Bernard L. Weinstein — a Bush Institute Growth Fellow — has published a new report examining the current state of the energy industry...
Bernard L. Weinstein — a Bush Institute Growth Fellow — has published a new report examining the current state of the energy industry in Argentina. The report, “In Wake of YPF Seizure, Is Argentina a Good Investment?,” is a publication of the Maguire Energy Institute at Southern Methodist University’s Cox School of Business. In it, Weinstein offers a brief history of energy production in Argentina and explains that the energy industry offers great potential for future economic growth in that country. But unfortunately the Argentinean government has put that in jeopardy by seizing majority control of Yacimientos Petroliferos Fiscales (YPF), the country’s former national oil company that enjoyed success during the 1990s, a time during which it was privately owned. Weinstein assesses the current situation and offers growth-oriented policy recommendations, concluding:
Argentina has become a net importer of oil and gas due to decreased production resulting from the undercapitalization of YPF, irrational natural gas pricing, and divestiture of assets. The undercapitalization of YPF has meant fewer wells drilled, and divestitures over the past decade have caused YPF to lose strategic assets. Fixing natural gas prices below market rates has also resulted in lower production. Because the Argentine economy relies so heavily on natural gas, imports are costing the country billions annually. Luckily, the nation is richly endowed with both natural gas and oil and can take steps to reverse the decline in output and eventually become a net exporter of energy. Development of the Vaca Muerta shale field can go a long way toward returning the country to a net exporter position. The play contains an estimated 22 billion barrels of oil equivalent, with roughly 70 percent oil and 30 percent natural gas. But the development of Vaca Muerta and other shale plays will require substantial foreign investment and expertise. To ensure the country’s ability to attract this capital and know-how, the Argentine government must ensure that the rule of law and the sanctity of contracts will prevail.
The entire study is available for free download here.
