Texas and other parts of the U.S. have become key oil and gas producers again. Further, the U.S. is now the second lowest-cost oil producer in the world after Saudi Arabia.
This unexpected change of events has occurred because of the shale revolution and the advent of unconventional extraction techniques developed by U.S.-based exploration and production companies. Yet despite the fact that there are shale deposits located all over the world, the United States remains as the only country to produce oil and gas from shale in any significant quantity. All of that is about to change, though, as Argentina begins to develop its own shales reserves.
The Institute for Economic Development at The University of Texas at San Antonio was commissioned by the Instituto Argentino de Petróleo y del Gas to undertake a study modeled on previous work performed on the Eagle Ford. The research will examine developments in the Vaca Muerta Shale field in the Neuquén Province in western Argentina. Toward that end, I recently traveled to Buenos Aires and Neuquén Province to meet with government officials as well as industry representatives and analysts in order to learn more about the progress there and prospects for the future.
Neuquén Province has a long history of oil and gas development from conventional fields that spans several decades. As those fields have matured, similar to the situation in the U.S., unconventional techniques now present the best opportunity for energy development. Currently, Argentina imports significant quantities of natural gas from Bolivia (via pipeline) and Chile. Importing energy is an expensive proposition compared to the potential for domestic production in Argentina.
Several companies are now developing shale blocks in the Vaca Muerta, including the majority state-owned YPF, as well as Pan American Energy, Total, Shell and ExxonMobil. While shale oil and gas development remains in the relatively early stages, the logistics and supply chain issues needed to support unconventional development steadily progress. As supply chains become more robust, the cost to complete oil and gas wells will continue to decline and may eventually reach parity with the U.S. This change in global dynamics will certainly have a profound effect in the coming years.
Starting in the 1970s, OPEC gained an outsize role in global oil production because of its relatively low cost structures (particularly in Saudi Arabia) and abundant supplies. All of that changed not much more than five years ago. Because of shale development, the U.S. is now the largest combined oil and gas producer, though Saudi Arabia and Russia still produce more crude oil.
Shale oil and gas development in the U.S. has stripped away much of the market power that OPEC has held over the past few decades. With shale production beginning to ramp up in Argentina, OPEC’s influence will likely wane further. Eventually, shale oil and gas development will spread to other countries as well.
Energy is the lifeblood of industrialized society. While ongoing efforts to develop alternative energy resources continue, the reality is that oil and gas production throughout the world will remain critical in the years to come. Equally important, the U.S., Argentina and other countries will no longer be subject to the prospective whims of OPEC members. These unconventional techniques developed in the U.S. will enable other countries to tap their own shale oil and gas resources and enjoy a greater degree of energy independence than could have been imagined even just a few years ago.
About the author: Thomas Tunstall, Ph.D., is the Senior Research Director at The University of Texas at San Antonio Institute for Economic Development. He was the principal investigator for numerous economic and community development studies. He has published peer-reviewed articles on shale oil and gas, and has written op-ed articles on the topic for The Wall Street Journal. Dr. Tunstall holds a Ph.D. in political economy and an M.B.A. from The University of Texas at Dallas, as well as a B.B.A. from The University of Texas at Austin.
