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US$88B needed to solve energy deficit

An aerial view is seen of a shale oil drilling rig in Neuquén.
An aerial view is seen of a shale oil drilling rig in Neuquén.
An aerial view is seen of a shale oil drilling rig in Neuquén.
Report says investments in Argentina could lead to self-sufficiency in a decade

 

Up to US$88 billion must be invested in the country’s energy sector over the next eight years in order to become energy self-sufficient, according to a report by the Abeceb consultancy, which warned about an increasing demand for energy and a drop in oil and gas production during the last decade. 
The report, which analyzed the country’s economic sectors with the highest potential, said that oil production could soar 40 percent and gas production 27 percent in the next eight to 10 years if about US$11 billion are invested annually between 2016 and 2023.
Argentina has 30 times more unconventional gas and nine times more unconventional oil than traditional reserves, according to state-controlled YPF energy company.

 

Up to US$88 billion must be invested in the country’s energy sector over the next eight years in order to become energy self-sufficient, according to a report by the Abeceb consultancy, which warned about an increasing demand for energy and a drop in oil and gas production during the last decade.

The report, which analyzed the country’s economic sectors with the highest potential, said that oil production could soar 40 percent and gas production 27 percent in the next eight to 10 years if about US$11 billion are invested annually between 2016 and 2023.

Argentina has 30 times more unconventional gas and nine times more unconventional oil than traditional reserves, according to state-controlled YPF energy company.

Thanks to recoverable shale resources, the country has the world’s second largest gas reserves, after China, and the fourth largest of oil, after Russia, the United States and China.

“The good news is that Argentina has the necessary resources to reach energy self-sufficiency,” the consultancy said in the report. “Over the last 10 years, energy demand rose at an average annual rate of 2.7 percent, which led to the country losing its self sufficiency in 2011.”

Oil and gas production dropped 21 percent between 2004 and 2014, reaching an energy deficit of US$6.1 billion last year. Nevertheless, the figure is set to drop to between US$3.5 billion and US$4 billion thanks to lower oil prices. Oil fell to a more than six-year low, near US$42, last Monday, while OPEC members expect prices will range between US$40 and US$50 until the end of the year.

While most firms have lowered their investment due to the oil price drop, YPF has been the only exception. The state-controlled company saw a 14 percent increase in gas production and a six percent growth in oil production during the first six months of the year. Looking at the sector as a whole, gas production rose 3.5 percent and oil production 0.4 percent in the first half of the year.

Since 2013, YPF has invested more than US$2 billion in Vaca Muerta, the country’s massive shale oil and gas area mostly located in Neuquén. But because of the magnitude of the resources and the country’s difficulties in obtaining financing from abroad YPF is looking for foreign partners — a harder task now with lower oil prices.

In Loma Campana, the company already operates one portion with the US oil giant Chevron and is developing another shale gas field with US’s Dow Chemical. Other companies involved in the area are Petronas from Malaysia, France’s Total, the US-based ExxonMobil, the British-Dutch Shell, and Germany’s Wintershall, while negotiations are under way with companies from other countries.

Sectors with potential

As well as the energy sector, Abeceb highlighted in its report that food production, software development and pharmaceutical production are sectors with a high potential that could be easily met. The same applies to mining and infrastructure but only if changes on economic policies are applied such as changing export duties and foreign currency restrictions.

The consultancy described the infrastructure sector as the “major unresolved task” as economic growth over the last decade hasn’t been followed by growing investment in the sector. Up to 82.6 billion pesos have to be invested on building, widening and improving more than 10,000 kilometres of the country’s road networks, Abeceb said. “Road networks rose only six percent between 2006 and 2014, while the number of vehicles rose 40 percent. Up to 84 percent of the goods are transported by truck, which is 75 percent more expensive than train,” Abeceb said. “A low investment on maintaining ports and improving the country’s waterways makes the country outdated in the world trend of larger boats.”

Looking at mining, the consultancy said there are existing projects that could make exports reach US$8 billion in 2020. Nevertheless, in order to reach that goal, tax pressure should be lowered and laws that ban open pit mining in some provinces reviewed. Argentina has the world’s fourth largest lithium and copper reserves and also ranks high on gold and silver reserves.

The vehicle sector, which represents 40 percent of the country’s industrial exports, is set to recover in the next five years after a large sales and production drop and could reach 850,000 units manufactured per year. The first sign of recovery would be seen next year as exports outside of the Mercosur bloc are set to grow 60 percent due to investments currently being developed.

“Even though the sector explained the industrial growth between 2003 and 2013, the drop in the domestic and regional market led to a strong drop in the level of activity,” Abeceb said in the report.

Higher exports are also expected by the consultancy in the agricultural sector. The country could double beef shipments and recover its wheat production in the next few years if export duties are changed or lifted. A higher agricultural production would also lead to a higher demand of agrochemical and agricultural machinery.

“With the crisis in Brazil’s economy and pessimism about the world economy during the next few years, it’s critical to regain presence in other Latin American markets and diversify the country’s exports,” Abeceb said.

Herald staff

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