Tuesday, February 27, 2024

OPINION AND ANALYSIS | 16-03-2022 21:13

Vaca Muerta: a failed opportunity that will cost Argentina US$5 billion this year alone

When trying to explain why we fail as a country, look no further than the Vaca Muerta debacle.

Argentina has the very particular skill of wasting historic opportunities, such as the war between Russia and Ukraine that has taken global dimensions, particularly in the energy markets. As crude oil and natural gas prices have surged exponentially in an unanticipated global context of inflation, the Argentine political class is still trying to figure out how to avoid default and close a deal with the International Monetary Fund given an eternal lack of hard currency. Indeed, a scarcity of greenbacks coupled with a socio-cultural lust for those green pieces of paper is one of the pillars of the Argentine failure of the last seventy years or so. Yet, if we would’ve only gotten our act together and executed on a plan that both Mauricio Macri and Cristina Fernández de Kirchner claimed was central, the war could have had a major positive impact on the country’s balance of trade. We are talking about the lost opportunity in Vaca Muerta, the world’s second largest reserves of shale gas.

The figures are indeed staggering. Not of what Argentina could’ve made, but of how much more we will have to pay for our political class’ eternal procrastination. According to a report by consultancy firm Economia & Energia cited by energy industry outlet EconoJournal, a worst-case scenario could see Argentina having the need to import liquefied natural gas (LNF) to the tune of US$16.26 billion in 2022 if prices remained near record highs above US$100 per million btu, the standard measure. While those prices reflected the fear and panic buying given the ongoing war being raged by Vladimir Putin’s forces and the importance of Russian gas exports, particularly to Europe, the expectation is for global energy markets to remain relatively pumped.

One of the biggest sticking points between the IMF and Economy Minister Martín Guzmán had to do with energy subsidies. Indeed, it is a Kirchnerite obsession, one that forced an overshoot by Macri who aggressively hiked utility prices. According to former energy Secretary and economist Alieto Aldo Guadagni, since the discovery of hydrocarbons in the Patagonian city of Comodoro Rivadavia in 1907, Argentina hadn’t faced a decade of declining energy production until the 2010s. The country had achieved energy self-sufficiency around 1989 but ultimately lost it in 2010-2011. The Kirchnerite response, according to another former energy secretary Jorge Laspeña, was a failed “2012-2015 master plan” that involved the nationalisation of energy giant YPF at the hands of then Economy Minister Axel Kicillof, subsidised exploitation at Vaca Muerta, a failed hydrocarbons law in 2014 that included a major subsidy to crude oil producers, and the “Plan Gas” which acted as a subsidy for natural gas producers paid by the Treasury.

The Kirchnerite brand of populism was incapable of figuring out the energy equation, relying on subsidies to keep electricity and gas bills cheap in large and growing urban centres in order to win elections. Yet, losing self-sufficiency meant a growing deficit which ultimately created the need for debt (both intra-government and international), money printing, and inflation. Macri also proudly announced he would develop Vaca Muerta as one of the pillars of his administration’s energy policy. His ‘Plan Gas’ included a costly subsidy for Tecpetrol, a firm under the umbrella of Paolo Rocca’s Techint group, which helped increase production at a massive cost for the state. With Alberto Fernández in the Casa Rosada, Vaca Muerta was once again touted as the “crown jewels” – particularly by Productive Development Minister Matías Kulfas.

Yet, the bureaucratic process for the public bidding on a key gas pipeline that was announced back in 2018 – during the Macri administration – has yet to be completed by the government. The ineptitude of our public servants means the aptly named Néstor Kirchner pipeline that could have saved the country some US$7 billion in natural gas imports this year won’t be done before 2024. Thus, a pipeline that potentially could’ve been ready over the past few years and would’ve saved another US$1.2 billion in natural gas imports in 2021 – when we imported about 55 boats at an average price of US$8.33 per million btu  –is still waiting for the Casa Rosada’s legal team led by Vilma Ibarra to draft an emergency decree to set up the financial structure to finance the project, meaning US$550 million raised last year as part of the wealth tax project is sitting in a bank account, in pesos.

The pipeline will connect Vaca Muerta with Buenos Aires, reducing the need to import gas, which is even more pressing given estimates of a greater demand in 2022 (65 boats) and declining Bolivian production, which means a greater reliance on more expensive liquid fuels. All of this implies Argentina, due to the indolence and incapacity of our public servants, will be incapable of meeting its energy needs this year, meaning planned energy cuts which will primarily hit the industrial sector, hampering the much needed economic recovery. As always, we’ve come full circle.

All of this, of course, because of the failure to implement a coherent plan to develop Vaca Muerta that both Macristas and Kirchneristas agreed was necessary. From dreaming of recovering energy self-sustainability, Argentina could’ve first sought to become a regional exporter and, in the future, a global exporter. This would’ve required investment in infrastructure, particularly pipelines and liquefaction plants, and sustained high-energy prices. As Pan American Energy CEO Marcos Bulgheroni recently put it, Vaca Muerta’s reserves equal six times Argentina’s energy demands for the next twenty years.

But, we’re still waiting for the politicians to file the paperwork. When trying to explain why we fail as a country, look no further than the Vaca Muerta debacle.

Agustino Fontevecchia

Agustino Fontevecchia


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