President Cristina Fernández de Kirchner announces plans for YPF under the leadership of Miguel Gallucio. (courtesy of CFK Argentina)

When President Cristina Fernández de Kirchner signed off last month on the 51% renationalisation of Argentine oil company YPF, the political and economic shockwave must have fractured legibility of the writing on the wall.

From 2001-2010, oil production in Argentina dropped by more than 22%, according to data from the Argentina Oil & Gas Institute (IAPG). Similarly, natural gas production plummeted 15% since 2004, with proven reserves depleted 43% since 2000. In fiscal terms, Argentina’s 2011 fuel imports surged to US$10 billion, absorbing a national energy deficit of US$3 billion.

For the first time since the discovery of hydrocarbons in 1907, Argentina recorded a decade of declining production, yielding barely two-thirds the level of national output at the time Spain’s Repsol took majority control of YPF in 1999.

While many first perceived the government’s expropriation of Repsol as a swift rejection of resource privatisation, immediate fears that Argentina will mimic Venezuela’s statist grip on energy ignore the unconventional picture beneath the surface: shale energy, the country’s most abundant untapped resource, will be a far tougher project than building the case against Repsol’s mismanagement.

Between a Rock and a Hard Place

In April 2011, the United States Energy Information Administration (EIA) published a report based on its analysis of 48 basins in 32 countries. The EIA found that Argentina, behind only China and the United States, represented the world’s third largest geological potential for unconventional shale gas reserves.

Buried thousands of metres underground, trapped inside multimillion year-old rock formations, shale energy has taken centre stage in the global crisis over fossil fuel dependence, economic relief, environmental sustainability, and the much maligned practice of hydraulic fracturing, also well known (fingers-to-chalkboard) as “fracking”.

Citizens Assembly of Río Gallegos

For Eduardo D’Elia, an environmental engineer, professor, and renewable energy advocate with the Citizens Assembly of Río Gallegos, the discovery Argentina’s shale jackpot poses a critical new energy paradox.

“It seems that we’re prepared to make huge expenditures on exploiting shale gas and oil, classing them as ‘resources’ without analysing the problem of externalities. Worldwide, it is a desperate effort to meet rising demand for an energy matrix that is unsustainable from every point of view.”

While D’Elia feels the transition to renewable technologies—in particular, hydroelectric, wind, and solar—missed a precious opportunity to accelerate in the 1970s, he adds that people have been insufficiently ready to understand the magnitude of the long term challenge. When an unforeseen prospect of massive short-term gain becomes technically feasible, the bigger dilemmas of finite energy and ecological hazard recede behind excitement and the lure of economic security.

Unconventional Plays

Argentina’s new hope for energy self-sufficiency still hinges on tentative assumptions, particularly concerning industrial expertise and capacity, regulatory measures, and strategic plans for YPF’s mixed-capital structure. Though offering immediate promise in a country whose energy mix utilises 50% natural gas, the shale solution is fraught by links between financial, social, and serious environmental health risks.

Unconventional shale reserves in Argentina are concentrated in the oil-producing, Patagonian province of Neuquén, with significant sites in the Chaco, Austral, and Golfo San Jorge basins as well. With an estimated 21.9 trillion cubic metres of gas—60 times the amount of conventional reserves in Argentina—speculation about investment, exploration, and exploitation of shale has skyrocketed since YPF’s structural shake-up.

The term “unconventional”, in fossil fuel extraction, refers to the necessity of deploying technically complex methods where costs and retrieval rates provide less certainty than in conventional reservoirs. Zones projected to contain shale gas, aided by 3D seismic imaging, are therefore referred to as “resource plays”, in which vast geological variability inhibits application of a single, universally proven industrial design.

Schematic depiction of hydraulic fracturing for shale gas, showing main possible environmental effects. (Image by Wikipedia user Mikenorton)

Fracking, the economic marvel and lightning rod of geo-engineering, involves the high-pressure propulsion of water, sand, and chemical solvents deep below the earth’s surface. Targeted shale formations, accessed by vertical and horizontal drilling techniques, are fractured to stimulate the flow of trapped oil or gas, which is then recovered by creating vacuum-like conditions in wells below ground.

“This extraction entails significant impacts to the land, on water supplies, and to air quality—all of which could have profoundly negative effects on surrounding communities and ecosystems,” says Mauro Fernández, a vocal campaigner against nuclear energy for Greenpeace Argentina.

“The biggest problem is that, so far, too little has been established for certain about the science and technology of fracking. We are still determining the real consequences this could have. While the EPA [US Environmental Protection Agency] has yet to publish its major study expected late this year, here in Argentina, unthinkably, we are investing in a high-risk industrial enterprise. How can we see what the consequences are and what can be done to improve standards? This is a crucial reason for our opposition to exploring and exploiting unconventional fuels.”

Extracting Consensus

Despite the EPA’s initial determination in 2004 that fracking does not pose a risk of contamination to drinking water, opponents of the practice remain sceptical of this and other claims about its safety. Last year, two small earthquakes in the town of Blackpool in Northwest England were linked to fracking, though a report published last week by the US National Resource Council cites greater seismic risk in connection to the extraction of conventional fossil fuels.

Also in dispute is shale’s profile on emissions: while many supporters and scientists say natural gas is cleaner than coal, others point to the ozone hazards posed by methane released during fracking operations.

Specifically, enemies of fracking object to the oil and gas industry’s lack of transparency in disclosing the chemicals used in fracking fluids (90% of which are returned to the earth’s surface to be treated at wastewater facilities). Early last month, urged by scientists, US President Barack Obama issued a new rule obligating companies to reveal the chemicals employed in US fracking operations, though only after projects have already been completed.

Anti-Fracking sign in Ithaca, New York. (Photo: Ari Moore)

Caught amid the hype and backlash of recent years, the global scientific community, often itself divided, has proceeded with great caution when weighing the net effect of the shale boom in light of its tempting economic benefits. While France, Germany, and Bulgaria have banned fracking outright, the US shale gas industry has steadily matured, with some estimates suggesting it will account for 50% of the domestic natural gas supply by 2035. Elsewhere, in Canada, China, Australia, Poland, and the UK, the results, public perception, and investment climate have varied.

Perhaps the most acute factor in assessing the risks and rewards of unconventional fossil fuels is the disparity of local conditions at various potential reservoirs. While successful recovery of resources has become a fairly secure bet given proper seismic analysis and project designs, no two sites are exactly alike, and even ensured repeatability at the same wells can prove problematic for scientists, engineers, and investors to predict.

With that amount of risk, critics and alternative energy advocates feel compelled to confront their worst fear: that shale will stifle rather than bridge the investments needed to develop renewable energy, fatally prolonging the logic of these technologies as extensions of a resurrected fossil fuel paradigm.

In a suddenly unconventional world, consensus appears to depend more than ever on emerging knowledge, gleaned precisely from practical experience in countries such as Argentina that are ready, or pressed, to go all in with the risks.

Esteban Álvarez’s inextinguishable fire at Fundación YPF. (Photo by Gabriela Schevach for Juanele AR)

YPF’s “High Impact” Plan

Throughout 2011 and early 2012, still under the primary management of Repsol, shale exploration appeared to be near on YPF’s horizon. Major global companies such as Apache (USA), Total (France), Exxon Mobil (USA), Schlumberger (USA), and Shell (Switzerland) had all either approached the possibility of unconventional operations in Argentina, or had already begun the initial phases of exploration and extraction (including conventional wells where many companies have operated for years).

As the government grew increasingly disenchanted with Repsol’s alleged low investment and focus on premium markets, other options to exploit unconventional reserves arose from the glowing estimates of interested major companies—particularly in the Vaca Muerta (“Dead Cow”), Loma de la Lata, and Los Molles formations.

“The expropriation of YPF, more than a nationalisation, is a change of strategic partners,” argues Greenpeace’s Fernández, going beyond what him and other observers consider effective populist rhetoric.

Now the government has responded decisively to uncertainty among foreign investors, who balked at the expropriation of Repsol, still in arbitration.

Earlier this month, YPF’s new chief executive, Miguel Gallucio, boldly announced the company’s five-year, “high impact” investment plan:

– 746 new wells to be drilled by the end of 2012.

– 1,000 new wells annually from 2013-2017.

– Initial investment of US$1.36 billion in testing for unconventional drilling techniques (with $12 billion in additional funding between 2013-2017).

– Commitment to rework mature fields.

– Strategic partnerships with private companies and investors.

– Emphasis on technology, supplier, and education development, via the Ministry of Science and Technology and research body CONICET.

If successful, YPF’s plan will boost Argentina’s oil and gas production from 159 million barrels of oil equivalent this year to 216 million by 2017, an accumulated annual growth rate of 6%.

Though primarily self-financed by the company’s flow of operations, eventual contracts with strategic partners will be the news to watch for as the domestic energy sector kicks into high gear. Talks with potential partners are reportedly underway already, however some sources such as Forbes Magazine, market consultant ICIS, and the University of Pennsylvania’s Wharton School have all pointed to lingering reservations. With Argentina’s history of price controls, low incentives for investment, and barriers to profit repatriation, foreign investors may think twice about the risks. Proponents of free trade tend to believe that these are the real reasons for Argentina’s lagging investment over the past decade.

Domestically, cheap and plentiful natural gas will eliminate industry-crippling winter shortages and possibly enable conditions to ease energy subsidies. Coupled with employment growth, the national strategy figures to play well among the president’s popular base.

Local Rights: Fair or Foul Play?

Lost in all of the speculation about Argentina’s energy future are the rights and concerns of indigenous communities in resource rich territories. According to Fernández and D’Elia, ignoring their interests is an illegitimate stance that can no longer be tolerated, whether by private corporations or the national and provincial governments.

Patagonia coal plant in Río Turbio (Photo: Greenpeace)

“Energy policy must be formed in an agreement among all political, social, and technical sectors,” D’Elia maintains. “Community rights will be respected to the extent that these communities demand respect.”

For several days last November, the Mapuche community of Gelay Ko occupied a compressor plant of the Apache Corporation, slowing capacity to 70%. The Mapuche have flatly rejected drilling on indigenous lands without prior consultation, as well as water contamination and desertification of an already scarce supply.

One oft-cited advantage of the law governing land ownership in the US —a significant contribution to shale’s success in that country— is that unlike in the UK, for instance, mineral rights belong to landowners rather than the government. While some argue that divided communities still reap the common benefits of economic activity, opposition to fracking in the US has spiked in many states and communities where the scale of operations deteriorates roads and raises doubts about property value.

As yet, no framework for local compromise exists in Argentina, and communities opposed to the imposition of national and private interests have been excluded from the debate.

“There are many ongoing conflicts,” says Fernández, “specifically the resistance in Loma de la Lata, or those from Loncopué who voted in a referendum against mega-mining. The government has adopted a false belief that whatever it decides, the people will accept. That’s not the case, and yet there remains no formal inclusion of the communities in a constructive debate.”

While the relief provided by job creation in Neuquén has been a cause for celebration (provincial governor Jorge Sapag lauded Schlumberger’s positive impact in April), far too often the attitude toward local communities encourages their alienation and distrust.

Define Crisis

As Argentina takes action to revive its ailing energy sector, the fundamental threats of fossil fuel depletion and climate change remain, despite smug certainty that the earth is just fine (one form of hubris fighting another).

“It’s not about ‘green’ being the fashion of the day,” says Fernández, visibly sick of the shallow accusation. “We are realistic about shale having a place in the transitional phase toward renewable energy, but it is an error to proceed only as the government now plans.”

Natural Gas burn off at Marcellus Shale in New York. (Photo: Dustin Gray)

Argentina is at a crossroads, Fernández argues. “Far from offering more of the same, fossil shale gas exploitation is worse than the same. Greenpeace has demonstrated that technology and natural conditions exist to achieve 85% renewable energy by 2050, mainly through wind and solar. It only takes vision and political courage to abandon the policies of the last century and open the door to new opportunities.”

This would be a far better solution than continuing to push ecosystems worldwide to their limits, Fernández says, or exposing populations to the risks of nuclear energy.

With the application of rigorous standards and mandated assessments, industries based in shale, new and existing, may well mature into responsible, technically sound providers of affordable energy. Many are betting on it, just as many project hope for successful deployment of carbon capture and sequestration.

But if you ask Eduardo D’Elia, the crisis and solution always come down to one blazing source.

“Undoubtedly, the greatest challenge for those who participate in the extraction of hydrocarbons is finding a way to stop using them as the heating source for millions of products we depend on daily. The sun is and remains our sole source of energy—only we must learn to leave the ground and raise our eyes to the sky.”

Click here to find out what Argentines think about the exploitation of shale gas deposits.

In this crazy world of climate change, alternatives to fossil fuels are high on government agenda.

Using biodiesel as an environmentally-friendly form of energy is an increasingly popular option, but using crops for fuel can have implications for food supplies and prices. With inflation in Argentina already a serious problem, how enthusiastic are the general public for the government enforcing more biodiesel energy?

The Argentina Independent went out to find the opinion on the street. Photos by Beatrice Murch.

Diana Maingand, 47, assistant producer, Retiro

“Food is really expensive at the moment. I do not know a lot about biodiesel but I feel like it is more complicated than just food prices rising. Food depends on the countries; some countries have an abundance where as others do not. There are no answers so far, the whole thing is still in process.

“The problem with food varies with the people, the decision is not easy. Some people can pay that little bit more but many cannot and for this there no easy solution. To say for example we have the right to eat meat, but rearing animals takes up a lot of land, whereas if everyone were vegetarian, we would all have a lot more food. To be more sustainable, we have to change a lot more than just biodiesel.”

Franco Marcese, 50, builder, Quilmes

“In reality, I know almost nothing about biodiesel. I know it is not petroleum, it is a fuel made from vegetables, it is the future. But food prices are high. Everything is expensive, everything. Compared to other countries that have higher incomes than Argentina, it is more expensive.”

“There are other measures for sustainability, like electric cars, things like this that also serve as alternatives. The first thing is that food prices do not rise, because if that is not a country’s first priority, there will be problems.”

“There are countries that have higher production levels, ones with fields especially for biodiesel. But look, every farmer is going to try and earn more so if they can produce a crop for biodiesel which earns more than selling to shops, they will. And for this, we must control such things.”

Robina Olazar, 29, cleaner, Barrio Norte

“I know nothing about biodiesel but it is important that food prices do not change. We are living in difficult times, there is a lot of poverty, lack of jobs and everything is expensive. The environment is beautiful, and you learn a lot from interacting with the environment; it’s the best. But it [deterioration] is inevitable, it is inevitable.”

Pablo Mesedes, 26, technician/access control, La Plata

“The price of food in this changing economy is relative, it varies a lot, and we must get used to this. I know of biodiesel, I do not know about the exact process but there are a lot of campaigns about implementing it.”

“But I agree with biodiesel, if we do not have a healthy planet, we will not have a house, if we do not have a house we will not have anywhere to live. I am in agreement with alternative fuel, we need to have the right politics, to make change even if it does change the price of food.” 

Martin Cabral, 27, voice actor, Las Floras

“I know a little about biodiesel and the environment is definitely the most important thing to worry about. I want the world to be inhabitable for my children as well as my grandchildren. Prices are high but Mother Earth is more important, we have nothing if we do not protect the world we live in.”

Transportation of Biodiesel (Photo: Nuno Morão)

Its supporters say the industry helps the environment, creates jobs, and boosts economic growth. But biodiesel fuel remains a polemic issue, especially in South America, where its use has grown considerably in recent years.

In Argentina, the industry has grown by 2250% since 2006 and has become the world’s fourth largest biodiesel producer, according to the Argentine Chamber of Renewable Energy. Growth is expected to be propelled further by a law approved last year stating that all petroleum derived fuel in Argentina should include 7% of biodiesel. Investors, drawn to Argentina’s large agricultural sector, relatively cheap land and inexpensive labour, are ploughing millions into biodiesel production.

According to Roberto Urquía, the former senator and owner of the Aceitera General Deheza (AGD), one of the biggest producers of biodiesel in the country, by 2015 biodiesel production in Argentina will reach 7million tons, almost triple the current output.

Carlos St James, CEO of Rubenius Argentina SA and president of the Argentine Renewable Energies Chamber, believes the government is starting to pay more attention to cleaner forms of energy with the development of wind and solar panels and of course, the biodiesel industry.

St James believes Argentina has an extremely efficient production of biodiesel and right now figures show the country can produce 2.5 million tons by the end of this year, which will bring US$3bn to the economy. “It is good for the environment and will also create many jobs,” he says.

Food vs Fuel

Despite the supposed economic and environmental benefits of increased biodiesel production, the industry has its critics, largely due to its potential impact on food supply.

99% of the biodiesel produced in Argentina is the first generation type, which means it is made out of food-producing plants like soybeans, canola and palm trees. The national production focuses mainly on the oil derived from soybeans.

The use of first generation biodiesel divides opinion since the biodiesel and food industries will be competing with each other to get the material for their final products. If more crops are processed as biodiesel, fewer are harvested for food, causing prices of basic foods to rise.

Soy Plant (Photo: UGA College of Ag)

“In a world with hunger it is unjust to use food to produce fuel”, states St James. On the other hand, he says that “the food vs. fuel debate doesn’t apply to the soybean biofuel,” which is the one mainly produced in Argentina. The reason is that the sectors require different parts of the soybean plant: 85% is protein and used to produce food, whereas soy oil is used for the production of biodiesel is the rest. “Argentina is producing more and more soy, which complements food production. This means the more soy you have, more food you get.”

However, even if most of the soybean biodiesel crops will also supply the food industry, it does not mean that there will be no shortage of agricultural production in the long run.

There are two potential soy crops per year and the ideal to have a healthy soil is to alternate crops, since the soybean plantation takes a lot of nutrients out of the soil. The farmers in Argentina are planting soybean crops over and over again, which might lead to infertile lands and scarcity of agricultural products for both food and biodiesel in the future.

Furthermore, Argentina only consumes a small fraction of its national soy crop (most is exported to China), so increased soy production at the expense of other crops such as wheat and corn can affect national food supply.

Efforts are being made to lessen the food vs fuel debate. A second generation of biodiesel is made out of non-food products such as leaves, husk and stems as well as other non-food crops, such as grass, though this accounts for just 1% of biodiesel production in Argentina at the moment.

Meanwhile, so called “advanced biofuels” are being developed, promising to provide more effective and renewable energy without diminishing food crops. For example, the Gliocladium roseum, a fungus found in a Patagonian forest in 2008, has in its composition several different molecules of hydrogen and carbon, which are also found in diesel. According to professor Gary Strobel from the Montana State University, “this is the only organism that has ever been shown to produce such an important combination of fuel substances.”

This means Argentina might have a great economic advantage in the next few years with the development of clean energies. “This fungus can even make these diesel compounds from cellulose, which would make it a better source of biofuel than anything we use at the moment,” adds the scholar.

Prioritising the Domestic Market

With these new forms of biodiesel still undeveloped, first generation biodiesel production is set to continue growing in Argentina. Indeed, despite concerns about use of food crops for fuel, for now, biodiesel producers in Argentina are more worried about overcoming barriers to trade.

AGD's Exportation Figures for 2010 (Photo courtesy of AGD)

Santiago Sanchez, one of the researchers at AGD, says that the company exports more than 80% of their output to over 80 countries, especially the EU. According to Sanchez “the constant changes to the commercialising laws of agricultural products is the main concern of the company when it comes to the internal market.”

In addition, some European countries such as Spain are trying to defend their domestic market by adopting protectionist measures against Argentine soy and biodiesel.

With this in mind, the government is trying to prioritise the internal market. According to Javier de Urquiza, coordinator of the National Bio-fuel Programme. “The message now is ‘less exports and more domestic market’. This is the big challenge for the sector,” stated Urquiza. Minister of federal planning, Julio De Vido, also declared last month that “the profits generated by the bio-fuels should stay [in the country] to sustain growth.”

One idea to stimulate local demand is to again increase the minimum amount of biodiesel in petroleum-derived fuels to 10%, something currently under consideration in government. However, St James says if there is more than 7% of biofuel some vehicles might suffer from engine problems. “The automotive industry is not ready for that” as the engines are not prepared to receive over a certain amount of biodiesel. “That is their dirty little secret.”

Lead Photo by Michele Molinari