Charles W. Thurston, Latin America Correspondent10.08.20
Argentina seems to have emerged from its latest economic crisis, issuing new bonds to cover 99 percent of its national debt, which was in default since May 2018.
As a result, foreign direct investment is expected to recover, particularly for the development of the Vaca Muerta shale fields. These oil resources could serve both to raise export revenues and to provide feedstock for the domestic chemical industry.
For its latest debt renegotiation, Argentina issued $63.2 billion in new dollar-denominated bonds and €4.18 billion (about $5.01 billion) at a rate of about 11 percent to clinch the deal. The debt renegotiation is the ninth that has taken place in modern history.
The government of Argentine President Alberto Fernandez will still need to work out a new financing deal with the International Monetary Fund, which loaned the country $57 billion in 2018 to help stabilize the economy
Private sector investors tend to await formal multilateral agreements before making new commitments
Foreign Direct Investment to Rise
Despite the default negotiations that took place earlier this year, foreign direct investment in Argentina has continued to rise; in July some $600 million of new FDI was registered, about a tenth of the volume recorded in 2019, according to Trading Economics and to Santander bank.
FDI of $11.9 billion in 2018 was about double the 2019 total, Santander indicated.
One notable potential investment in Argentina’s petrochemical industry was announced about three years ago by Dow Chemical, which was slated to invest over $200 million in the Buenos Aires Province petrochemical complex.
Dow operates the country’s only cracker and polyethylene complex in Bahia Blanca, according to ICIS.
The company has two ethane crackers with ethylene capacities of 455,000 metric tons/year and 275,000 metric tons/year, according to the ICIS Supply and Demand database.
New investment in the Vaca Muerta shale fields was announced in early September by Neuquén Province’s Governor Omar Gutierrez, who estimated that between $2.5 billion and $3.3 billion could be invested over the short term, down from nearly double the prediction level before COVID-19.
“Five years into the shale play’s development, Vaca Muerta’s enormous potential is well known. Numerous ongoing pilots are consistently confirming productivity while a few projects are demonstrating what is possible under full-scale development,” Wood Mackenzie said in a 2018 report. The analysts predict that production from the formation could hit 900,000 barrels of oil equivalent per day by 2024.
One new investor in the Vaca Muerta field is ExxonMobil, which in August was awarded a second 35-year concession for an exploration block.
The company will build facilities to process the oil production from the concessions.
“We have a world-class reservoir and we are achieving productivity levels that can compete with the best wells in the U.S. basins,” said Daniel De Nigris, head of ExxonMobil’s Argentina operations in Argentina, during a November 2019 seminar.
Market analysts also are bullish about Vaca Muerta. “Overall, the latest concession has signaled that the international energy majors have a strong interest in the Vaca Muerta shale play, although they are delaying investment plans in Argentina. Many energy players even believe that the Vaca Muerta has all the potential to become more price-competitive than America’s Permian basin,” according to Zacks Equity Research.
Overall, Neuquén Province has provided 39 concessions to investors in oil development, which represent about a third of the overall reserves in the province.
“Vaca Muerta requires investments of at least $5 billion a year and the target to reach is $10 billion per year,” Gov. Gutierrez said during a recent webinar.
Vaca Muerta holds 16 billion barrels of technically recoverable shale oil and is the world’s second-largest shale natural gas deposit, according to the U.S. Energy Information Agency.
Argentina’s state energy company Yacimientos Petrolíferos Fiscales (YPF) plans to deploy 46 rigs in the Vaca Muerta region over the next six months, according to local reports.
A new $3 billion to $4 billion gas liquefaction plant also is in the cards, which would enable Argentina to export more gas to countries like Brazil, Chile and Uruguay.
As production has grown over the last few years, Argentina has exported natural gas by pipeline to Chile and Brazil and has also exported liquefied natural gas (LNG) to multiple countries.
In 2016, Argentina was the largest dry gas producer and the fourth-largest petroleum and other liquids producer in South America, according to the BP Statistical Review of World
Energy 2017.
Production from Vaca Muerta surpassed 1 billion cubic feet per day (Bcf/d) in December 2018, according to the EIA.
Among other new industrial investors in Argentina is PSA Group, which recently began the first series production of its Peugeot 208 compact hatchback in Argentina.
The startup is the result of a $320 million investment in the El Palomar production center, now a global assembly operation.
Similarly, India’s Royal Enfield recently opened a knocked-down motorcycle assembly plant in Argentina, which the company describes as the second biggest motorcycle market in Latin America. Brazil, Argentina and Colombia are among the three most important markets for Royal Enfield in Latin America, the company said in a statement.
Economic Growth Outlook for 2021 Bullish
Although the Argentine economy is predicted to contract by about 12 percent this year, it is expected to rebound in 2021 by close to five percent, thanks to the new bond issue.
“This important step forward provides the opportunity for the government to articulate a broader plan to tackle various post-pandemic macroeconomic challenges, negotiate a new program with the IMF, and work to clear arrears with the Paris Club,” S&P Global Ratings said.
Argentina’s Gross Domestic Product is about $643 billion, and per-capita GDP is about $11,200, according to World Bank statistics.
Negative Impact of COVID-19
Limiting factors to growth include the ongoing COVID-19 crisis, with daily new case totals reaching 12,000 in early September, contributing to a national case total of about 500,000. The death toll is over 10,000.
About 90 percent of all COVID-19 cases were initially concentrated in the Buenos Aires metropolitan area, where almost a third of Argentina’s population resides, according to Reuters.
The other provinces now account for almost a third of all cases, with Córdoba, Santa Fe, Jujuy and Mendoza the most affected, the agency reports.
President Fernández’s government ordered a nationwide lockdown on March 20 and mandatory social distancing rules remained in place for the first two months.
Since then, some businesses have re-opened, including many industrial production companies.
As a result, foreign direct investment is expected to recover, particularly for the development of the Vaca Muerta shale fields. These oil resources could serve both to raise export revenues and to provide feedstock for the domestic chemical industry.
For its latest debt renegotiation, Argentina issued $63.2 billion in new dollar-denominated bonds and €4.18 billion (about $5.01 billion) at a rate of about 11 percent to clinch the deal. The debt renegotiation is the ninth that has taken place in modern history.
The government of Argentine President Alberto Fernandez will still need to work out a new financing deal with the International Monetary Fund, which loaned the country $57 billion in 2018 to help stabilize the economy
Private sector investors tend to await formal multilateral agreements before making new commitments
Foreign Direct Investment to Rise
Despite the default negotiations that took place earlier this year, foreign direct investment in Argentina has continued to rise; in July some $600 million of new FDI was registered, about a tenth of the volume recorded in 2019, according to Trading Economics and to Santander bank.
FDI of $11.9 billion in 2018 was about double the 2019 total, Santander indicated.
One notable potential investment in Argentina’s petrochemical industry was announced about three years ago by Dow Chemical, which was slated to invest over $200 million in the Buenos Aires Province petrochemical complex.
Dow operates the country’s only cracker and polyethylene complex in Bahia Blanca, according to ICIS.
The company has two ethane crackers with ethylene capacities of 455,000 metric tons/year and 275,000 metric tons/year, according to the ICIS Supply and Demand database.
New investment in the Vaca Muerta shale fields was announced in early September by Neuquén Province’s Governor Omar Gutierrez, who estimated that between $2.5 billion and $3.3 billion could be invested over the short term, down from nearly double the prediction level before COVID-19.
“Five years into the shale play’s development, Vaca Muerta’s enormous potential is well known. Numerous ongoing pilots are consistently confirming productivity while a few projects are demonstrating what is possible under full-scale development,” Wood Mackenzie said in a 2018 report. The analysts predict that production from the formation could hit 900,000 barrels of oil equivalent per day by 2024.
One new investor in the Vaca Muerta field is ExxonMobil, which in August was awarded a second 35-year concession for an exploration block.
The company will build facilities to process the oil production from the concessions.
“We have a world-class reservoir and we are achieving productivity levels that can compete with the best wells in the U.S. basins,” said Daniel De Nigris, head of ExxonMobil’s Argentina operations in Argentina, during a November 2019 seminar.
Market analysts also are bullish about Vaca Muerta. “Overall, the latest concession has signaled that the international energy majors have a strong interest in the Vaca Muerta shale play, although they are delaying investment plans in Argentina. Many energy players even believe that the Vaca Muerta has all the potential to become more price-competitive than America’s Permian basin,” according to Zacks Equity Research.
Overall, Neuquén Province has provided 39 concessions to investors in oil development, which represent about a third of the overall reserves in the province.
“Vaca Muerta requires investments of at least $5 billion a year and the target to reach is $10 billion per year,” Gov. Gutierrez said during a recent webinar.
Vaca Muerta holds 16 billion barrels of technically recoverable shale oil and is the world’s second-largest shale natural gas deposit, according to the U.S. Energy Information Agency.
Argentina’s state energy company Yacimientos Petrolíferos Fiscales (YPF) plans to deploy 46 rigs in the Vaca Muerta region over the next six months, according to local reports.
A new $3 billion to $4 billion gas liquefaction plant also is in the cards, which would enable Argentina to export more gas to countries like Brazil, Chile and Uruguay.
As production has grown over the last few years, Argentina has exported natural gas by pipeline to Chile and Brazil and has also exported liquefied natural gas (LNG) to multiple countries.
In 2016, Argentina was the largest dry gas producer and the fourth-largest petroleum and other liquids producer in South America, according to the BP Statistical Review of World
Energy 2017.
Production from Vaca Muerta surpassed 1 billion cubic feet per day (Bcf/d) in December 2018, according to the EIA.
Among other new industrial investors in Argentina is PSA Group, which recently began the first series production of its Peugeot 208 compact hatchback in Argentina.
The startup is the result of a $320 million investment in the El Palomar production center, now a global assembly operation.
Similarly, India’s Royal Enfield recently opened a knocked-down motorcycle assembly plant in Argentina, which the company describes as the second biggest motorcycle market in Latin America. Brazil, Argentina and Colombia are among the three most important markets for Royal Enfield in Latin America, the company said in a statement.
Economic Growth Outlook for 2021 Bullish
Although the Argentine economy is predicted to contract by about 12 percent this year, it is expected to rebound in 2021 by close to five percent, thanks to the new bond issue.
“This important step forward provides the opportunity for the government to articulate a broader plan to tackle various post-pandemic macroeconomic challenges, negotiate a new program with the IMF, and work to clear arrears with the Paris Club,” S&P Global Ratings said.
Argentina’s Gross Domestic Product is about $643 billion, and per-capita GDP is about $11,200, according to World Bank statistics.
Negative Impact of COVID-19
Limiting factors to growth include the ongoing COVID-19 crisis, with daily new case totals reaching 12,000 in early September, contributing to a national case total of about 500,000. The death toll is over 10,000.
About 90 percent of all COVID-19 cases were initially concentrated in the Buenos Aires metropolitan area, where almost a third of Argentina’s population resides, according to Reuters.
The other provinces now account for almost a third of all cases, with Córdoba, Santa Fe, Jujuy and Mendoza the most affected, the agency reports.
President Fernández’s government ordered a nationwide lockdown on March 20 and mandatory social distancing rules remained in place for the first two months.
Since then, some businesses have re-opened, including many industrial production companies.
