YPF takeover won’t solve Argentina’s energy problems: Alieto Guadagni

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Argentina’s decision to nationalize YPF – a subsidiary of Spanish energy company Repsol – has been met with international disapproval; although the Argentine government insists the move was necessary to meet its energy needs. Yet that might not be the case, especially with heavily reduced exploration investment.

Argentina’s decision to nationalize YPF – a subsidiary of Spanish energy company Repsol – has been met with international disapproval; although the Argentine government insists the move was necessary to meet its energy needs. Yet that might not be the case, especially with heavily reduced exploration investment.

BUENOS AIRES – The expropriation of almost all of Spanish company Repsol’s stake in Argentinian energy producer YPF, announced in a vehement speech by President Cristina Fernández de Kirchner, has sparked legal concerns around the world. . In fact, this decision will not solve the country’s energy problems in the absence of huge flows of investments in the sector.

Repsol acquired full control of YPF in 1999; in February 2008, it transferred part of its shares to the Petersen group, which today holds 25%. Repsol currently owns 57%, with the rest held by stock market investors. The Argentine government intends to expropriate 51%, leaving Repsol with a 6% stake.

In the 2008 stock sale, the two majority shareholders agreed to distribute at least 90% of future profits in cash. This decision was intended to allow the Petersen group to service the debts to the banks, and to Repsol itself, which it contracted with its purchase of shares, for which it made no initial payment.

[quote]This is an extraordinarily high dividend in the global oil industry. Over the past decade, YPF’s reserves have declined significantly, along with those of most oil companies operating in Argentina, as exploration investment has been drastically reduced.[/quote]

Related: Argentinian economy

Related: Argentina’s trade, exports and imports

At the same time, natural gas accounts for 51% of energy consumption, compared to 32% for oil and barely 17% for coal, renewable energies, hydroelectricity and nuclear. Worldwide, gas represents barely a quarter of total energy consumption – for example, 27% in the United States and only 9% in neighboring Brazil. Argentina has the world’s largest fleet of vehicles running on compressed natural gas; families use gas intensively; most electricity is produced with gas; and the petrochemical industry is based on it.

Of course, in a few other countries (Qatar, Algeria, United Arab Emirates, Iran and Russia), gas also represents more than half – or even more than 60% – of energy consumption. But there is a huge difference: all of these countries have reserves that will last another 70 to 100 years. Argentina, on the other hand, is a country heavily dependent on gas whose reserves are dwindling, equivalent to less than eight years of production.

Covering this drop in reserves – more than half of gas reserves and a fifth of oil reserves have been consumed – by imports implies an annual cost of more than 300 billion dollars. Indeed, after two decades of cheap and abundant energy and exports of excess production, a new cycle of expensive, scarce and imported energy has begun, with oil production falling by a third since 1998 and the gas production by 15% since 2004. .

[quote]Argentina’s biggest challenge today is to try to regain its energy autonomy through significant investments in terrestrial exploration, as well as in the Atlantic Ocean. At the same time, the country must change its consumption model by relying more on hydroelectric, nuclear and wind energy. Although there is great potential for new unconventional resources, all of this is expensive, requiring an annual investment of around 3% of GDP over the next five years.[/quote]

Related: Oil and gas industry in Argentina

Related: Argentina Economic Statistics and Indicators

It is very likely that in the short term, growing imports of expensive liquefied natural gas and other fuels will continue to exert pressure for change. Last year the external energy deficit was over $3 billion and this year it is expected to double.

The important question is whether the Argentine government’s decision to nationalize 51% of YPF’s shares is the best way to regain self-sufficiency in oil and gas production and attract the capital needed for exploration and the development of conventional reserves. Argentina also has a particularly high potential for the production of unconventional gas resources, given that it holds the world’s third largest level of such reserves, after China and the United States. But, as with the country’s conventional resources, these reserves will not occur.

By Alieto Guadagni

Copyright: Project-Union, 2012

Alieto Guadagni was Argentine Secretary for Energy in 2002, then its representative at the World Bank.

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About Alieto Guadagni PRO INVESTOR

Argentine Energy Secretary in 2002, then its representative at the World Bank.

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