Energy, General, News

Energy & Natural Resources: a Change in Paradigm

The wealth of Argentina’s natural resources, together with its potential for power generation from renewable sources, puts the country in a privileged position in both domestic and international energy markets.

Oil & Gas

Argentina has a long history of hydrocarbon exploration and production. Natural resources, including hydrocarbon reserves, belong to the provinces in whose territories they are located. Offshore resources (those beyond the 12th marine mile from the base line) are in federal domain and are subject to exclusive federal jurisdiction.

In recent years there was strong state intervention in this sphere including restrictions on hydrocarbon exports, forced redirection of gas volumes into the domestic market, and YPF expropriation.

Since it took power in December 2015, the new government has  been redefining Argentina’s energy policy as well as putting in place several programs to promote investments in hydrocarbon exploration and production to allow for the recovery of reserves in the medium and long term.

Innovation is attractive

Recent reports show that Argentina has the third highest volume of shale gas reserves in the world, and the fourth-largest shale oil resources.

More than 50% of these unconventional resources are located in the province of Neuquén. In addition to its favorable geology, the Neuquina basin has certain attributes that favor unconventional development: a long history of oil and gas operations, an established, thriving service sector, and excellent access to domestic and international markets.

Unconventional exploitation is defined as “the extraction of oil and gas through unconventional stimulation techniques applied to deposits in geological formations characterized by the presence of rocks with low permeability: shale or slate rocks —shale oil and shale gas—, compact sandstones —tight sands, tight oil and tight gas—, layers of coal —coal bed methane—.

Concessions for unconventional exploitation are granted for a 35-year term which is 10 years more than for conventional concessions. In some cases, the possibility of a significant reduction in the royalty rates payable to the national or provincial governments, as appropriate, is expected (offshore projects, projects implementing Enhanced Oil Recovery techniques, or extra heavy oils).

Developing unconventional resources requires not only intensive capital and high-end technology while presenting substantial regulatory and environmental matters that need to be carefully addressed from an integrated standpoint.

Marval’s oil and gas practice group has played a leading role in Argentina’s hydrocarbons’ sector for more than 15 years.

Renewable energies

Argentina’s demand for power has increased substantially in recent years and is expected to rise.

In order to continue to cope with these ever-increasing levels of demand, Argentina’s power infrastructure must keep up with its expansion plans. This means that at least 1200 MW of installed capacity will be needed each year to meet the growing electricity demand.

To date, Argentina’s energy matrix is highly dependent on fossil fuels, so the new government has presented diversification through the promotion of energy generation from renewable sources as a goal of its energy and environmental policies.

This means that both conventional and renewable power projects will be welcomed in the coming years.

Argentina’s natural resources place the country in an excellent position for renewables. Patagonia has strong wind power potential, north and western deserts are well suited for developing solar facilities and Argentina’s agricultural and forestry resources put the country in ideal conditions for undertaking a vast array of biomass co-generation projects.

A new challenge

In 2016 the promotional regime for power generation from renewable sources was amended. The new law establishes a target for 2025, whereby 20% of electricity consumed in Argentina must be generated by renewable sources (wind, solar thermal, solar photovoltaic, geothermal, tidal, wave, marine currents, hydro —up to 50 MW installed capacity— biomass, exhaust gases, biogas and biofuels). By 2017, 8% of electricity consumption must be generated by renewable sources.

Meeting this threshold provides significant opportunities for investment, financing and partnership.

Marval’s electricity practice group has a strong background in electricity sector regulation and has developed expertise and experience in renewable energies, including wind, biofuels and biomass.

Francisco A. Macias

Partner

C.V.

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