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Argentina’s energy challenges according to The Economist: Flogging a dead cow

Friday, August 2nd 2013 - 03:01 UTC
Full article 9 comments
The Repsol/YPF/Chevron deal: ‘Spanish get out’ and a year later ‘Yankees come in” The Repsol/YPF/Chevron deal: ‘Spanish get out’ and a year later ‘Yankees come in”

The Economist in its latest printed edition addresses Argentina’s challenges in the energy field including the seizure of a majority stake in YPF from Spain’s Repsol and the latest agreement with US oil company Chevron to exploit shale oil and gas.

Little more than a year ago President Cristina Fernández de Kirchner announced the nationalization of YPF, an oil company owned by Spain’s Repsol.

Ms Fernández called it a victory for “energy sovereignty”, claiming that Repsol had plundered its Argentine holding for quick profits without investing in exploration or development. But on July 16th, after a year in which YPF oil and gas production continued to disappoint, the government announced that it had agreed on a big joint venture between YPF and a different foreign oil giant, Chevron.

Argentina’s energy industry is in a sad state. In 2011 the country became a net importer of energy for the first time since 1984, further eroding its foreign-currency reserves, now at their lowest in six years. Nationalization has not helped: in the first quarter of this year YPF output of crude oil fell by 0.7% and of natural gas by 3.7%. April saw a fire at a refinery. Energy imports are expected to reach 14 billion dollars this year, up from 9.2 billion in 2012.

The great hope is vast shale-oil and gas reserves in Neuquén province, which Repsol discovered shortly before the government expropriated YPF. The Vaca Muerta (“Dead Cow”) field is estimated to hold 16 billion barrels of shale oil and 308 trillion cubic feet (8.7 trillion cubic meters) of shale gas, which would give Argentina the world’s fourth-largest reserves of shale oil and second-largest of shale gas.

Extracting the deeply buried spoils is complicated, costly work. Jorge Ferioli of the World Energy Council, an industry research group, estimates that developing Vaca Muerta will require 68 billion to 89 billion dollars. YPF lacks such funds, and Argentina’s borrowing costs in effect bar it from seeking international financing.

As well as bringing expertise, Chevron has promised an initial investment of 1.24 billion dollars in Vaca Muerta as part of its joint venture with YPF. The deal was announced after Ms Fernández issued a decree seemingly tailor-made for Chevron, which states that energy companies that invest over 1 billion will, after five years, be allowed to sell 20% of their production abroad without paying export taxes or being forced to repatriate profits.

Opposition parties, which backed the expropriation, have labeled the Chevron deal a “re-privatization” and challenged the legality of the decree. They will make the most of the controversy in the run-up to congressional elections due in October. “A year ago the government considered energy sovereignty to mean ‘Spanish, get out’, whereas now it seems to mean ‘Yankees, come in’,” says Daniel Montamat, a former energy secretary and former head of YPF (under opposition governments).

YPF faces obstacles to attracting more collaborators. For one thing there is runaway inflation and a distorted exchange rate. More pressing is the government’s unfinished business with Repsol. Argentina has yet to compensate the company a peso for the 10.5 billion dollars it claims it is owed. Last year, anticipating its deal with YPF, Repsol sued Chevron in Spain and the United States; on July 24th it sought an injunction to halt the deal. Keeping the lights on in Argentina is not getting any easier…

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  • yankeeboy

    So stupid CFK is trumpeting that she was able to get Chevron to invest 1/35th of what they need IN A YEAR to releases U$19B in frozen assets.
    She is in dire straights.
    Nobody else is stepping up and Petrobras is looking to sell all assets in country.
    They might as well get used to huge fuel import bills for a long long time

    Imagine how corrupt and inept this gov't must be if companies that are used to dealing with all the scumbag dictators in the world and they won't even touch these huge potential reserves.

    I don't think it could be more clear

    It's too bad the population doesn't seem to see it.

    Aug 02nd, 2013 - 07:06 am 0
  • GALlamosa

    I think the lights have already gone out in all too many instances.

    Aug 02nd, 2013 - 07:12 am 0
  • Optimus_Princeps

    They already started their stupid electricity rationing. Most of the K supports live outside the city limits, so they cut off electricity to those living closer to the center.

    It was an initiative to make those that don't support the botox Queen to suffer a night of inconvenience. A poor three year old boy froze to death that night.

    YPF won't keep their side of the deal, and Cheveron's investment has brought litigation along with it. This will end horribly.

    Aug 02nd, 2013 - 09:17 am 0
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