OPINION: The Covid-19 pandemic has exposed weaknesses in the oil sector, perhaps nowhere more evident than in Argentina.
The Vaca Muerta shale is comparable in scale and potential to the prolific Eagle Ford shale in the US.
Successive Argentine governments have pushed development of unconventional resources on a scale that could turn the country into a big net exporter of hydrocarbons and fuel industrial growth.
Unconventionals have made Argentina self-sufficient in hydrocarbons again, but the ramp-up has been frustratingly slow, with operators and oilfield service companies' efforts to reduce costs and increase productivity suffering in an industry bedevilled by interventionist policies.
Ex-president Mauricio Macri tried to roll back these policies but the effort helped cost him re-election.
The oil price collapse has imperilled the progress made on the Vaca Muerta projects, and exposes shortcomings.
Argentina’s failure to provide an attractive investment terrain for new midstream investments stands out.
Older gas pipeline capacity was filled by aggressive operators such as Tecpetrol, and grandiose proposals for new pipelines came to nothing.
Producers were left with little alternative but to focus on shale oil projects, meaning gas-rich and gas-reliant Argentina now looks vulnerable to winter shortages and may need to resume liquefied natural gas imports.
Balance of payment difficulties mean such an outcome could push Argentina to another debt default.
President Alfredo Fernandez has offered a new package of subsidies to the oil and gas industry, but it is unlikely to offer the best route ahead.
The Mosconi Institute, an industry body, has come up with a far-reaching set of transition proposals, including a tough stance on pursuing international competitiveness in all segments of the energy sector.
This diagnosis is right. As Argentina’s chances of developing the full potential of the Vaca Muerta diminish, the country cannot afford to postpone a more radical rethink of energy policy.
(This is an Upstream opinion article.)