Argentina: broke, regardless of the Dead Cow’s oil

Investors are excited about a new shale oil find, reportedly six times higher than previously estimated:
Repsol’s Argentine Oil Find Is Company’s Biggest

Repsol YPF SA (REP), Spain’s largest oil company, rose the most in six-weeks in Madrid trading after its Argentine YPF SA (YPF) unit made its biggest ever find at a shale oil field in Patagonia.
YPF, in which Madrid-based Repsol owns a 57 percent stake, said yesterday well tests showed the Loma La Lata field holds about 927 million barrels In May, it had said the find was about 150 million barrels.

The field will roughly double YPF reserves and helps cement Argentina’s ranking as having the world’s third-largest probable reserves of shale oil, behind the U.S. and China, based on U.S. Energy Information Administration data.

Of course, the US’s reserves are, from a pragmatic point of view, meaningless for as long as the US government continues to forbid the development and exploitation of our own natural resources.

But I digress.

At present, YPF has total oil reserves of about 531 million barrels. The find announced yesterday is located at the Vaca Muerta formation at Loma La Lata.

Vaca Muerta means dead cow.

The Dead Cow finding in Argentina will be expensive to develop and process

Shooting water and chemicals deep underground to blast open oil- and gas-bearing rocks can be a much more intensive, and expensive, process than traditional onshore drilling. And rising concerns in the U.S. and elsewhere that the process could contaminate aquifers could put a brake on its development in Argentina, said Jim Flanagan, an analyst who focuses on Latin America with energy consultant IHS CERA.

Years down the line, the country may become a petrostate of sorts. Dependence on foreign oil and Hugo Chavez will decrease — if the government doesn’t blow it,

Yet, Argentina has had trouble developing both shale and conventional reserves because of heavy intervention in the energy sector by the leftist government. After enduring an economic collapse in 2001, Argentina imposed price controls on energy to protect consumers. But the controls, along with the populist tenor of the Argentine governments of Cristina Kirchner and her late husband and predecessor Nestor, have discouraged new investment despite fast growth in Argentina.

The combination of low investment and rising energy consumption, along with higher prices, is increasingly putting Argentina in a bind. Argentina’s overall energy trade balance, including electricity, will swing this year to a deficit of about $3.5 billion from a surplus of about $1 billion in 2010, according to Daniel Montamat, a former energy secretary who also once served as YPF’s president when it was a state-controlled company.

For now, however, the clock is ticking (h/t Instapundit):

One hopes they are wrong, but it looks increasingly as if Argentina is now embarked on the next phase of its recurring bipolar economic disorder. The manic phase has peaked and the long and painful fall has now begun. The next step of the cycle is marked by increasingly desperate and wild struggles of a government to cope with increasingly intractable and pressing problems. During this cycle, seasoned Argentines often begin moving their money out of the country and anticipating one of the recurring bouts of inflation that periodically reduce the nation’s money to worthlessness.

A ten year cycle? If so, the next one’s about to strike.


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