The Minister for Federal Planning, Public Investment and Services, Julio De Vido, announced that oil company YPF and Venezuela’s petroleum company PDVSA will be working together along with Argentina’s state-owned energy company Enarsa.

Governments of both countries agreed that the working alliance will open up opportunities to extract crude oil in Venezuela’s Faja del Orinoco as well as non-conventional resources in Vaca Muerta, an oil and gas field in Argentina’s Neuquén Province. It is hoped that the new plan will create a 60% increase in YPF’s oil refining capabilities over a five-year period.

YPF’s five-year plan contemplates the creation of 132 new mine shafts over 40 square kilometres in Vaca Muerta, with plans to produce 55 million barrels of oil, a number that they expect could be increased twofold in the following five-year period. PDVSA has shown interest in investing on exploration in Vaca Muerta.

Together, PDVSA and YPF also plan to expand the oil refinery in La Plata, invest US$1.5bn into a petrochemical complex in Bahía Blanca, and build a “regasification” plant for YPF and Enarsa.

The announcement of the collaborative union comes days before the official incorporation of Venezuela into regional trading bloc Mercosur, due to take place on 31st July.

“Mercosur will be a powerful economic bloc with Venezuela’s incorporation,” said Venezuela’s foreign minister, Nicolás Maduro, on state television (VTV).

With news that huge deposits of shale gas – potentially the third largest in the world – have been found underground in Neuquén, the prospect of fracking in Argentina is greater than ever. Hydraulic fracturing – or fracking – is the process of extracting buried deposits of gas and oil by pumping water, chemical and sand miles under the ground. It’s detractors say it causes irreparable environmental damage and has been the source of small earthquakes while those extolling its virtues believe that exploiting this natural resource could make Argentina gas-independent, meaning they would no longer have to important the fuel.

Does the environmental damage outweigh the economic benefits? Robin Minchom takes to the streets to see what the people in Buenos Aires think. Photos by Diego Espinosa.

Carmela Mirabelli, Lawyer, 27, Palermo

Lucrative activities have nothing to do with the state. This activity, which seems to me a public activity, is something that interests all of us because it is a technique that could end up harming the environment which affects us all and not just Argentines, the whole world. For such a delicate subject should be debated, should be voted in a referendum – we should all participate and it’s not really about being against or in favour of this government. It’s much bigger than something one government should be able to decide on because the consequences of what could happen are enormous.

The right to and access to information are absolutely fundamental otherwise we will never be able to make conscious decisions about what is best for us. When talking about a subject that affects all of us, the politicians need to communicate to us. We can read the newspapers, but there also needs to be a politics of communication; we can’t just rely on a few journalists.

We need to know more about the pros and the cons and if the cons affect all of us and, what’s more are irreversible, say no more, that’s not negotiable. You can’t undo the damage you do to the environment.

Nehuén Perrotta, Juggler, 20, Llavallol

I’m against anything that damages the environment. Unfortunately few people understand the notion of it – look at how people treat water. For me the most important thing is nature and that is the least cared for.

I don’t believe them [the government and private companies who say they will do a responsible job]. What happens now when people deal with nature is they don’t do the studies that they need to, things like that. If someone is investigating fauna, then they won’t investigate the flora and they’re destroying both of their habitats; humans change everything.

Maybe it’s possible to do it while doing the least damage possible but they’d still be harming nature, but that’s how it goes. If you go into the whole economic side of it, it only ever benefits a few people. If it was better distributed … if it is like you say and we’re all going to be great afterwards fair enough but generally it ends up benefitting few. In Europe maybe it’s more controlled, here people are less conscious.

If we’re talking about what’s most important for me, it’s not worth it, but if we’re talking about the whole country, maybe, who knows?

Lucas Mueño, Administration, 33, Avellaneda

We are never going to find out if this gas is really being used to stop imports and is being used for the country’s economy. What I see these days is that we’re all human beings, we’re advancing a lot, so if it’s possible we should do it. We’ve arrived at a moment where we all have mobile phones and things we couldn’t have dreamed of 20, 30 years ago. I sincerely believe that the human being is very capable – I’m not talking about Argentines or anyone in particular, just human beings in general. If we can find a way to extract the gas without harming the environment, perfect. That the government does it properly and takes all the necessary means for all the economic benefits, I doubt it. I doubt it. You’ve got to have faith but knowing how things are and how they go about their business, it’s a shame. It’s a shame that we’re that capable but things like this only benefit a few, rather than everyone.

Whether they’ll do it correctly, I can’t say anything but I’m in agreement that we should make the most of our own resources. It’s better that our own country does it rather than companies from elsewhere. We should exploit the land. We’ve got fields and those have served us well but if we can do something with this gas, I think it would be good.

Marta, Teacher, 70, Mendoza Province

For me the environment is the most important because in the end, it’s us that are going to suffer. The benefits don’t reach the general population; they stay in the hands of those who run the business.

The risks seem too dangerous to try out this method which may cause tremors. If they don’t harm the environment and contaminate water, etc., they can do it but you always need to take care not to contaminate, something that could affect the local population.

I suppose you’ve got to trust the government and the private companies to do a responsible job, you’ve got to trust something but I don’t think they should try out this new technique. If it might cause tremors … I don’t live here, I live in a province where there are a lot of tremors. Every now and then we get tremors and they are not pleasant at all, and that’s very close to Neuquén [where the gas has been found]. We should find a more ecological way, that doesn’t contaminate and damage the environment.

Hernán Pérez, Lawyer, 51, Barrio Norte

I don’t think the environmental damage is that important if what we achieve is progress for the country. To make a tortilla you’ve got to break some eggs and the tortilla isn’t a bad thing, is it? When they built the Pan-American [Highway], people were complaining that they were chopping down lots of trees but if they hadn’t taken the trees down at that moment, they wouldn’t have been able to build it. There is always going to be someone who will complain about something that’s being done, there’s no doubt that will always happen. The cost-benefit is what we’ve got to look at.

If with this what we will achieve is that we have our own gas so we don’t have to buy, beyond the economic benefit, there will be more industry in the country and the province of Neuquén will be good. If not we have to live off air and nothing will get done. I think that progress is always good but there will always be someone complaining.

Private companies are going to look for their own benefits and they’re going to want to do the thing well to be able to get the most money out of it and the state has to control it so that the companies do it properly. We need those who are supposed to control it do a good job.

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.