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Research Report

The New Argentina: Time to Double Down on the Energy Sector?

Cristian Folgar
Copyright Date: Mar. 1, 2016
Published by: Atlantic Council
Pages: 26
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Table of Contents

  1. (pp. 1-1)

    An unfavorable business climate—rather than insufficient energy resources—has led to a number of setbacks in Argentina’s energy sector over the last several years. The result: a drop in production even while energy demand has continued to increase. This has led to energy supply problems that restrict economic growth as well as an inability to attract investments critical for economic recovery.

    The inauguration of President Mauricio Macri in December 2015 could represent a turning point for the energy sector and private business as a whole. The new administration’s first actions focused on recreating a friendly environment for local and...

  2. (pp. 2-3)

    Argentina’s primary energy matrix relies heavily on hydrocarbons, which represent around 85 percent of the energy mix, and particularly on natural gas, which makes up more than 50 percent of the total. Hydro represents less than 5 percent. The federal government has introduced biofuels into the automotive fuel market and has launched programs to promote the use of renewable energies such as solar and wind.² But even in a scenario where the government can expand alternative and renewable energy resources, a heavy reliance on hydrocarbons is inevitable. At the moment, thermal power energy represents more than 60 percent of the...

  3. (pp. 4-5)

    The government’s expropriation of 51 percent of YPF shares has changed the upstream dynamic. Before expropriation, the company maximized opportunities to distribute dividends to its shareholders, weakening its capacity to invest locally. Afterward, YPF significantly reduced its dividends and distributions and applied all of its cash flow to investments in Argentina. Still, these efforts have not increased production enough to meet growing demand.

    YPF develops more hydrocarbon resources than any other Argentine energy company. However, YPF’s efforts are not enough for Argentina to recover its self-sufficiency status and maximize hydrocarbons production. YPF lacks the capital and workforce to handle Argentina’s...

  4. (pp. 6-8)

    Argentina has one of the world’s largest potential markets to produce unconventional hydrocarbons—both crude oil and natural gas. In its September 2015 World Shale Resource Assessments, the EIA ranked Argentina second of forty-six countries for its estimated shale gas resources and fourth for its estimated shale oil resources.⁷ Shale is a largely untapped opportunity.

    Most of Argentina’s unconventional hydrocarbons are located in the Neuquén basin, which extends through the provinces of Neuquén, Mendoza, and Río Negro. This basin not only holds a significant amount of hydrocarbon resources, but it also has the local infrastructure necessary to extract and process...

  5. (pp. 9-10)

    Newly inaugurated President Mauricio Macri began his term by showing the importance his administration will place on the energy sector. Historically, the energy department had a lower rank than minister level. Macri created the elevated Ministry of Energy and Mining and appointed Juan José Aranguren, former CEO for Shell in Argentina, as Minister.

    The other authorities appointed in the ministry are professionals with credentials in the energy sector, mostly from the private sector. The new authorities have been generally well received by energy companies operating in the country, and have renewed hope that the government will recreate a sound and...

  6. (pp. 11-13)

    Despite the massive potential for energy production, Argentina’s economy does not have enough internal financial resources to take advantage of the potential opportunities afforded by the hydrocarbons industry. As a consequence, the Macri administration should design a regulatory regime that will attract both private local and foreign investment. Attaining a sustainable macroeconomic regime is a precondition for attracting private investment inflows, and the new administration has taken initial steps to achieve it.

    The fastest way for Argentina to both recover its energy self-sufficiency and maximize overall energy production opportunities is by reducing entry barriers for small, medium, and large international...