time around.
The left and the right in both countries has become more moderate and less dangerous over the decades. Both countries now have a larger number of well educated professionals and economists who understand just how destructive the past has been.
In Argentina it’s likely that the end of the Kirchner era will be less tumultuous (and more legal) than the end of past populist eras. And in Brazil the institutions of justice and the reaction of popular feeling in the face of corruption and economic failure are moderating the impact and perhaps altering the course of Roussef’s government. Moreover, Dilma’s party may have its flaws, but thanks still to Lula’s historic understanding that capitalism helps the poor more if you don’t try to crush it, there is a stronger understanding in Brazil now than ever that a moderate, careful and incremental path to the future brings better results for all classes in society.
The 20th century was largely an era of wasted opportunities in South America; the 21st won’t be a no-brainer, but things do seem to be looking up.