The publication of a report by Argentina’s Energy Institute (IAE) this month on the state of the country’s energy sector has confirmed to many observers the decline of the past decade.
Indeed, although Argentina reached self-sufficiency in the 1980s and became the world’s largest exporter of natural gas, today the country depends upon imports to meet its needs and, given the growth in domestic demand and the modest output of firms in the country, no immediate solutions to the problem are present, though a shale gas boom may be in the offing if recent news from energy company YPF is anything to go by.
However, in the past seven years alone, Argentina is estimated to have consumed 25% of its natural gas reserves and 15% of oil reserves, without having committed to any serious exploration of offshore sites, except perhaps former state monopoly YPF’s pioneering shale drilling in Patagonia.
Although it still exports to Chile and Uruguay, Argentina also imports an increasing volume of natural gas from Bolivia in order to meet ever greater domestic demand, which has just peaked at its highest-ever level.
This sluggishness is the result of poor governance, which has left the country without a comprehensive energy plan.
The administrations of both Cristina Fernandez and her husband and predecessor Nestor Kirchner have neglected the sector, preferring to leave ENARSA and YPF to drive growth without stipulating specific aims or even effectively implementing existing policies.
The blame for declining production does not lie exclusively with the oil firms, however. The investment environment in Argentina is far from hospitable, with the combination of the government’s tendency towards intervention and its precarious economic position serving to deter those that would otherwise be interested in involvement.
The domestic costs of declining production are high. The cost of energy imports are driving up the already sizeable deficit and yet Fernandez has suggested that she may remove government subsidies for these imports, despite the impact this will have on already squeezed household incomes.
This month, it appeared as if the Argentine government had suddenly become aware of its predicament, insisting that YPF increases production within “a reasonable amount of time” while also threatening the company with sanctions for what it claims to be unpaid tax.
It is clear, however, that YPF will be unable to bridge the gap between supply and demand alone, if at all, without considerable investment.
With unofficial inflation at an all-time high and a sluggish export market for domestic produce continuing, labour unrest is a constant threat and Fernandez’s government is likely all too aware of the growing dangers of energy mismanagement.
In light of all this, the first commercial oil find made off the Falklands with doubtless more successes to come must have been a particularly bitter pill for the Argentine government to swallow.
Although the islands are not yet producing anything, they are thought to harbour reserves of some 8.3billion barrels oil equivalent.
In the context of the extreme resource nationalism seen across the South America region, the idea that such wealth will be exploited by foreign companies, effectively in the name of the UK, will inevitably stir feelings in Argentina.
Nevertheless, it is not the anticipated mineral wealth of the islands that is the main driver behind Argentina’s increasingly provocative attitude towards the issue of their sovereignty.
Rather, it is the impact of the country’s diminishing self-sufficiency in energy on public opinion and the tensions that energy dependence is causing domestically that has re-ignited rhetoric over the Falklands.
The upcoming anniversary of the Falklands War, combined with the dispatch of both a type 45 Destroyer and a Royal to this South Atlantic UK outpost, has given Fernandez the perfect opportunity to deflect the energies of the Argentine public towards an issue less damaging to her own position than that of domestic mismanagement.
Taryn Evans is AKE’s intelligence analyst for Latin America.