Shale Rush Hits Argentina as Oil Majors Spend Billions on Fracking in Andes Region

Thu, 2014-05-29 11:00Sharon Kelly
Sharon Kelly's picture

Shale Rush Hits Argentina as Oil Majors Spend Billions on Fracking in Andes Region

While many countries, including France, Germany and South Africa, have banned or delayed their embrace of fracking, one country is taking a full-steam-ahead approach to the unconventional drilling technology: Argentina.

The country is welcoming foreign shale companies with open arms in the hope that oil and gas drilling will help combat one of the world’s highest currency inflation rates. But the government there is also facing violent clashes over fracking in arid regions of the Andes mountains and allegations from locals of water contamination and health problems.

Argentina’s Vaca Muerta shale formation — estimated to hold an amount of oil and gas nearly equal to the reserves of the world’s largest oil company, Exxon Mobil — has already attracted billions in investment from the major oil and gas company Chevron.

In April, the government drew global attention when it announced plans to auction off more acreage. “Chevron, Exxon, Shell have shown interest in Vaca Muerta. They will compete for sure,” Neuquen province Energy Minister Guillermo Coco told potential investors on a road show in Houston on April 30th.

Argentina, which the EIA estimates could hold even more shale gas than the U.S., already has over 150 shale wells in production, more than any country in the world aside from the U.S. and China. California-based Chevron, in partnership with Argentina’s state-owned oil company YPF, invested $1.24 billion in a pilot program last year. Last month, Chevron announced an additional $1.6 billion effort for 2014, part of Chevron's overall investment plan that could top $15 billion. The company is hoping that this plan will allow it to extract 50,000 barrels a day of shale oil plus 100 million cubic feet of shale gas per day from the country’s Andes mountain region.

American drillers have talked up Argentine shale as the next big thing. “Vaca Muerta is going to be an elephant compared to Eagle Ford,” Mark Papa, CEO of EOG Resources told the Argentine press in 2012, referring to a major oil-producing shale formation in Texas.

The country’s government is staking its future on a bet that shale drilling will be the key to an economic recovery. Argentina is South America's biggest consumer of natural gas, and imports over $10 billion worth of oil and gas annually — an amount that’s virtually equal to its entire trade deficit.

But many Argentines are skeptical. “We say it is a ‘eldoradista’ vision, the famous ‘El Dorado,’ where there is a ‘discovery’ that will save us all,” said attorney Enrique Viale, founder of the Argentina Association of Environmental Lawyers.

The El Dorado of Shale

The world’s largest oil companies are being drawn in by the prospect of shale gas reserves that the EIA estimates are even larger than those found in the U.S.

But the true prize for drillers may be Argentina's similarly large amounts of shale oil, since oil currently commands a much higher price than natural gas. “Preliminary results indicate that 77 percent of the area contains oil with the rest containing dry and wet gas, said Repsol [YFP, the state-owned oil company],” reserves auditing firm Ryder Scott said in a 2012 report, adding that the shale formation is three times as thick as the Eagle Ford.

Attracted by numbers like these, multi-national oil and gas companies like Chevron have overcome their reluctance to do business in a country that has a track record of nationalizing foreign investments – including oil companies. In 2002, after a populist anti-neoliberal movement drove President De La Rúa from office, Argentina's new government announced that it would default on $82 billion worth of sovereign debt, sparking legal battles that continue to this day.

The country's fiercely independent approach to international business also continues, as in April 2012, Argentine President Cristina Fernández de Kirchner’s government granted itself a 51 percent stake in the Spanish oil company Repsol SA (REP), after objecting that the Spanish firm had been too slow to invest in drilling. In February, Argentina's government agreed to pay $5 billion in compensation to the company, less than half of what Repsol SA originally sought.

Nonetheless, over the past year, fracking has begun expanding at break-neck pace in Argentina, much of it conducted by foreign companies. South America's first horizontal multi-fracture well was drilled in the country in 2008 by an American company, Apache. Five and a half years later, in mid-2013, roughly 50 wells had been drilled into Vaca Muerta and another Argentine shale, the Los Molles. Drilling really caught steam when Chevron announced a $1.2 billion shale drilling partnership with YPF in the summer of 2013, and now over 150 shale wells have been drilled.

Fights Over Fracking

From the outset, shale extraction has led to legal disputes and protests. Apache's wells lay beneath land owned by roughly 40 families living in a community called Gelay Ko, a name that translates from the indigenous Mapuche language to “without water.” Locals filed suit in 2012 over Apache's failure to obtain their consent – which they argue is required under both the Argentine Constitution and international treaties Argentina has signed – or to prepare an environmental impact assessment before drilling began. A group from Gelay Ko protested by occupying Apache's sites later that year, leading to a counter-suit against them from Apache. That group's leader, Christina Lincopan, died in early 2013 of pulmonary hypertension at just 30 years old.

On top of the death of animals, which was already happening when there was only conventional drilling, now we are seeing impacts on the health of the population, because they burn gas there, very close to the people’s homes,” Leftraru Nawel of the Neuquén Mapuche Confederation, told local reporters.

Allegations of water contamination and improper handling of the toxic wastewater generated by fracking have swirled. Local authorities have resorted to distributing bottled water to residents, Nawel told Tierramérica, in response to complaints about water shortages and an increase in salinity in underground water supplies. “No one knows what they do with the waste water, either. In the United States they re-inject it into inactive wells, without sealing them or anything. In Neuquén there is no technology for the treatment of this type of waste,” he added.

In March, an Argentine court ordered a halt to fracking at a YPF shale well in nearby Chabut province, while the court considered claims of water contamination. “Drilling will have to cease immediately” at the El Trebol 914 well, the plaintiff's attorney told Bloomberg news. But this May, when an appeals court upheld the injunction, it was revealed that the well was nonetheless fracked and was now producing oil and gas.

Protests over fracking have at times turned violent in Argentina. Twenty five protesters and 6 police officers were injured during clashes in Neuquén after Chevron's first $1.2 billion deal with YFP was announced in July 2013. Police fired tear gas and rubber bullets at protesters, the New York Times reported that year.  The demonstrations, intended to prevent those agreements from being signed, delayed the deal's completion until August 28, 2013. There have also been signs of labor unrest, with unions threatening a strike this month over favorable treatment for foreign oil and gas companies.

The Argentine anti-fracking movement drew high-profile support in November, when activists visited the Vatican and met with Pope Francis, who was born in Argentina. After that meeting, Pope Francis made international headlines by posing with the activists while holding tee-shirts emblazoned with “No To Fracking” and “Water Is More Precious Than Gold.”

Parallels to Debate in U.S.

Much of the conflict over fracking in Argentina has run parallel to conflicts over the shale rush in the U.S.

As in the U.S., the boom has drawn support from the federal government, while some local governments have sought to craft bans and moratoria on fracking within their borders, leading to disputes over the legality of local control over drilling. “Some municipalities have begun to outlaw the practice, but the national government says those moratoriums are illegitimate, because the national government controls energy policy and natural resources belong to the provinces,” Earth Island Journal reported in 2013.

And, as in the U.S., oil and gas industry representatives have issued blanket denials that fracking causes harm. “It is common to use chemicals in the hydrocarbons industry for several reasons. Nevertheless, these substances are never in contact with the environment,” Ernesto López Anadón, president of IAPG, told the Buenos Aires Herald. “Also there is no link between earthquakes and shale oil and gas projects,” he added.

Recent experience with shale drilling in the U.S. belies both assertions. Regulators in the U.S. have confirmed hundreds of cases of water contamination from shale gas extraction, an Associated Press review concluded this year. And the United State Geological Survey began connecting spates of earthquakes to fracking wastewater disposal wells in 2012. In April, regulators in Ohio announced that fracking itself was directly connected to tremors in the state.

Both Argentine and American environmentalists have championed the use of renewable energy instead of a continued reliance on fossil fuels. “One recent study found that generating wind energy in Argentina would require about the same investment as fracking and would offer a faster rate of return,” Earth Island Journal reported in 2013.

But, for now, the Kirchner government seems focused on expanding fracking in the Andes, drawing heated objections from local activists who are concerned not only about the environmental impacts, but also the financial risks of a shale boom and bust. In the U.S., drillers have discovered that shale wells – especially shale oil wells – start out strong but then peter out quickly, loosing up to 78 percent of their productivity within the first year.

So instead of thinking of a transition agenda and moving towards clean and renewable energy, the national government and the responsible provincial reaffirm the reliance on fossil fuels,” wrote Maristella Svampa and attorney Enrique Viale in a blog post opposing shale drilling, “and embark blindly on the exploitation of unconventional hydrocarbons, which have higher operating costs, are more difficult to extract, create more pollution and have a shorter service life when compared to other types of energy.”

Photo Credit: Oil barrel with Argentinean flag on the world map with oil derricks and growth chart, via Shutterstock.

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