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Fracking Abroad
Argentina’s Shale Hoping for Cash Windfall

The shale boom has thus far remained a uniquely American phenomenon (for a long list of reasons), but the issue of other countries replicating that success has always been a question of when, not if. Argentina’s Vaca Muerte formation contains the second-largest reserves of shale gas in the world behind China, and as the WSJ reports, those multitudes of hydrocarbons are attracting the keen interest (and capital) of oil and gas companies:

Oil and gas companies will be investing $15 billion a year in unconventional energy in Argentina by 2020, Energy Minister Juan José Aranguren said.

Argentine state-run oil company YPF, Chevron Corp. and others are now spending about $1 billion a year in Vaca Muerta, a massive shale oil-and-gas basin in Patagonia, Mr. Aranguren said in an interview Tuesday.

The surge in investment, which some analysts say is far from certain, would come as a result of Argentina’s effort to overhaul its energy industry, Mr. Aranguren said. The country is winding down a decade of price controls and subsidies that distorted the market so much that until recently many families here paid more for a cup of coffee than for their electricity bill.

If and when this cash does start flowing, it will be because Argentina identified its need for market reforms, and followed through on making those necessary changes. We’ve been tracking this story for many years now, and each time we’ve checked in on the Vaca Muerta it’s looked a little bit closer to fulfilling its potential. And progress has been made—labor unions have agreed to up drilling productivity and lower costs, a necessary step for Argentina’s shale ambitions to be fully realized.

But the country’s energy minister is still talking in terms of action two or three years from now, and that means that, for the time being, the United States is going to remain the only real player in the shale game. But if and when Argentina can hack away at its red tape and install more market friendly policies to attract foreign capital, the shale oil and gas could start flowing fairly rapidly.

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  • CaliforniaStark

    The current regime may be interested in market reform, but in the spirit of Peron the voters in Argentina regularly elect governments who look upon expropriating foreign business holdings as a pillar of their economic policy; and the country’s restive labor unions perennially make extortionate demands. It makes any foreign energy company that invests in Argentina proceed with extreme caution, limiting their investment to minimize potential loss, and maximize short-term return. It is a cautionary investment strategy that makes things proceed at a turtle’s pace. Its a shame because a shale energy boom would turn Argentina economy around. The Peron curse has hobbled Argentina for close to a century.

  • Jacksonian_Libertarian

    Chevron makes a habit of taking a corrupt government’s money for bogus shale oil development. Chevron isn’t even in the top ten for American Shale Oil Developers, who are mostly names you wouldn’t recognize. This means they have no expertise at developing shale oil. So, why would you want them developing your shale unless there were kickbacks involved?

    • CaliforniaStark

      Chevron has been involving in oil & energy production in Argentina for many decades. But it has not been without difficulty; as this quote from 2013 indicates:

      “Chevron of the US is understandably eager to be the first international company to develop the vast unconventional oil and gas resources of Argentina if it can. But Chevron’s investment in Argentina has become bogged down in a morass of legal challenges. Many of its assets in Argentina have been frozen as a result of an action by Amazonian villagers pursuing $19bn in damages for pollution in Ecuador more than two decades ago…Chevron’s…entire presence in Argentina, [is] at risk…Chevron failed in an appeal against the ruling, and although its business in Argentina can keep operating, its stock, dividends and 40 per cent of its oil revenues and Argentine bank deposits are frozen….Chevron Argentina said in a paid newspaper advert late last year that the asset freeze would “affect economic progress in Argentina”…“The Argentine asset freeze is probably the most likely thing to lead to a settlement,” says Theodore Folkman.”

      The Ecuador case against Chevron was a legal travesty, which U.S. and other nation’s have refused to recognize. Chevron could have avoided it with the proper payment, but to their credit they decided to fight it. The U.S. court decision refusing to honor the Ecuador ruling is online — do not have the link offhand, but it is worth a read to see how a true banana republic operates.

      Chevron and any other energy company that invest in Argentina know the risks. They will limit their investment as a result, which hurts Argentina. As the article states: “(b)ut the country’s energy minister is still talking in terms of action two or three years from now” — this after almost a decade of delay already.

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