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Putin Betting On An Argentinian Shale Boom

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James Stafford, Oilprice.com

Russia is making a play for shale gas – in Argentina.

Shale Gas deposits South America SOURCE: USGS

Russian state-owned natural gas giant Gazprom signed a memorandum of cooperation with Argentina’s YPF at a ceremony in Moscow on April 23. Argentina’s President Cristina Fernandez de Kirchner was on hand as was Russian President Vladimir Putin. The move deepens an agreement that the two sides reached after a visit by Putin to Argentina last year.

The deal calls for the joint exploration and development of shale gas in Argentina’s Neuquén province. Located in west central Argentina, the province is home to the vast Vaca Muerta, a formation that is a big reason why Argentina ranks second behind only China in total shale gas reserves. Argentina is thought to hold more than 800 trillion cubic feet of technically recoverable shale gas, and the Vaca Muerta is the most sought after formation in all of South America. Other oil majors have a presence there, including ExxonMobil and Chevron.

Argentina and Russia see a mutually beneficial political alliance: Argentina has supported Russia in its annexation of Crimea, and Russia has backed Argentina’s complaints against the United Kingdom’s control over the Falkland Islands (known as Las Malvinas in Argentina). The Falklands are thought to hold large oil and gas reserves off their coast, but only a few British companies are exploring them.

Russia’s relations with Western Europe have been severely damaged over the conflict in Ukraine, and so it has sought allies elsewhere. The deal between Gazprom and YPF was hailed by Putin, who said the two countries are developing a “comprehensive and strategic partnership.” The two sides have even suggested they could use their own currencies (pesos or rubles) rather than U.S. dollars, due to both countries’ respective standoff with the United States.

Still, the real objective is (ostensibly) the Vaca Muerta.

YPF and Argentina lack the resources and expertise to go it alone in the Vaca Muerta. Due to an ongoing dispute with an American hedge fund over unpaid debt stemming from a 2001 default, Argentina has been largely locked out of international financial markets. Not only that, but Argentina’s declining oil production has opened up a $7 billion energy deficit, one that President Kirchner is keen to close. YPF estimates that closing that deficit will require $200 billion in investment over the next decade.

That is a tidy sum for the capital-deficient South American country. Russia could offer a financial lifeline to Argentina.

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