A recent get-together organised by Pan American Energy (PAE), the oil company of the Bulgheroni family, was hosted by company president Alejandro Bulgheroni himself. Senior representatives of firms including YPF, Axion Energy, Pampa Energía, Vista Oil & Gas, Harbour Energy, Tecpetrol, Pecom and the rest of the new Argentine aristocracy belonging to the country’s great lifeline – the Vaca Muerta shale deposit in Patagonia – were also in attendance.
Nowadays, such an event takes on the dimensions which not so long ago the assemblies of the bankers of ABA banking association in the 1990s or the meetings of the UIA (Unión Industrial Argentina) in Kirchnerite years would have had. Perhaps, in a while, such meetings will overtake the Sociedad Rural Argentina (SRA) as the country’s most important venue for the talks of the ‘círculo rojo’ establishment.
No speculation on this question, it comes from realistic calculations linked to the level of exports departing Argentina. In a few years, Vaca Muerta will overtake the agricultural sector as the main earner of foreign currency, making it the object of desire for those governing the country. Nobody will have more dollars stashed away than those extracting oil and gas. And, as a consequence, no pressure group will have more power than those who were at that PAE meeting held at La Rural between September 8 and 11.
Some of those already realise this to be the case. At the PAE encounter were four governors, any number of deputies and senators and many lobbyists circulating their business cards. Definitely a power in the making. It is interesting to run over the conclusions emerging from that September 10 event and the other meetings from three days of data, numbers, percentages and trends – and most definitely power, real power measured in dollars, current and future.
Milestones
Vaca Muerta is a reality. This year’s energy balance marks a historic milestone with Argentina’s biggest energy surplus in 35 years, thanks to a combination of greater local production and reduction of imports.
The first eight months of the year have delivered a record surplus of almost US$4 billion, which will eventually top US$6 billion for the year. Between January and August, overseas sales of petrol and gas grew 11 percent year-on-year, representing over 13 percent of the country’s total exports. Meanwhile, imports plunged 23 percent with a reduction of 46 percent in gas purchases – the heaviest item in previous years.
Vaca Muerta is the future. There are two visions as to the level of exports which the Neuquén shale deposits (which overlap into Mendoza) could reach up to 2030. The optimists speak of US$36 billion and US$37 billion. That would necessitate a heavy investment in infrastructure (the task of public and private sectors alike), the sustainability of investments, good international prices for gas and oil, domestic macroeconomic stability and finally (and most importantly), that Vaca Muerta be maintained as a state policy by all governments. On that last point, businessmen are optimistic, believing that no politician “will shoot themselves in the foot.”
There is a second export scenario of US$25 billion to US$26 billion. That would be the case if there were no investments in infrastructure over the next five years, erratic macroeconomic policies and, fundamentally, a political class not up to the opportunity. Nevertheless, the export potential from this pessimistic scenario would still exceed all the sales of the farming sector, which last year reached US$24 billion.
This is key political information. Whoever is Argentina’s president in 2027 will have no external financing problems for the last two years of their term. All the debt incurred with the private sector and the International Monetary Fund (IMF) will be able to be met on time and in full with the funds coming from Vaca Muerta. In other words, Argentina’s next head of state will not suffer the “external restriction” because there will be dollars.
The general idea is that investments this year and next will have the leverage of the RIGI (Régimen de Incentivo para Grandes Inversiones) incentive scheme for major investors. Without this plan, pushed by President Javier Milei’s government, the acceleration of Vaca Muerta would have been impossible. RIGI is also affirmed to be the driving-force behind the surge expected for the next two years. It is further believed that even with a change of administration after the 2027 elections, the next government will respect RIGI, or at least any amendments will not be radical. “Nobody shoots themselves in the foot,” sources again affirm, assuring that the legal guarantees of the investments within the RIGI legislation are strong and solid.
Curiously enough, Vaca Muerta business leaders do not see any major dangers in a possible triumph of Peronism, Axel Kicillof or Kirchnerism in 2027. Over and above the personal considerations of those responsible for oil or gas, those sectors of the opposition at least are thought to believe in the importance of Vaca Muerta when it comes to generating hard currency. The theory always expressed by ex-president Cristina Fernández de Kirchner about the country’s problem being the lack of dollars is quoted, part of the solution for which will come from Vaca Muerta.
Chevron being called in on July 16, 2013, is recollected. This was kept secret for years until the information finally came from the US oil company that it was simply something very similar to Milei’s RIGI scheme – indispensable in the times following the re-nationalisation of YPF in 2012, when business reactions were more shock than empathy. Nevertheless, it is recalled that in the contract of partnership between Chevron and YPF, the ‘K’ realpolitik and the influence of then-YPF CEO Miguel Galuccio (today the creator and developer of the successful oil and gas firm Vista) prevailed, guaranteeing direct investment from the earnings of the dollars invested.
The oilmen attending the La Rural event organised by PAE on September 10 assured that this joint enterprise was a success encouraging other oil companies around the world to pay attention to the shale deposits. Short of a Peronist leader committing a strategic error, it is not among Vaca Muerta companies where extreme mistrust is to be found.
So why are foreign interests leaving Vaca Muerta? It is true that the list of oil companies with foreign capital who are abandoning Neuquén is important, notable. Total Energy, ExxonMobil, Petrobras, Petronas and Equinor have all made a rapid exit. Nevertheless, Argentine private-sector companies have a more or less solid explanation – they are sick of the ‘cepo’ capital controls that block the possibility of sending dividends home to headquarters. A real and serious problem with no possibility of solution in the medium term, but which local companies are more agile in finding a way around.
The most important project revolutionising the country’s export reality is the consortium headed by PAE (30 percent), together with YPF (25 percent), Pampa Energía (20 percent), Harbour Energy (15 percent) and Golar LNG (10 percent), which will demand an investment of some US$7 billion. The project is called Argentina GNL and is based on the possibility of exporting liquefied natural gas from the Patagonian coast using gas coming from Vaca Muerta. It is located in the San Matías gulf (Río Negro Province) and until now implies the arrival of two liquefaction boats: the Hilli Episeyo (which will become operational in 2027) and the MKII (which will arrive in 2028 from China). The project is to replace the frustrated liquefaction plant which was going to be based in Río Negro after being removed from Bahía Blanca.
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