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Like the countries of Latin America, Argentina has been greatly affected by the COVID-19 pandemic. Infection and death rates have risen despite the government in Buenos Aires implementing a strict lockdown. These occasions have hit an already fragile economy and a suffering government hard. In 2020, Argentina’s gross domestic product fell by 9. 9%. Despite the impressive pick-up in GDP expansion of 10. 2% in 2021, Argentina finds itself mired in a new economic crisis. Inflation is soaring, weighing heavily on an already strained economy and weak public finances. For these reasons, there is fear that Argentina is on the brink of an economic collapse that will force a default on its sovereign debt. A key driving force for those headwinds is Argentina’s developing energy deficit, which by 2022 is expected to hit as much as $6 billion, more than triple the previous year. These advances continue despite the successful exploitation of the Vaca Muerta shale formation, which has long been seen in Buenos Aires as a silver bullet for Argentina’s economic woes.
At the heart of the brewing crisis is rampant inflation, which according to government data for August 2022 has reached a disheartening annualized rate of 78. 5%, the highest point in three decades. There are signs that inflation continues to fall despite competitive attempts through Argentina’s central bank to curb rising prices. These measures are accompanied by raising the global interest rate to 75%, which is the highest in two decades and the main official interest rate in the world. Economists expect inflation in Argentina to reach an annualized rate of 90% through the end of 2022, leading to increased poverty and putting excessive pressure on an already weak economy and public finances. The threat of Argentina’s sovereign debt default, which has already occurred nine times since its independence from Spain, continues to grow. A number of recent occasions imply that this threat continues to grow. Skyrocketing local bond yields, where the headline rate has surpassed 70%, and massive debt maturities in 2022, coupled with dwindling US dollar reserves, put great pressure on the government’s ability to to meet its monetary obligations. Array The growing shortage of foreign exchange reserves is so serious that Buenos Aires is contemplating restricting imports.
A runaway energy deficit is fueling inflation to decades-highs and expanding tax pressures affecting Argentina’s economy. This is declining despite continued good fortune from the vast 7. 5-million-acre Vaca Muerta shale formation that Buenos Aires has long noted as a silver bullet to Argentina’s economic woes. The geological survey, located in the Neuquén Basin in northern Patagonia, has estimated technically recoverable resources at 16 billion barrels of shale oil and 308 billion cubic feet of shale fuel, making it the largest shale fuel box of the moment in the world. Since the pandemic, the production of oil and herbal fuels in Argentina, due to drilling in Vaca Muerta, has continued to increase to record levels. The volume of activity under development in the hydrocarbon-rich geological formation is sustained not only through oil prices of herbal fuels, but also through the tax and regulatory reforms implemented by the Argentine national government.
In July 2022, Argentina’s hydrocarbon production reached a record high, surpassing what was established a month earlier, pumping 577,446 barrels of crude oil and 4. 95 billion cubic feet of consistent herbal fuel per day, total hydrocarbon production reaching 1. 46 million consistent barrels of oil equivalent per day. These figures highlight that there has been a notable expansion in production of 13%, 7% and 9%, respectively, year after year. It’s the surge in oil and shale fuel production in Vaca Muerta that’s driving those big gains. Argentina’s unconventional oil production in July 2022 increased 47% year-over-year to 247,007 barrels consistent with the day, accounting for 43% of the country’s crude oil production, up from 33% the previous year. Production of unconventional herbal fuels for the same month rose 24% year-on-year to 2. 8 billion cubic feet consistent with the day, meaning shale fuel now accounts for 57% of Argentina’s total herbal fuel production.
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A significant increase in the production of herbal fuel is imperative to reduce Argentina’s energy deficit. The soaring prices of natural fuels, which have jumped 117% since the beginning of the year, mainly due to the war in Ukraine and the lack of commercial investment due to the pandemic, exacerbate Argentina’s energy deficit. The economic crisis-ravaged country relies heavily on energy imports, and a fifth of the herbal fuel fed locally comes from Bolivia and the foreign market for liquefied herbal fuel. In 2021, Argentina imported nearly 23 million cubic meters of fuel oil per day, an increase of nearly 14% from 2020, as demand for the fuel rose sharply as the economy reopened and recovered. of the pandemic. Argentina consistently experienced a $1. 7 billion energy deficit in 2021 and this will especially build up in 2022. A combination of rising energy prices, primarily caused by Russia’s invasion of Ukraine, and growing demand for Herbal fuel in Argentina could see its energy deficit. jump to $6 billion. Matrix for 2022, more than triple what was reported a year earlier. This will weigh heavily on an already consistent fiscally troubled economy and will create significant stress and turbulence if it happens. There is a hypothesis that an energy crisis in Argentina would throw the country’s crisis-prone economy into a monetary disaster that would wreck already fragile public finances, triggering another sovereign debt default and causing a surge. skyrocketing poverty and civil unrest.
Even the successful exploitation of the vast Vaca Muerta, the dead cow in English, the shale formation, has done little to decrease the inflated energy deficit. This is unexpected because the progression of the geological framework is leading to a strong expansion in oil and herbal fuel production in Argentina. By July 2022, total hydrocarbon production reached a new record of 1. 46 million barrels per day, a cumulative of 9. 4% compared to the same month last year. This remarkable expansion in production can be attributed to crude oil production, which jumped 12. 8% to a new monthly record of 577,446 barrels per day, with the production of petroleum liquids accounting for 39. 6% of Argentina’s hydrocarbon production, up from 38. 4% the previous year. fuel production, which jumped 7. 2% year-over-year to a record 140 million cubic meters or 4. 9 billion cubic feet per day, is the other driving force behind the former expansion of hydrocarbon production in Argentina.
The boom in the production of unconventional oil and herbal fuels, due to the successful exploitation of Vaca Muerta, is to blame for this immediate expansion of Argentina’s hydrocarbon production. 47% higher than the 167,994 barrels per day pumped during the same month of the previous year. Shale fuel production, which is very important, reached a record 79. 7 million cubic meters or 2. 8 billion cubic feet per day, a remarkable accumulation of 28% consistent with the year. As a result, shale oil now accounts for 43% of Argentina’s total oil production, up from 33% the previous year, while shale fuel is to blame for 57% of total herbal fuel production compared to 49% for the same constant period in 2021.
There are signs of forged expansion in the production of Vaca Muerta. Drilling activity is expanding, with the Baker Hughes rig count indicating there were 53 active rigs at the end of August 2022, two more than a month earlier, seven more than at the same time in 2021 and 4 times more than in August 2020. Fracking activity is developing at a remarkable pace and the knowledge of the Ministry of Economy shows a marked increase in the volume of completed wells. In July 2022, the volume of completed exploration wells increased 34% from June 2022 to 4,229, while service wells drilled more than tripled month-on-month to 10,767 in Argentina by attracting new investment and, in particular, , expand the production of hydrocarbons. Recently, a new pipeline has been put into service that will connect Vaca Muerta with Buenos Aires, the city with the largest population in the country. In August 2022, Argentina’s arguable new economy minister, Sergio Massa, said he would enact tax and customs benefits for power companies to attract new investment and increase Vaca’s growth. Silence.
By Matthew Smith for Oilprice. com
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