YPF takeover sinks shale gas

23 April 2012 00:00  [Source: ICB]

Argentinian flag, Rex Features

 © Rex Features

President enjoys political support for the move, as this poster suggests

The Argentine government's proposed takeover of energy producer YPF could scare away the outside investors needed to develop the country's vast shale-gas reserves, leaving its petrochemical industry short of feedstock.

Shortages of natural gas in Argentina have already led one company, Methanex, to make plans to move a methanol plant from Chile to Geismar, Louisiana. It shut down the plant because it could not get natural gas from Argentina.

Petrochemical plants in Argentina now plan their turnarounds in the winter, to coincide with what have become annual industrial cutbacks in natural gas.

Meanwhile, Argentina's liquefied natural gas (LNG) import needs continue to grow, reaching 80 cargoes this year. But the country has still not secured enough import cargoes to cover its needs for the upcoming South American winter.

The proposed takeover of YPF is the culmination of these energy shortages and growing tensions between the Argentine government and YPF's owner, Spain-based energy producer Repsol. The administration of President Cristina Kirchner has sent a bill to Congress to take control of 51% of YPF.

The bill is likely to pass the vote in Congress, since Kirchner's party holds a majority, said Jorge Buhler-Vidal, director of US-based Polyolefins Consulting. However, government control of YPF is unlikely to do anything to address falling energy production or bring its shale-gas reserves into play, Buhler-Vidal said. Argentina has an estimated 774,000bn cubic feet (bcf) of recoverable reserves of shale gas, the third-largest behind China and the US, according to the US Energy Information Administration.

Earlier this year, the head of YPF's upstream activities said the company would need a substantial amount of foreign capital to develop those shale gas reserves. Nationalising YPF, though, would make foreign investors only more skeptical about Argentina, said Raul Arias, senior consultant and manager for Latin America at Nexant. Nationalising companies sends a bad signal to investors, he said.

The nationalisation of YPF would be the latest in a string of policies that have made investors skittish about Argentina. Already, government restrictions on imports are hitting growth in Argentina's industrial sector, and the restrictions have delayed entry of vinyl and polypropylene (PP) imports.

With foreign investors out of the picture, the Argentine government would be left trying to raise funds to increase energy production.

By: Al Greenwood
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