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The below ground potential of Argentina’s shale oil and gas reserves is enticing for companies and investors – the country may have the second largest shale gas reserves and fourth largest shale oil reserves in the world. But the above ground risk is a significant challenge for exploration and development. That risk is a structural one, embedded in the nature of Argentine democratic politics and expressed in the unilateral and erratic behavior of Argentine governments. The result is an extremely low level of transparency and credibility in Argentine energy policies.
So how can one explain and evaluate the contemporary level of investment and activity in Argentine shale? Oil has taken front seat and Vaca Muerta’s production more than tripled in 2014 Q1 over 2013 Q1, mainly due to the YPF-Chevron output from the Loma Campana area, which rose from 4,200 barrels a day to 12,800. Is the level of activity surprisingly high, given the well-documented and clearly demonstrated risks associated with government incentives? Or is it surprisingly low, given the geologic endowments of the country, the developed infrastructure for exploration and commercialization of gas and oil, and the obvious need for increased production in the face of years of $10+ billion imports of fuel imports? Answering that question will help us understand the future pace of development of Argentina’s shale gas and oil potential.
