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Argentina won’t be joining the global petro-surge any time soon

Steve LeVine, Foreign Policy

Argentine President Cristina Fernandez de Kirchner, angry at a rising national oil bill and emboldened by her own populist fervor, has relieved Spain’s Repsol of most of its shares of YPF, the country’s biggest oil company. Repsol, which since 1999 has owned 57.4 percent of YPF, will now have about 6 percent.

Spain has lashed out, rating agencies are reconsidering political risk in Argentina, and analysts generally seemed to regard it as a bad move. Repsol has not said so since yesterday, but it naturally would be unhappy with Fernandez.

Wherever the balance of fault lies, the biggest hit will be to Argentina’s place in the global surge in oil production. Along South America’s east coast, Brazil is already on the cusp of being among the world’s premier oil producers, and, just to the north, crude has been found in French Guiana. Repsol itself is drilling in both Guyana and Cuba, both of which could become oil exporters.

As for Argentina, it currently produces about 570,000 barrels of oil a day. But industry experts say Argentina has the potential for much more since it has among the world’s largest reserves of shale oil and shale gas — the equivalent of 23 billion barrels of oil in a formation called Vaca Muerta. YPF has said that it will cost $25 billion to develop Vaca Muerta, reports Bloomberg BusinessWeek. YPF controls more than half the total – the equivalent of 13 billion barrels of oil.

The development estimate seems sure to be larger. Until the expropriation, ExxonMobil and France’s Total had been among companies examining Argentina’s shale. But it seems likely that their interest will be conflicted considering what happened to Repsol. The Argentines of course can hire oil service companies to produce the shale, but the state will be left with the entire pricetag.

Fernandez hopes to significantly increase Argentina’s oil production, but that horizon looks long in the future.

Meanwhile, the Argentines will have to compensate Repsol. Analysts told the Financial Times that the stake may
be worth
$5 billion. Since the state is cash-poor, Repsol seems unlikely to obtain the price at which it itself, or the market, might value the oil assets.

(17 April 2012)

Argentina Claims Resource Sovereignty

Molly Scott Cato, Gaian Economics
The business world is reacting with horror to news that Argentinian President Cristina Fernandez de Kirchner has made a decision to take control of her nation’s oil resources, by taking a 51% controlling stake in the country’s largest oil company YPF. As she reasonably argues, these resources belong to the people of Argentina, and she defies the right of Spanish oil corporation Repsol to profit from the patrimony of her country.

This is another positive challenge to the neoliberal world order which we too often take for granted. YPF was a state-controlled company for 70 years, before Argentina was forced to sell it in the 1990s in order to pay off its foreign debts. Reclaiming it seems a natural part of the progression of the Latin American countries towards a new economic model that is neither capitalism nor communism but something new. While the new model will accept markets operating for the social benefit, it claims the need to exercise political control over key sectors, of which energy is surely the most significant.

From the perpsective of a bioregional economy, the desire that resources should belong to land, and that the people who live in that land should claim ownership of them seems natural. How else can people act in a responsible way towards their local environment? How else can we have a sense of economic, social and political justice?

The Argentinian move comes on the same day that, in Britain, a report has been published that paves the way for a decision to allow private companies to create environmental mayhem by extracting shale gas in the process known as fracking. According to a colleague of mine who is involved in opposing the fracking operations in South Wales, the concession to exploit these resources in the whole South Wales area was sold for a mere £1m. by the central government.

While we should, of course, fight fracking because of its risk to public health, its ability to destabilise underground rock systems, the distraction from the need for rapid energy reductions, and the likelihood that the chemicals used in the high-pressure extraction process will contaminate ground-water supplies, we should also challenge the right of our government to sell the resources of our country to a private company which faces no public accountability. In a bioregional economy, we could expect to profit from the resources we own, but we would also have an incentive to act responsibly, since the consequences of the extraction would be felt by those who benefited from them. In the global economy, by contrast, local people pay the price whether in Latin America or South Wales, while the global elite reap the rewards.
(17 April 2012)