by Fernando Cabrera
Neuquen – Argentinian President Mauricio Macri claims that exploiting his country’s oil and gas shale reserves – the second-largest in the world – is vital not only to lift the economy out of the doldrums but also to provide a “bridge fuel” to support the climate transition. The reality, which is already becoming apparent, is not nearly so rosy.Under Argentina’s leadership, G20 energy ministers signed a communiqué this summer highlighting the role of natural gas in “supporting transitions towards lower-emission energy systems,” with the “potential to expand significantly over the coming decades.” And the Macri government has created a plan to attract $12 billion per year in fossil-fuel investments, predicting that revenues from oil and gas exports will surpass those from agriculture – currently Argentina’s leading export sector – by 2027.
Argentina certainly has massive reserves still to be exploited: an estimated 19.9 billion barrels of crude oil and 583 trillion cubic feet of gas, concentrated in the Vaca Muerta shale formation. But the notion that using these resources would have any environmental benefit is entirely illusory. Extracting Argentina’s shale resources would not only require dangerous and expensive hydraulic fracturing (fracking); exploiting them would result in around 50 billion tons of carbon dioxide emissions.
According to research by Oil Change International, full exploitation of Argentina’s shale reserves would consume up to 15% of the entire world’s carbon budget for limiting global warming to less than 1.5° Celsius above pre-industrial levels – the target established by the Paris climate agreement. The United Nations Committee on Economic, Social, and Cultural Rights has recommended that Argentina’s government “reconsider” the exploitation of unconventional hydrocarbons.
Yet, if Argentina receives sufficient investment to build the infrastructure – the pipelines, railways, silica mines, and waste sites – needed to make Vaca Muerta profitable, the country may become effectively locked into full exploitation. With major international oil companies – including BP (which owns 50% of Pan American Energy Group, Argentina’s second-largest crude producer), Total, Shell, Wintershall, Equinor, ExxonMobil, Chevron, CNOOC, Dow, and Petronas – already getting involved, this scenario seems increasingly likely.
And it is not just the climate that will suffer. Already, the economics of Argentina’s dash for gas has resulted in massive transfers from households, businesses, and the state to fossil-fuel corporations. Argentina’s government, in line with a G20 commitment, has been slashing subsidies for private gas and oil heating bills. At the same time, the Macri administration has been hiking (dollarized) gas prices.
Add to that a sharply depreciating peso (down by more than 50% against the US dollar this year), and the increase in gas prices faced by households and businesses, on average, amounts to 1,300% over the last 24 months. Unsurprisingly, many companies and households can no longer afford their energy bills.
The price hikes are so damaging that the entire opposition united behind a law to bring tariffs back to their November 2017 levels. Macri vetoed the law in May, before replacing his energy minister.
While households and businesses suffer, oil and gas companies continue to profit. In fact, those wishing to exploit shale deposits are receiving shiny new subsidies of their own, along with other benefits: a guaranteed price through Plan Gas for unconventional gas, reduced regional government fees per unit of gas extracted, and an agreement with the main trade unions that lowers workforce costs.
As a result of these lavish arrangements, companies drilling for shale gas can turn a profit without providing the promised economic benefits. According to research by Argentina’s Socio-environmental and Energy Justice Alliance, although oil and gas companies operating in Vaca Muerta in 2016 invested less than they did in 2015 and provided 3,000 fewer jobs, they received higher earnings.
Beyond the labour-rights violations that deals with trade unions enable, shale-gas extraction violates the rights of indigenous communities. For example, indigenous Mapuche communities have protested wells drilled on their territory without prior informed consent. Moreover, while more than 60 municipalities have passed local regulations to ban the drilling, the courts have declared several of these measures unconstitutional on the grounds that they exceed communal powers – a move that also undercuts local democracy.
So Argentina’s shale megaproject undermines efforts to address climate change, threatens local democracy and indigenous rights, and will not bring the economic benefits promised by its proponents. Meanwhile, Macri’s government, which is hosting the G20’s annual summit this week, has been using the body’s forums to promote gas as a sustainable energy alternative. This is not climate leadership.
And yet, when it comes to shale-gas ambition, Argentina is hardly alone. G20 governments, from China to the United Kingdom, are devising large-scale industrial strategies centred on shale gas. The story of Vaca Muerta should serve as a warning to these and other countries considering shale gas as a means of strengthening their economies and advancing a low-carbon energy transition.
Far from exploiting shale reserves, the world needs to halt new fossil-fuel projects, phase out existing ones, and implement ambitious clean-energy investment strategies focused on providing decent jobs and respecting communities’ rights to control development on their land. Only by adopting and promoting such an approach could Argentina credibly claim to be showing climate leadership.
Copyright: Project Syndicate, 2018.
by Fernando Cabrera