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Introduction
This fall the Argentine government passed a new hydrocarbons bill with the intent of attracting foreign direct investment in its energy sector, particularly in shale oil and shale gas areas. With 802 trillion cubic feet (tcf) of technically recoverable gas, Argentina has the second-largest shale gas reserves behind China. It also has the fourth-largest shale oil reserves (27 billion technically recoverable barrels), as well as a developed domestic gas market and export infrastructure. The country is thus a potentially important player in the global oil and gas markets. Not only has the country been a major supplier of natural gas to neighbouring Chile, Uruguay, Brazil, and Bolivia in the past, but its domestic use is so large that it has become an important importer of natural gas via pipeline from Bolivia and it has built two LNG import facilities. The World Gas Model at Rice University indicates that Argentina could supply LNG to China by 2030. A number of companies (such as Repsol/YPF before its nationalization in April 2012, Total, Apache, Exxon, Shell, Pan American Energy, and Americas Petrogas) have already begun exploring, with Repsol/YPF making a significant discovery in December 2011.
Nevertheless, until significant exploration is undertaken one cannot know how much shale gas exists and is potentially recoverable under current economic and technological conditions. In the USA, where shale gas exploration and production has been underway for a number of years, dramatic recalculations of reserves downward have occurred. For example in 2012 the EIA reduced the estimated national shale gas reserves from 827 tcf to 482 tcf, which included a reduction by 66 per cent of the prolific Marcellus Shale basin; two years later, it downgraded a potentially major basin in California (Monterey) by 96 per cent. The liquids potential of Argentine shale gas will be a key factor for investors, but preliminary estimates indicate that only 20 per cent of the most important basin, Vaca Muerta, has liquids. Clearly, a great deal of exploration needs to occur to confirm Argentina’s potential. And estimates for full development reach US$250 billion. Investment in the logistics and infrastructure, including refining, to support the expected levels of production will also be significant. But Argentina has had a troubled relationship with foreign investors, even beyond its historic sovereign debt default in 2002 and the renationalization of YPF in 2012. Domestic price controls, export controls, broken contracts, and incentive programmes that failed to materialize have all contributed to Argentina’s current energy crisis.
The government of President Cristina Fernández de Kirchner (CFK) expects the optimists to flock to Argentina enticed by the geological fundamentals. Stimulated by a successful negotiation of over US$1 billion with Chevron in the summer of 2013, the government developed a new hydrocarbons law that promises significant incentives to attract the investment that will reproduce the US shale boom in Argentina. One just needs to get past the broken promises of the past.
