December 12, 2013
Shale without fail
Is Vaca Muerta ‘condemned to success’?
Far from being a “dead cow,” the Patagonian shale deposits of Vaca Muerta lead a charmed life in the eyes of local enthusiasts — virtually “condemned to success” in ex-president Eduardo Duhalde’s famous phrase. When you are sitting on what are often described as one of the world’s three biggest shale fields, you can do pretty much what you like in the name of sovereignty, it is assumed — for up to 60 billion barrels, greed will find its way in a market used to working its way around rogue governments.
Here for the Shale Gas World Argentina summit between yesterday and today, Dr. Bernard “Bud” Weinstein (from the Maguire Energy Institute and the Cox School of Business in Dallas) has problems pronouncing “Neuquén” but throws a useful outside perspective on local notions that possession of a raw material is nine-tenths of the law.
At least five factors are essential for the successful exploitation of shale, he insists — geology, technology, pricing, capital (including the human as well as financial capital, the expertise) and policy as perhaps the most important of the five. And if these conditions are not fulfilled, investors have no lack of other options — including the heartland of capitalism, the United States (where 37 of the 50 states have fuel in some form).
If YPF CEO Miguel Galuccio is shooting for some four or five billion dollars from foreign partners within the total required investment of 37 billion dollars in his five-year plan, Weinstein feels that even that modest figure will be a challenge. He sees Chevron’s 1.2 billion dollars as paying for little more than a foot in the door — given Argentina’s dodgy reputation (especially in this sector with the backdrop of the confiscation of Repsol’s YPF shares), he expects future investors to demand ironclad contracts as well as a serious regulatory and political framework.
Regarding legal security in Argentina, Weinstein’s list of five essential factors grows to six requirements — a) the rule of law, b) the settlement of international claims, c) an equal footing for all investors whether local or foreign, d) assurances against confiscation, e) the removal of price controls and f) the reduction (not removal) of export duties.
Yet the Texas-based expert has nothing but praise for Vaca Muerta itself — its 30,000 square kilometres (70 percent oil-yielding and 30 percent natural gas) offer thick deposits of world-class quality.
But Weinstein does not claim any expert knowledge of Argentina or a shale potential which has yet to be tapped — the best service he can render is to chart the road ahead down which his country has already come so far, transforming the US from the world’s biggest importer of energy to the fastest-growing producer which tops four of its five main forms (natural gas, nuclear power, coal and renewables while third in oil). The steady decline in US oil reserves as from the mid-1980s has been abruptly turned on its head in the last five years although the prevailing political mentality continues to be the OPEC dependence of four decades ago.
Fracking has spearheaded much of the US recovery in the last five years, creating 650,000 well-paying jobs, but the Barack Obama administration pins its hopes elsewhere, Weinstein complains — for example, on renewable energy where 75,000 jobs have been created under his presidency at a cost of 15-20 billion dollars in subsidies. Or electric cars, which account for a meagre 30,000 of the seven million vehicles manufactured annually in the US — when the natural gas surge would logically make CNG a much better bet but the infrastructure and the network of service stations is lacking.
Ditto at state level where much of these issues are resolved — the declining smokestack state Pennsylvania, traditionally coal-mining West Virginia or empty North Dakota have all been given a new lease of life but perhaps the greatest potential is in New York whose politically ambitious governor Andrew Cuomo has slapped a moratorium on fracking.
This political resistance is largely grounded in a vehement environmental lobby, says Weinstein, who tends to project the same thinking here when many objections have a strong nationalistic undercurrent. These critics often err technically but they do not care — their bottom line is that fracking will boost fossil fuel production and therefore greenhouse gases so it must be bad. Yet Weinstein points out that while the US economy has grown by 30 percent in the last 20 years, carbon emissions have declined 10 percent, largely because of the transition to natural gas from coal.
More specific environmental critiques tend to focus on water where there are two lines of attack. One is contamination of the water table. The only way fracking up to 4,000 metres underground can pollute a water table only 100 metres or so below the surface (Galuccio also pointed out this discrepancy at the Council of the Americas last Thursday) is bad casing, says Weinstein, who has witnessed tubing which resists sticks of dynamite. The one problem (in Pennsylvania) came from the surface dumping of used residual fluids.
The other criticism of hydraulic fracking centres on the vast volumes of water needed. When the Herald quoted Galuccio from last Thursday as saying Vaca Muerta would only need 0.5 percent of Neuquén’s water, Weinstein was skeptical — this might only reflect current low levels of drilling, he said. But fracking has come such a long way in its 60 years of existence that water might not be needed at all in a near future — perhaps carbon dioxide or just air could do the trick.
If every US president since Richard Nixon has preached energy independence, that aim looks closer than ever — just in the last five years US imports have fallen from 60 to 38 percent of consumption (still 8.5 million barrels a day) with less than 10 percent from OPEC countries. But Weinstein feels that the US could both export and import more — thus if more sweet crude is produced but refineries are more geared for heavy, why not export more sweet and import more heavy?
Finally, Weinstein warned against any dog-in-the-manger complacency over Vaca Muerta by stressing that shale is a big, big world — he shows a map with big oil patches in all five continents (Russia is vacant on this map since it has such vast conventional reserves but even there production is shifting from hazardous Arctic oil to Siberian shale). Vaca Muerta does not have to come to life.