Pundits are divided over what possible impact low global oil prices can have on production of biodiesel, of which the country is a leading exporter
Energy pundits are deeply at odds over whether the current depressed world oil prices can affect Argentina as a leading biofuel exporter, with some of them arguing that the local biofuel sectors is suffering as a consequence of low crude prices, and others saying that the two are completely unrelated things.
In remarks to the Herald, they do, however, agree that the oil prices plunge will not last long and will start picking up as new investments in shale oilfields — which are highly costly to develop — start declining, namely in the United States.
“The low international crude prices do not spell good news for Argentina’s biofuel prospects,” said Alieto Guadagni, an Energy Secretary for neo-conservative Peronist President Carlos Menem (1989-1999).
“Argentina is a large biofuel producer and exporter. But since five or six years ago, as a consequence of the government’s erratic measures, no new large investments have been made.”
Depressed crude prices also affect giant neighbour Brazil, but Brazil, which uses sugar cane to produce the best bioethanol in the world, is a low-cost producer and its biofuel would continue to be profitable even with oil at US$30 per barrel, Guadagni said.
Jorge Castro, a Strategic Planning Secretary for Menem, agreed partially, saying that the local biofuel sector is not suffering because the low world crude prices but as a result of exports duties clamped by the progressive Peronist administration of President Cristina Fernández de Kirchner.
Argentina is plunged in a deep energy crisis after having lost self-sufficiency some years ago. Elections are due in October and Fernández de Kirchner cannot seek a third straight term.
Daniel Montamat, an Energy secretary for the Radical-Frepaso Alliance which crumbled down in 2011 amid Argentina’s worst-ever economic meltdown, said that “despite the world’s crude price crisis, Argentina, with an installed capacity of four million tones, should strive to continue being a leading world biodiesel exporter.”
“Worldwide, biodiesel competes against gasoil while ethanol competes against gasolines and, as a consequence, if the price of gasoil and gasolines declines too much, biofuels projects need more subsidies,” said Montamat.
“Argentina should maintain the production of biofuels made on the basis of commodities where this country has comparative advantages.
“Then, biofuel production would also imply the use of a technology which will progress towards second-generation biofuels which is highly criticized as they compete with food demand but, with enzymatic transformations, biofuel will be able to be produced out of any vegetable species,” he said.
Montamat recalled that even though world crude prices are very low, in Argentina, due to government intervention, the barrel of crude sells for about US$80 dollars, which means a somewhat wider margin for biofuels to compete.
Oil prices prospects
Regarding the plunge of world crude prices beginning last July, the experts’ opinions are more even.
Castro said that according to US Department of Energy the price of the barrel of crude between US$47 and US$49 is the floor and that it foresees a price of US$58 this year and US$75 in 2016, “on the basis of global demand well above supply, despite the extraordinary growth of the US shale oil and shale gas production.”
Besides, he said, Mexico has launched a tender process to deregulate its oil sector, including the Eagle Ford Formation, a shale oil and shale gas field in the north of its territory, which extends into the US.
“No major player has been absent from this tender process and the reason is that oil investments are long-term ones. And the forecasts of those companies are in line with those of the US Department of Energy,” Castro said.
On top of this, he highlighted the accord that Argentina’s renationalized YPF oil company signed on Wednesday with China’s Sinopec for the joinr development of the Vaca Muerta shale oil and gas fields which stretch from the Patagonian province of Neuquén into the Andean province of Mendoza, and that contains some of the largest shale oil and shale gas reserves in the world.
Guadagni said that the downward world crude prices cycle is ending. “The barrel was about US$100 six months ago and now is around US$45. It could shed four or five more dollars but not much more than that. At these levels, for many producers in the US, shale oil ceases to be profitable and although those who have already discovered and developed fields will continue to exploit them, there will be a retraction in new investments for new developments.”
Montamat said: “In my view, this cycle of low prices is not here to stay. The key is supply rather than demand. It is true that the world economy is weak and that as a consequence oil demand is below what had been expected.”
“But on the world market there is a supply surplus of almost 93 million bpd, and almost 10 percent of that is accounted by high-cost crudes including shale oil, Canada’s tar sands, etc. Over the past four years the US incorporated almost four million barrels into its production. Those high-cost barrels continue to operate with short-term marginal costs, but companies will cease to make new production investments. In my opinion the world will take that moment as a signal and the market will be cleaned up of surpluses, and prices will rebound. For non-conventional oil to be profitable a price of US$80 per barrel is necessary,” he added.
“Sometimes people tend to forget that the US has attained gas self sufficiency but that it continues to be the world’s largest oil importer. It produces about 10 million bpd and consumes about 18 million bpd, that is, it imports about eight million bpd. The second-largest importer is China with somewhat more than six million bpd and third Japan, with somewhat more than four million bpd,” Montamat said.
“Global demand will pick up because these low prices are helping many economies, such as China, and even the US, Japan and Europe.
“As high-cost oil production starts declining, the barrel will find new equilibrium levels of around US$70 and US$80 per barrel,” Montamat said.
Source: Buenos Aires Herald