You may have noticed that, lately, we’ve been talking a lot about Argentina here on
Visualpolitik.
And you’re right, we’ve made a lot of videos about the country of tango.
But, what do you want me to say?
Argentina is a very interesting country.
After all, can you tell me of any other country that in the last 6 decades, on average, has
had to negotiate a rescue with the IMF every 4 and a half years?
Because they thought they could do anything.
And ended up having to revise their decisions.)
Argentina has almost become synonymous for crisis...
What the hell, Argentina is the country of crises.
Monday 08/12/2019: Argentina just suffered the 2nd-biggest crash since 1950 for any stock
market — and the nation is again on the brink of a financial crisis.
Business Insider.)
Everything is head over heels.
Companies dropped between 30 and 50%, the country’s risk rose by 350 points in one
hour and the dollar rose, a lot.
All this shows that there’s a serious problem.)
I give you my word, I can’t remember a single time when Argentina’s current affairs weren’t
marked by economic problems.
The hyperinflation of the late ‘80s, the default and the corralito, or freezing of
bank accounts, at the beginning of this century or the economic collapse that the country
has been experiencing since 2015 and which has forced it to negotiate with the IMF, yet
again.
On this occasion, the rescue amounts to no less than 56 billion dollars.
Yes, you did hear that correctly, 56 billion dollars.
Obviously having so many economic problems has consequences.
During the last 100 years, Argentina has gone from being one of the 10 richest countries
on the planet in per capita terms to tumbling way down to 64th position.
That is, at the level of Belarus, Turkmenistan or Iran.
And worst of all, it’s ranking keeps falling.
But in recent years a dream has spread through Argentina, and with it the hope that, once
and for all, they’ll be able to leave their problems behind.
In the nineteenth century, wool was Argentina’s cash cow, at the beginning of the last century,
it was beef, the famous Argentine meat, in the mid-twentieth century, it was wheat and
now many hope that oil and gas will change the country’s fate.
And this hope has a name: Dead Cow.
Listen up.
What investments did you bring if the investments you’re making are being made in Dead Cow?
Incredible.)
(DEAD COW, THE LATEST TREASURE)
Ok, what can we do, it doesn’t have the prettiest or most romantic name, but behind
this name lies one of Argentina’s great treasures.
But... hold on a second.
What on earth is this Dead Cow deal?
That’s the obvious first question, don't you think?
Dead Cow, is a geological formation that can turn this country into a gas exporting power.
Located on the western edge of Patagonia, near the Andes and in the middle of an arid
and lonely steppe, Dead Cow is the reason for news stories like this:
Dead Cow.
June's gas production was the highest in 11 years.
Last month there was a total of 140 million cubic meters per day, which meant an annual
growth of 5.8%.
It’s the largest gas production in eleven years.
La Nación)
By the way, this isn’t strictly a new discovery.
The Dead Cow site was discovered by the American geologist Charles Weaver back in 1931.
However, until relatively recently nothing could be done with it.
Dead Cow, is an unconventional hydrocarbon deposit, that is, “Shale oil” when oil
is extracted and “Shale gas” when gas is extracted.
In this site, hydrocarbons are distributed throughout a 30,000 km2 surface… an area
equivalent to twice the size of Kuwait.
There’s only one problem, unlike the Middle East where you only need to prick the soil
to get oil or gas to spout, here, in Dead Cow territory, all these precious hydrocarbon
resources are about 3,000 meters below the surface.
Yes, very tricky
And wait a second, because that’s not all.
There’s another, even worse problem.
In this case, oil and gas are trapped within the rocks, so to exploit them, a well must
be built, through which a pressurised substance is injected to fracture the rocks so that
the oil and gas can be released through that same well.
It’s a matter of pressure, when oil and gas are released from the rock these compounds
emerge with a huge force.
It’s something similar to opening a shaken bottle of Coke or soda.
Exactly, we’re talking about the controversial fracking or hydraulic fracture.
That’s why they couldn’t exploit Dead Cow until relatively recently.
Now, at this point, there’s a question I know many of you may be thinking.
Exactly how much oil and how much gas are we talking about?
Because that’s the key issue.
Could the Dead Cow site really represent a turnaround for Argentina?
Listen up
Thanks to Dead Cow we produced 3% more gas than a year ago.
We hadn’t had such a high production since 2011.]
(OXYGEN AGAINST THE CRISIS)
To continue this story, we need to go back to 2011.
That year, Repsol, a Spanish oil company, announced “its greatest discovery”:
Repsol YPF announces the greatest oil discovery in its history.
Repsol YPF estimates that there are recoverable oil and gas resources equivalent to 927 million
barrels of oil.
El País (7/11/2011))
But that was only the beginning.
Today, Dead Cow is considered to be at least the second largest unconventional gas reservoir
in the world and the fourth largest in shale oil.
In fact, check it out, according to the US Energy Agency estimates, this deposit’s
current exploitable reserves amount to 16 billion barrels of oil and 308 trillion cubic
feet of natural gas.
But...
What do these figures really equate to?
Well, to give you an idea...
16 billion barrels of oil equals twice the conventional oil reserves of countries like
Norway or Angola.
It’s almost 60 years of Argentina’s oil consumption.
And as for natural gas...
Argentina’s current consumption is approximately 1 trillion cubic feet per year.
That is, to understand this better, just the exploitable reserves of Dead Cow, 308 trillion
cubic feet of natural gas, amount to almost 300 years of gas consumption in Argentina.
Dead Cow might as well be called “cash cow”, because the place is so flush with oil and
gas.
All this means that within a few years Argentina could have an important competitive advantage:
cheap energy.
And nothing suits industry better than having cheap energy.
On the other hand, the country may also delve into exporting natural gas, not only to its
Latin American neighbors, but to the rest of the world, especially Asia.
And that’s interesting, because surely most of you are worried about sustainability and
the environment, right?
Who wouldn’t like to have renewable short-term energy sources, and for lower polluting energy
sources to have a leading role?
However, to reach this point there’s a much more urgent step that needs to be taken: replacing
coal in production processes, especially in developing countries, such as China, which
still generates 70% of its electricity by burning coal.
With its enormous population and heavy reliance on coal, China is by far the world’s biggest
polluter, responsible for more emissions than the US and EU combined.
CarbonBrief)
And in this mission, both for cost and technology, natural gas works like a charm and is certainly
much cleaner than oil and coal.
So even if we speak in terms of sustainability, “Dead Cow” is great news.
But just a second, at this point some of you may be thinking, this could be good for the
environment and in several years all this may help Argentina.
Well you couldn't be more wrong.
Dead Cow is already having very positive consequences for the Argentine economy.
You see, the lack of investment and the decline of old deposits have caused Argentina, since
2008, to import a huge amount of natural gas and oil, which of course meant a much higher
trade balance deficit and a huge exodus of dollars from the country.
However, now that’s beginning to change.
“The production of crude oil accumulates 16 months of uninterrupted annual growth.
The unconventional oil, which increased by 47%, already represents 18% of the total production.
Argentina hasn’t had to resort to oil imports for 14 months”.
Gustavo Lopetegui, Secretary of Energy.)
And with natural gas, it’s a similar story.
Since 2017, net imports have decreased by more than 50%.
“Our great challenge lies in continuing to increase production to supply the domestic
market and to become gas exporters in all months of the year.
This will allow us to converge at lower prices in the domestic market, both for homes and
the industrial sector”.
Gustavo Lopetegui, Secretary of Energy.)
Obviously, without this change, Argentina’s ongoing crisis would’ve been even worse,
much worse.
What’s more, if Mauricio Macri were to get re-elected, the first thing he should do is
go kiss the earth at Dead Cow, don't you think?
The point is that if this site is put to work at full capacity, the impact on the country's
foreign balance could be huge.
According to Carlos Ormachea, president of Tecpetrol, one of the companies that is working
on the site, we would be talking about a positive impact of 30 billion dollars per year.
20 billion in exports and another 10 billion dollars which wouldn’t be spent on buying
hydrocarbons from outside of the country.
And of course, the country could really use aaaall those dollars to overcome its external
imbalances.
This is what we need, to shake it off and notice everything we can do.]
Now do you understand why it’s so important?
From the IMF’s rescue, we’d go into the Dead Cow’s mega-rescue.
But, just a second, because things aren’t that straightforward.
Listen up.
We’ve definitely indebted the Argentine Republic.]
The highest salary in all of Latin America with an increase of more than 2,000%.]
(POLITICS, ALWAYS POLITICS)
One question, do you remember the Repsol discovery from 2011 we mentioned?
Well, that huge news was actually the beginning of many, many problems.
With so much money involved...
The then Argentinian president, Cristina Fernández de Kirchner made a controversial decision:
to forcefully nationalize the YPF company, the largest Argentine oil company, which at
that time was part of the Repsol group.
Suddenly, the Argentine government took over…
And everything stopped.
After its nationalization, they didn’t only have to deal with the beginning of a very
long judicial process which ended up costing the country a lot of money, international
investments also stopped completely.
And, the oil and gas sector is one that requires huge investments of thousands and thousands
of billions of dollars.
In the end the project almost stopped.
However, in 2015, when Mauricio Macri came to power, the project came to life again and
a huge rain of millions began to exploit this great treasure.
But a lot more is still needed.
Will Argentine politicians allow Dead Cow to develop?
Will Argentina be able to take advantage of this great resource?
Leave your answer in the comments.
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