Oil and gas production in Argentina’s Vaca Muerta awaits direction from new President
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Key Findings
While companies await direction from Fernandez, only state-controlled YPF has continued to ramp up its oil and gas production in Vaca Muerta.
Fernandez’ new energy policy should learn from his predecessor’s failure. Outgoing President Mauricio Macri’s 2018 Energy Plan had sought to double production of oil and gas within five years, with a goal of creating an export market beyond Argentina’s regional partners. But the Macri plan was overly optimistic that the export market would drive more investment in Argentina.
The market response to Macri’s loss was a rapid devaluation of the peso and a financial crisis.
Executive Summary
Efforts by the oil and gas industry to develop Vaca Muerta, Argentina’s vast shale reserves in northern Patagonia, have hit pause as the industry awaits direction from the country’s new president, who will take office on December 10. Alberto Fernandez, the incoming president, has not yet announced a new energy secretary, nor named a new president for the state-controlled oil company, YPF, nor outlined a new energy policy. While the country’s leadership change has slowed development of Vaca Muerta, it also offers Argentina an opportunity to chart a new path for its currently failing energy policy.
Rather than relying on unreasonable and costly investments designed to provide oil and gas for export into an oversupplied global market, the new administration could chart a stronger course by lowering production goals and focusing on developing low-cost energy for domestic markets. The new administration would be well-served to learn from the decade-long financial failure of unconventional production (horizontal drilling and hydraulic fracturing, or fracking) in the U.S., despite impressive production gains. The financial difficulties facing the U.S. shale industry, now regularly acknowledged in the Argentine press, should be top-of-mind for the new administration as it considers its future energy policies.
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Press release: IEEFA Argentina: Oil and gas production in Vaca Muerta, Patagonia awaits direction from new leadership
