Plenary Session: “Regional Economic and Energy Outlook”

The third talk of the plenary session, by Ernesto López Anadón, president of the Argentine Institute of Oil and Gas (IAPG), was entitled “The Impact of Non-Conventionals in the Energy Scene.” The discussion addressed two large themes: on the one hand, the enormous challenge of drastically reducing CO2 emissions, especially in the planet’s largest economies, and on the other, the transformational role that unconventional resources can have when promoting a cleaner energy matrix.

A revealing fact that began the presentation was the composition of the global energy matrix. According to information from the International Energy Agency (IEA) for 2017, 81% of total generation corresponds to fossil fuels (28.6% coal, 31.3% oil and 21.2% natural gas). López Anadón referred to the three scenarios that the IEA projects each year in terms of energy matrix and emissions and recalled that it is necessary to go beyond the Paris Agreement if the world wants to achieve a situation in which the global temperature of the Earth does not increase by more than 1.5 degrees Celsius by 2040.

This scenario is the one described as ‘sustainable development,’ but the challenge to reach it is enormous. To begin with, the participation of coal in the energy matrix would have to be drastically reduced; in 2017, coal alone was responsible for 45% of total CO2 emissions. "By 2040, the share of coal in the global energy matrix should be reduced from 28.6% to 13%," López Anadón explained.

This first point is in itself a complicated mission, although only a handful of countries have to concentrate the effort: China, the United States, India, Russia, Japan, Germany, South Korea and Canada account for 81% of global coal consumption and are responsible for 64% of total CO2 emissions. “In these countries, reducing the use of coal is going to be a problem, because it is a cheap fuel that gives jobs and adds value to the economies. Replacing this fuel in the short term until 2040 is a challenge,” explained López Anadón.

Secondly, total energy consumption should be maintained at the same levels as in 2017: again, an important challenge considering that the world population will go from more than 7 billion people in 2017 to about 10 billion by 2040. “Yet, there are already countries that have disconnected the economic growth from energy consumption growth, such as Germany,” highlighted López Anadón.

Third, it is necessary to incorporate more renewable energies, such as wind and solar, which in 2017 represented only 1.3% of the total global energy matrix. There, said the president of IAPG, the challenge is in the cost, since in many cases subsidies are required to develop these sources of energy.

"Photovoltaic solar energy, concentrated photovoltaic solar energy and wind power should represent almost 50% of the energy matrix in 2040, which implies large investments, and also these systems are intermittent," he said. “On the one hand, winds are very variable. On the other, the solar generation does not work at night and has very low production in winter. This implies high costs to install backup power, and also important investments in transmission infrastructure from generation parks to consumption centers.”

The Role of Non-conventional Gas

After explaining the challenge of drastically reducing emissions, López Anadón pointed to the case of the United States, which went from being a large importer of oil and gas to being a net exporter thanks to the enormous development of its unconventional resources. Also, he focused on the role that natural gas has played in this process, since it has allowed for the significant replacement of coal generation capacity in this country. As a result of this transition, the United States has been the country that has achieved the greatest reduction in CO2 emissions since 2007, he explained.

In the context of the example of the United States, the presentation turned its focus on to Argentina and the potential of Vaca Muerta, although he stressed that the formula that has proven fruitful in one country cannot simply be extrapolated to another without taking into account the specific nuances of that particular country. "Each country has its own economic, social and energy structures, so you have to solve those structures, often antagonistic, to achieve economic development while reducing emissions."

López Anadón demonstrated the potential of Vaca Muerta with figures: in more than 100 years, Argentina accumulates a total production of 11.8 billion barrels of oil and 56 trillion cubic feet of gas. Faced with this, the unconventional resources of the Neuquén basin are in the order of 13 billion barrels of oil and 210 trillion cubic feet of gas. "These resources are much greater than those produced in more than 100 years in conventional basins," he stressed.

With the figures in hand, López Anadón highlighted the potential to boost Vaca Muerta to the next level of development. Through a US$22.5 billion investment in the last six years, the country has about 2,000 unconventional wells, which represent only 10% of the country's wells, yet they already account for 18% of the country’s oil production and 40% of natural gas production.

"In the future, we can drill 500 oil wells per year, which would allow Vaca Muerta to produce 500,000 barrels of oil a day," he emphasized, noting that gas production would also rise considerably. "This would allow to meet the demand for gas for power generation, which should double in the coming years, as well as the total demand for gas, which should also double in the coming years if the country begins to grow again," he explained.

In conclusion, Vaca Muerta may be the key that catapults the country out of the recession: “Vaca Muerta can give Argentina the impetus to go through bad economic times; if the necessary political consensus is reached, Vaca Muerta would allow a renegotiation of the debt and facilitate investments of about US$20 billion annually, and if we take production to 500,000 barrels of oil a day and exceed 100 million cubic meters of gas per day, we can have exports worth between US$12 billion and US$15 billion per year.”

Undoubtedly, it is an opportunity that the country should not pass up, although, according to López Anadón, this process will not only require political agreement, but also a lot of work to develop both internal and foreign markets to consume that production.