New technology and capital has boosted shale gas and tight oil production in the United States and Canada—a phenomenon dubbed the “shale revolution.” This revolution has important geopolitical implications and has shifted North America’s energy outlook from one of scarcity to one of abundance.
The rest of the Western Hemisphere is also sitting on expansive shale reserves, but these areas have not yet been fully exploited. A recently released AS/COA Energy Action Group Report, “Shale Gas Development in Latin America,” explores these issues in depth.
Within the Western Hemisphere, the primary point of comparison for Latin American countries looking to develop shale gas resources is the United States, where, in 2014, over 20,000 horizontal wells are expected to be drilled, according to RBC Capital Markets. This compares to 250 unconventional wells in Argentina and just 10 in Colombia that are expected to be drilled during the same time period. Investors spent $90 billion in the United States on developing shale gas in 2012 alone; in contrast, foreign direct investment in Latin America last year, in every sector, totaled $180 billion.
In addition to the U.S. and Canada, Argentina, Brazil and Mexico are among the 10 countries in the world with the greatest technically recoverable shale gas resources; together, they make up approximately 40 percent of the world’s total supply. Colombia also has significant potential.
As the shale gas revolution sweeps across Latin America, many governments are beginning to see the industry—and the significant influx of foreign investment—as a quick stimulus to their sluggish economies. Argentina is no exception—with an estimated 16.2 billion barrels of shale oil and 308 trillion cubic feet (TCF) of shale gas in the Vaca Muerta shale formation, the government aims to capitalize on their newfound resource wealth.
Although foreign investment may help Argentina’s fiscal woes in the short term, it is by no means a panacea for the country’s economic problems, and could in fact encourage poor financial practices.
Efforts by the Fernández de Kirchner administration to attract foreign investment have begun to bear fruit, with various international oil companies and investment firms increasing their stake in Vaca Muerta projects. Argentina’s national oil company, Yacimientos Petrolíferos Fiscales (Treasury Petroleum Fields—YPF), has also made a series of joint ventures with oil companies that will provide the state-owned energy company with much-needed cash and technical expertise to develop unconventional energy projects.
In addition to an infusion of financial capital, both YPF and international oil companies have been lobbying the Argentine government to create a more favorable legal framework for investors interested in shale oil and natural gas projects. The administration has undertaken efforts to rewrite the 1967 hydrocarbons law, which would simplify taxes, royalties, and licenses and effectively reaffirm Buenos Aires’ control over natural resources. Such a law would be a direct rebuke of the 1994 constitutional amendment that recognized subsoil hydrocarbon resources as property of the provinces where they are located.
The Argentine Senate approved a bill early Thursday morning that would nationalize Yacimientos Petrolíferos Fiscales (YPF), the country’s biggest oil and gas producer. Sixty-three out of a total of 72 senators voted in favor of the expropriation—more than the majority required to pass the bill—versus three against and four abstentions. President Cristina Fernández de Kirchner’s coalition party Frente para la Victoria (Front for Victory—FPV) has strong influence over both houses and the bill is widely expected to also pass the Chamber of Deputies next week.
The senate vote comes a week following Fernández announcement that the government intended to seize a 51-percent stake in YPF from its Spanish parent company Repsol, which currently ownes 57.4 percent of the company. Fernández blamed energy companies like Repsol for their lack of adequate investment in the energy sector and for Argentina’s energy trade deficit, which reached almost $3 billion in 2011. The government contends that YPF takeover will help solve Argentina’s short-term energy needs.
Shale gas may in the future offer new solutions to Argentina’s energy challenges, as the country is believed to have the world’s third-largest shale-gas reserves after China and the United States. But in a recent article “Argentina’s Shale Gas Revolution,” published in the Spring 2012 issue of Americas Quarterly, Francisco Resnicoff and Gabi Huesca warn that the Kirchner Administration does not have the financial means to exploit these resources and will likely have trouble attracting the level of foreign investment required to exploit its shale-gas reserves.
June 1: This AQ-Efecto Naím segment looks at sustainable cities in the hemisphere.