BUENOS AIRES (MNI) – After eight years of energy shortages, Argentina is poised to turn things around, potentially within the next five years.
The country is sitting on top of the third-largest shale gas resources in the world after China and the United States, enough that some energy executives are bullish about the possibilities of exporting surplus output.
The government is starting to promote development with the aim of reversing a shrinking trade surplus as it becomes harder to maintain the exchange rate and social housing and welfare programs that have made Cristina Fernandez de Kirchner one of the most popular presidents in recent times, and propelled her to reelection this week.
The numbers are promising.
The U.S. Energy Information Administration last April said the country has 774 trillion cubic feet of shale gas resources, those that are technically recoverable. That is far greater than its 13.4 Tcf of proved gas reserves, an amount that has slimmed 50% from 2000 due to limited exploration and aging fields.
Big oil companies like Chevron, ExxonMobil, Petrobras and Total are starting to plow millions of dollars into drilling wells to uncover the potential. Spending is estimated to reach more than $1 billion over the next few years.
«We can replicate what is happening in the United States,» said Tomas Garcia Blanco, executive director of exploration and production at YPF, the country’s leading oil producer, told MNI on the sidelines of a the Argentina Oil & Gas Expo held recently in Buenos Aires.
The United States is thought to be on track to reduce its reliance on foreign gas by developing its shale formations, even to export supplies as liquified natural gas.
The same could hold true for Argentina — or it could be better.
«We are finding a shale in Argentina that has characteristics very superior to what is in production in the U.S.,» Garcia Blanco said.
YPF, backed by Spain’s Repsol, already has found 4.5 Tcf of shale gas and more than 150 million barrels of shale oil resources within small regions of Neuquen, a southwestern province now at the heart of the hunt for unconventional hydrocarbons and big profits.
This would help rebuild fossil fuel production, which meets 80% of national energy demands, reversing the trend in recent years.
Oil output has dwindled by a third and gas by 13% over the past decade, causing a pullback in energy exports followed by a rise in imports. Argentina is one of the world’s fastest growing importers of LNG, bringing in supplies to feed an economy growing by an average of 8% a year since emerging from a 2001-2002 crisis.
The energy deficit is expected to reach $3 billion this year for the first time in 20 years, evaporating a surplus that only five years ago was $6 billion. The deficit could reach $5 billion in 2012, according to private estimates.
This situation has caused the overall trade surplus to narrow to an expected $8.3 billion this year from $11.6 billion in 2010.
And rising energy imports has led to tightening trade barriers, with the government promoting the substitution of imports.
CFK, who has confessed to being «obsessed» with producing all if not most of what the country needs within its borders, has ordered carmakers to export the same value of their imports. Germany’s BMW, for example, has responded by exporting auto parts, leather and rice so it can gain authorization to import its high-end vehicles.
Can the shale prospects change all this?
The government thinks so.
«In the short and medium term we will return to a complete balance» in energy trade by developing the shale resources and expanding refining capacity, Energy Secretary Daniel Cameron said. «The future is very hopeful.»
The question, however, is whether the conditions are in place to develop the resources and build the infrastructure to feed them to the local market and cut imports.
«The resources are there,» said Ernesto Lopez Anandon, president of the Argentine Oil and Gas Institute, told MNI. «You have to make it attractive for investment.»
With ideal conditions, the widespread development of shale could take three to four years, he said.
Yet there needs to be a price to warrant the spending not only in drilling but in building the infrastructure — pipelines, processing plants and distribution networks — to handle the added supplies, he cautioned.
The government has kept controls on gas, oil and refined product prices since after the 2002, crimping profits for the energy sector. This led to an exodus of foreign companies and a pullback in spending, sparking the decline in production and rise in imports.
The government has allowed prices to rise for industrial users, which for gas are paying $4-7 per million British thermal units. Yet residential consumers pay only $0.50/MMBtu, among the cheapest in the world.
With inflation running at an annual 20%, it could prove hard for the government to raise prices on consumers, which burn about a third of the gas production. But in her second term CFK also might start to reverse some policies, like subsidies and price caps, that have left her with difficult fiscal decisions.
Michael Bose, president and country manager of Apache Argentina, said his company will continue to increase spending in Argentina as long as conditions are right.
While he declined to name a price, industry experts say the minimum for shale gas needs to be $6-7/MMBtu. At that, the shale gas would be competitive against imported gas, which costs $10-16/MMBtu.
The question, said Bose, is whether the government will allow a higher price.
Guillermo Giussi, an economist at Economia y Regiones in Buenos Aires, told MNI recently that he expects the government to cut energy and transportation subsidies, which he estimates total $15-20 billion a year, or three-times more than the $6.3 billion in debt payments the government must cover next year.
A reduction will free up funds for other uses, reducing the strain on the central bank to print pesos and the impact on inflation and the exchange rate, he said.
While cutting subsidies also will push up inflation, this could be offset by reducing the pace of monetary expansion, he added.
One indication the government is preparing to reduce subsidies was a move this year to scale back controls on diesel and gasoline prices, which have since gone up 30%.
Source: /mninews.deutsche-boerse.com