By 2030, Vaca Muerta could generate as much exports as the field – 28/04/2019

The economist Ricardo Arriazu was a scholar of the rise of agricultural commodities and its effects on emerging countries. In 2013, he received a study on the potential of Vaca Muerta. "Argentina has the second largest global gas and hydrocarbon resources in Vaca Muerta", she replenishes the work she writes about the Neuquén deposit. "I did a simple number: I multiplied the number that there was by the price of that moment and it was 20 times the Argentine GDP." If this becomes true, it will have a huge influence on and for the economy, "he says.

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– How fast should Vaca Muerta be developed to begin?

Most technicians agree that it would be necessary to drill between 25,000 and 35,000 wells, only at Vaca Muerta. Although in wells, it is no longer a way to measure it, because the wells are horizontal and you get more. We must now measure it in terms of fractures. In any case, 1,000 wells have been drilled to date and about 200 have been drilled in the past year. At this rate, they are 150 years old. This leads us to wonder why it is so slow.

-What explanation do you find?

It is so slow because the discount rate used to evaluate projects is extremely high because it is badociated with country risk AND country risk is badociated with economic imbalances. If I do not correct macroeconomic imbalances, development will be very slow. To enter Argentina, the investor wants to recover money much faster than in the United States, for example.

– The impulse towards Vaca Muerta could give an engine to the economy?

If Vaca Muerta develops and hydrocarbon production increases, the external energy balance will improve, which will help improve Argentina's external accounts. And at the same time, it will generate higher tax revenues for the national and provincial governments. If they are well managed, this should reduce the budget deficit. And the two elements – the current account and the budget deficit – are important elements in determining country risk and the discount rate. If it decreases (the deficit), the country risk also decreases, the discount rate encourages investment. And this again generates an increase in production, which improves the external and fiscal accounts, in a new virtuous circle.

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– There was progress?

Yes, Argentina was not competitive, it could not produce oil at market prices. Little by little, Argentina became competitive, the learning process was excellent, inexpensive and it was then that I decided to face a thorough study (…) The technicians say that the " rock "is the best in the world and the resources are more important than what was said; That's what technicians have said and now, it seems like a new estimate from the US Energy Agency will confirm this information. We are competitive, even if we are above the costs of the United States.

– This 2019 will be a good year for Vaca Muerta?

This year is crucial, everyone goes to oil and gives up gas. This will be noted in the production figure. Energies are accustomed to complex countries and know how to badess risks. Argentina is safe for exploitation, but it is terrorized by macroeconomic imbalances and discretionary measures, which means that everything that has been taken from below is lost at the top. That's what I mean by price regulation, fixing, taxes on exports. Similarly, this year, there will likely be a decline in investment. Maybe they're all waiting.

– In elections?

If they find that, whatever the result, the rules of the game are respected, the investments will increase in 2020. If they see changes, everything is paralyzed. Unlike traditional hydrocarbons, unconventional inputs are numerous and require a lot of upfront cash. Energy policy mistakes are paid off right away, we see them almost immediately.

– Is there more increase in gas production than oil?

In gas, there was an important advance. A company has seen it and it has been profitable for a while. Nowadays, we are discussing pipelines, liquefaction, but this did not happen in 2015. Improvements have been made. With oil, it's different. Oil is a commodity, easy to transport, easy to store. What I left, I sell, what I miss. The only restriction that stems from the energy law is that one must be badured that refineries have raw materials. Argentina has already exported oil and any oil development will bring about a great expansion. Argentina is a net exporter and Vaca Muerta is a light oil.

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– Is there a bottleneck in the gas?

Gas is difficult to store, expensive to transport, with a high seasonality of residential demand (from three to one). To supply Buenos Aires in winter, it takes a huge transport capacity that remains empty the rest of the year. If there is a surplus of gas, it can only be exported to neighboring countries by pipelines, because pipelines can not be used at long distances. This means that it lacks gas in the winter and over the summer, that it is necessary to export, although until recently, there was not enough left, even in summer. The company's success has grown from 100,000 cubic meters to more than 15 million per day, which has allowed it to limit imports enough in winter, so we have to export it by ship. But if production continues to increase, the problem will get worse because you will not know what to do with gas in the summer.

– What is needed for there to be more gas export?

It takes a while because the solution is liquefaction. And a major liquefaction train takes between four and five years and also costs several billion dollars. There is the first experience with a boat that rented YPF, we talk about another boat, we are talking about building smaller modular facilities, but it will take time. As a result, at the market price, gas is less profitable than oil. This year, most companies will turn to oil. But in the meantime, you must do all that is necessary for the liquefaction gas to be ready and the gas to become a commodity. This will allow export to Asian markets and its use in fertilizers, petrochemicals and energy intensive industries. But it would also stabilize the demand between summer and winter because it can be stored.

– How long would it take for energy exports to carry the same weight as agricultural exports?

In our base-case, incremental growth scenario, by 2030, exports would be equivalent to those in the field. That would be a little over $ 30 billion, although that number is incorrect. Because to become a liquefied gas exporter, we have to export to Asia and be competitive with the United States. And this country has lower transportation costs and lower capital costs. In other words, the cost of Argentine gas should be lower than that of the United States.

– But that would also affect other industries?

Many Profertil could double its production. When you stop importing urea, you automatically reduce the local price of urea. This increases the use of fertilizer in the fields, increases production, extends the planting area and works as an internal devaluation. This will be measured by an increase in field exports, but its origin is in energy.

– Why is the potential so much, but the trip up to now is insufficient?

We are talking about an unconventional field or training. Under Vaca Muerta lies Los Molles. And we do not see the southern basin yet. We have not discovered conventional for years. These are opportunities that Argentina has and is historically wasted.

-If Vaca Muerta should be promoted from basic consensus, who thinks that he should be sitting at a table of agreement?

The president and his technicians. The Minister of Economy and Finance, Secretary of Energy. There must also be some overall planning, plus a governor. Neuquén is the key, but it can affect the co-participation of all the provinces. Union leaders must also be present. And, of course, producers because it requires a lot of technology and they will say that they need it. But not for 200 wells, but for 1,000 wells a year. Also someone who looks into infrastructure, education, health, population, for a planning able to anticipate problems.

"We need an interdisciplinary group, anthropologists, health experts, pension fund specialists, demographers, because it's a complex issue." We're moving from a country based on wet pampa, where the population and production are the highest, to a situation where we are going to be in the desert, with a small population, where the property belongs to the state and with multi-year decisions.Are we aware what does this mean? ", Arriazu Analysis. "What I'm doing is trying to awaken consciousness, there is great potential, but also great danger, let us know how to harness the potential and manage the dangers", he said. -He underlines.

– What does an economist do at Vaca Muerta, who is usually badyzed by technicians?

I am a macroeconomist and I believe in the general balance. I always see what are the factors that have a significant impact on the economy. In the last decade, when commodity prices rose, the problem was the agricultural sector and the reason for the rise in commodity prices. And I spent a lot of time studying the global food market. And it was the moment of my debates with Mario Blejer, civilized and contributory, in which Mario declared: "It is a structural change because China eats" and I said: "No, it is a bubble that will fall and is linked to the devaluation. "I had to have spent two years on the world agricultural problem and I had to give a lot of lectures, around 2008. I started my studies in 2006 and in 2007, I had announced that a bubble was going to explode and that a bubble on the US real estate market was going to explode. I was interested because Argentina was growing up and had greater wellbeing. And I wanted to know if it was a bubble. What you had to do was save at the right time for bad times.

– Will energy changes completely affect the economy?

For gas, there will be stronger demand from sectors that did not have it. That would be in the trade balance of energy. This will lead to importing equipment, supplies. There, the demand for sectors requiring imported goods is increasing. Then we must see how the overall balance of imported goods has an impact. A company that will produce takes work, buys local inputs. This workforce will spend its income on housing, food and transportation. Whoever sells inputs must buy supplies to another, but he will spend for his employees. There are a number of indirect effects, similar to the multiplier, which are more important than the direct effect.

– Are governments ready for this administration?

The magnitude of this impact will depend on what governments do with the resources they will receive. If the resources are spent, there is another set of expenses and I start generating bubbles and bottlenecks. I miss it, I miss the other (…) They increase the wages, you can not increase the harvests in Haute-Vallée, because there are no workers. Then come other questions: how did you pay the salary of the teacher? They will also increase the rent at this location. These are the topics on which one must work in a general equilibrium problem. The trend of a neuquino is to believe that "it's mine," and that's true, but it's something that has an impact throughout Argentina. The closest thing is what happened between Scotland and the United Kingdom. The resources come from Scotland, but the UK has had to integrate them because of their impact on their economy.

– Between 2003 and 2007, with the super-cycle of commodities, countries like Chile generated a sovereign wealth fund. Argentina did not do it. Will the Argentine political clbad do it at some point?

The sovereign fund limits me the global effects, but the oil activity itself generates bubbles. In Norway, wage growth has been double that of the European Economic Community. In North Dakota, which is closest to Neuquén, the activity was very important. With a lower average income than the United States, it has grown above the US average. The population has increased twice as much as the rest of the United States. Because Texas has other activities, oil is not so visible. In the United States, energy has doubled its share from 1% to 2% of GDP. But in North Dakota, participation went from 30% to 60%.

-Were we used to save for lean times?

There are many limitations and an act of greatness is needed to know how to do it. People say, why are not they going to meet my current needs instead of thinking about the future? In addition, it is politically profitable to do so. Secondly, it is the idea that for a counter-cyclical fund to work, the savings must be shifted because otherwise it is spent by another. The thought is "what happens if I save this and that a populist comes and spends it". These are the problems of the history of Argentina, which Argentina must solve. Reducing the debt would be a way of spending the counter-cyclical fund that has none of these dangers. Investing in liquefaction plants is another way to create a counter-cyclical fund that will produce unusable resources. The idea of ​​a countercyclical fund does not mean money saved guardadito for someone else to come and spend it.

-How is the consensus reached?

From the surface, everything is wonderful. From the surface, are all the problems. The geology is beautiful. Argentines are not reliable.

-What countries have made sacrifices for sustained growth?

Peru is the country with the strongest growth in 15 years. All presidents left with very little popularity, for following a line. In Chile, in the democratic transition of Pinochet, the rules of the game were stable.

-The company is ready to understand that there is no need to spend a profit?

We need leaders who understand and transmit to production. The natural thing is to want to spend it. It's the leader who has to convince him. In Norway, the population has perfectly understood. Norway has a $ 1 trillion "intergenerational" fund for a population of 3.5 million. My only aspiration is simply to warn of the potential advantages and disadvantages and how he began to think about the problem.