DRIVING north-west along a poplar-lined road from the city of Neuquén, orchards and wineries give way to a bone-dry land of stubborn brush, hardy wild horses and a sprinkling of Amerindian villages. Underground lies long unsuspected wealth: Vaca Muerta (“Dead Cow”), a shale formation the size of Belgium, has the potential to transform the country.
Argentina boasts the world’s second-biggest shale-gas reserves, most of them in Vaca Muerta. A survey by the US Energy Information Administration (EIA) suggests that the field holds 16.2 billion barrels of shale oil and 308 trillion cubic feet (TCF) of shale gas. That is more shale oil than Mexico and more shale gas than Brazil. It is enough to satisfy Argentina’s current energy demand for over 150 years, and could make the country an exporter once again.
Neuquén is readying itself for a boom. Shopping centres have sprung up; so have clean new hotels that boast English-speaking staff and American-style food. Horacio Quiroga, the city’s mayor, compares its residents to expectant diners who have tied on their bibs. Argentina’s president, Cristina Fernández de Kirchner, is equally hopeful. “I shall no longer call [it] Vaca Muerta,” she said last year. “I shall call it Vaca Viva (‘Living Cow’).”
But there are several catches. The EIA can be wrong: it has downgraded its estimates for Chaco-Paraná, another Argentine basin, from 164 TCF to 3 TCF. But initial trials at Vaca Muerta have been encouraging. In May Exxon Mobil announced that 770 barrels a day had begun to flow from an exploratory well there. Chevron and YPF, Argentina’s state oil firm, have formed a $1.4 billion joint venture to develop a concession which currently produces 24,000 barrels of oil equivalent a day.
Vaca Muerta’s geology helps. Its shale is thicker than in most formations, which means that companies can produce more from a single site. As firms become familiar with the field, budgets are already dropping: YPF says it has reduced costs from $11m per well in 2011 to $7.5m.
A bigger obstacle is government energy policy. Price controls and export taxes have deterred investment; oil and gas output have declined while demand has grown. Unless policy changes, it will be hard to find the $140 billion to $200 billion that oilmen say is required for large-scale development of Vaca Muerta. Shell, Total and many others have bought stakes in the field, but so far are just exploring. Daniel Gerold, a director at G & G Energy Consultants, estimates that only $3.7 billion has been invested over the past three years.