 |
| http://en.wikipedia.org/wiki/Shale |
ARGENTINA: OBSTACLES TO SHALE GAS PRODUCTION
Via Stratfor Global Intelligence
SUMMARY
ARGENTINA relies heavily on fossil fuels for
its energy needs. They account for roughly 89 percent of the country's overall
energy consumption, and more than 40 percent of that consumption can be
attributed to natural gas. ARGENTINE natural gas production peaked in 2006 at
roughly 46 billion cubic meters (bcm), but since then production has not kept
pace with demand. In fact, production has declined by 10 percent since 2006
while overall demand has increased by 4 percent. This trend culminated in 2008,
when ARGENTINA became a net importer of natural gas after having been a net
exporter since 1999. As of 2010, natural gas consumption outweighed production
by approximately 3 bcm per year.
But the future of natural gas in ARGENTINA may
be more encouraging than recent production suggests, especially if Buenos Aires
can harness the country's shale gas reserves. Estimates indicate that ARGENTINA
has the third-highest recoverable shale gas reserves in the world -- roughly 22
trillion cubic meters (tcm). In addition to these potential reserves, ARGENTINA
meets several other criteria that would enable it to quickly develop its
resources and become a significant shale gas producer.
The problem is that the ARGENTINE energy market
operates under tight government control. This control is seen most visibly with
government policies that have reduced the ability and will of energy companies
to invest in new production. These policies have also placed a heavy financial
burden on Buenos Aires, which in the past week revoked oil concessions for
Repsol YPF, the country's largest energy company, accordingly.
Comment by Geopolitical Analysis and Monitoring: The model of Government control over the energy market has
proven rather successful in countries such as AUSTRIA and formally state owned
oil and energy company OMV, not to mention GERMANY and other EUROPEAN
countries. Privatization of state assets is an IMF doctrine which has proven negative
in many parts of the word. Government interferences in energy markets did prove
to be a successful concept in Europe. The results of such interventions are
still visible in Europe’s energy market which has been partially privatized but
where the state still has the final decision making power.
The volatility of ARGENTINA'S regulatory
environment makes the country a risky opportunity for foreign companies that
could provide much-needed capital and technological investments. Given the
promising geology and infrastructure associated with ARGENTINA'S shale gas
basins, this regulatory environment is perhaps the only impediment for quickly
producing shale gas on a large scale. If the current negotiations with YPF can
be brought to a mutually acceptable end, ARGENTINA could once again achieve
energy self-sufficiency and become a net exporter of natural gas.
ANALYSIS
ARGENTINA has four shale basins, the most
promising of which is the NEUQUEN BASIN in central-west ARGENTINA, where a
portion of the country's conventional natural gas is produced. According to a 2011
U.S. Energy Information Administration assessment, this basin contains
approximately half of ARGENTINA'S recoverable shale gas reserves.
Conditions
for Recovery
To recover these reserves quickly, five
conditions must be met. There must be high concentrations of shale gas;
technical expertise in extraction techniques and working knowledge of the local
geography; established pipeline infrastructure; access to fresh water (to
complete the hydraulic fracturing treatments); and huge amounts of capital.
To gain the necessary expertise and technology
for exploiting its shale gas resources, ARGENTINA likely will need both
domestic and foreign companies to participate in exploration. Already REPSOL YPF
and CANADA'S AMERICA PETROGAS have drilled several exploratory wells in NEUQUEN.
Additionally, EXXONMOBIL, TOTAL SA and ROYAL DUTCH/SHELL have invested or plan
to invest in ARGENTINE basins but have not drilled any wells. Notably, the
geology of the NEUQUEN BASIN is thought to be similar to several U.S. basins,
likely making the adaptation of current extraction techniques a simpler task.
Getting financing may be the most difficult
condition for ARGENTINA to meet. YPF has stated that developing the NEUQUEN
BASIN'S VACA MUERTA field alone will cost $25 billion per year. To that end YPF
is seeking foreign partners, including EXXONMOBIL, ITALY'S ENI and major CHINESE
and RUSSIAN companies, to finance the operations. But YPF is the major player in existing oil and natural gas production,
and regardless of new investment, it will remain important for the development
of the energy sector, both as a partner and as the company that controls the
majority of ARGENTINA'S energy infrastructure.
But the nature of Argentina's energy markets
will complicate YPF's ability to attract investment partners. Low consumer
prices have cut into energy companies' revenues, and in YPF's case, the company
has been allowed to return 90 percent of its profits to stockholders, leaving
little for investment into more exploration at a time when domestic production
is in decline. Because demand outstrips production, the government has been
forced to subsidize natural gas and fuel oil to ensure that domestic demand is
met. As a result, the government has directly engaged YPF in a battle to push
the company to invest in new energy production, most recently using the
provincial governments to revoke oil concessions.
The ultimate goal for the ARGENTINE government
is to keep fuel prices low domestically while forcing companies to increase
energy production. Buenos Aires may be willing to provide some money to achieve
that goal, but the majority of technology and financing will have to come from
foreign sources, including YPF. Some foreign companies may be put off by price
controls and the ARGENTINE government's erratic behavior. However, with only 2 bcm of additional natural gas needed to satisfy
domestic consumption, the prospect of being able to export the natural gas may
be enough of an incentive for foreign companies to brave the political winds of
ARGENTINA.
Regional
Implications
It is unclear whether ARGENTINA can overcome
its own regulatory environment and produce shale gas on a large scale. If
successful, the implications for ARGENTINA and the region are extensive. Shale
gas has the potential to eliminate ARGENTINA'S natural gas deficit, which means
the SOUTH AMERICAN country could resume exporting its natural gas -- if it can
garner enough investment to move beyond the current stage of basic
exploration.
Buenos Aires would apply any initial production
toward meeting domestic consumption. This will take at least an additional 3
bcm per year of production from the shale gas fields to eliminate the natural
gas deficit and at least another 3 bcm per year from shale gas to increase
overall natural gas production back to peak levels. Over the past decade, the UNITED
STATES has increased shale gas production by more than 100 bcm per year. ARGENTINA
would have to produce less than 10 percent as much as the UNITED STATES to
regain export status.
CHILE and BRAZIL are natural gas importers, and
much of the natural gas they import comes from BOLIVIA and ARGENTINA. Given ARGENTINA'S
decline in production and the 2007 nationalization of the natural gas sector in
BOLIVIA, BRAZIL and CHILE have supplemented their natural gas imports with liquefied
natural gas (LNG) from global markets -- a much more expensive operation than
piping natural gas. CHILE would welcome lower natural gas prices brought on by
increased ARGENTINE production, and BRAZIL would likewise benefit from
increased production in the region.
If ARGENTINA produced enough shale gas to
exceed its own demands and the demands of neighboring states, ARGENTINA could
look toward the global LNG market. Argentina already has two import terminals,
which could be expanded to include export capabilities with time, planning and
money. It is the opportunity for global expansion that will attract foreign
capital.
Despite ARGENTINA'S potential reserves, the
extent of ARGENTINE shale gas production will not be realized for at least five
years. Additional natural gas production would first liberate ARGENTINA from
its own energy dependence and eliminate its natural gas deficit. From there,
Buenos Aires could begin looking outward. But to do so, ARGENTINA must overcome
its own obstacles to attract and then retain foreign investment.
Reading headlines such as:
The Next Big Shale gas Boom
How To Invest in Argentina’s Emerging Shale Oil & Gas Play
No comments:
Post a Comment