On a path to growth - Part 2

Argentina

Thanks to the politicisation of its oil and gas sector over the last decade, Argentina’s production has fallen from over 900 000 bpd in 1998 to current levels of 523 000 bpd, and gas from 4.5 billion ft3/d in 2007 to 3.5 billion ft3/d.

However, the EIA estimates that the country could contain up to 774 trillion ft3 of recoverable shale gas and 21 billion bbls of shale oil, mostly in the Vaca Muerta formation in the Neuquen basin in western-central Argentina.

Argentina is also a linchpin in the natural gas pipeline network that rings the southern cone of South America. The country has over 30 000 km of line, mainly to transport gas from fields in Neuquen and San Jorge provinces to consumers in Buenos Aires, but it also has extensive infrastructure to distribute gas imported from Bolivia to the north, and export gas to Chile, to the west.

Recent shortages in Argentina, as well as upheavals in other countries have generally inhibited the international flow of gas. Initiatives by Mercosur seem to be working in favour of greater co-operation, however.

Chile, which has little in the way of energy resources, recently approached its fellow members in Mercosur with plans to create an ‘energy ring’ that would see gas being piped south from Peru into Northern Chile and Bolivia, and hence through to Argentina and Brazil. The plan calls for thousands of kilometres of new pipe, as well as expansion of existing networks. The advantage would be to monetise stranded resources and de-politicise energy trade in the region.

Argentina has taken some steps to encourage international investment, however, politics continue to dog the country’s oil and gas sector. Its offshore potential has been complicated by an ongoing feud with the UK. In 2015, the Argentine government filed a suit against five energy companies that are drilling near the Falkland Islands.

In order for Argentina’s conventional and unconventional oil and gas sectors to prosper, it will require several billions of dollars invested annually over the next decade.

Brazil

According to the EIA, Brazil has over 15 billion bbls of proved reserves and 1 trillion ft3 of gas. Its output stands at 2.25 million bpd and 2 billion ft3/d of gas.

Yet, the country’s oil and gas sector faces serious difficulties. Although partly privatised, Petrobras is still the major driving force in the industry. In addition, the company is hobbled by a serious corruption and kickback scandal. For over a year, federal investigators have been uncovering a massive scheme of chicanery that may reach up to the highest levels of government. As of late 2015, 87 people have been formally accused of offering and accepting approximately US$800 million in bribes and other inducements by inflating Petrobras contracts and funnelling part of the money back, including to the ruling Workers’ Party.

In early February, a Manhattan judge ordered Petrobras to face class-action litigation from investors who are seeking to recoup billions in losses due to the bribery and political kickbacks scandal. They claim that the company inflated its value of its stocks and bonds by more than US$98 billion.

Various steps are being taken to rectify Brazil’s dysfunctional oil and gas sector. In late February, federal lawmakers introduced legislation that would remove requirements that Petrobras hold at least 30% interest in pre-salt blocks, and be the sole operator of pre-salt development projects. The move is seen as a response to lack of international interest in pre-salt licensing, and the scandal woes that are hindering Petrobras ability to take on further operational duties.

Venezuela

Venezuela is blessed with the largest oil reserves in the world. Under its former leader, President Hugo Chavez, several major projects in the prolific heavy oil belt were nationalised, Petróleos de Venezuela S.A.’s (PDVSA) geoscience and engineering corps were purged, and the national oil company’s coffers plundered. Production fell from a high of 3.5 million bpd in 1999, to an estimated 2.6 million bpd in 2015.

In late 2015, the US Justice Department charged Venezuelan citizens residing in Texas with conspiracy to pay bribes in order to arrange contracts with PDVSA. Between 2009 and 2014, several millions of dollars were paid to PDVSA officials in order to obtain work and services valued at over US$1 billion. The US Department of Treasury also alleges that PDVSA has laundered US$2 billion in funds through an Andorran bank.

However, in 2015, opposition parties gained control of the Venezuelan Congress. The super-majority allows them to challenge the rule of President Nicolas Maduro. Members are calling for the dismantling of PDVSA. Although such a step would be hindered by popular sentiment, rampant inflation and currency devaluation have hurt the entire country so badly that the only solution may be the breakup and sale of the national oil company’s assets.

Like all oil and gas regions around the world, the future of the sector in Latin America is very much vulnerable to the capricious ups-and-downs of commodity prices. Through it all, energy demand in Latin America is still growing at a healthy clip, and that means that the region will remain a key area for the pipeline sector.

Written by Gordon Cope and edited by Stephanie Roker

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Read the article online at: https://www.worldpipelines.com/special-reports/23092016/on-a-path-to-growth-part-2/