Winners and Losers in Argentina in the Age of Unconventional Hydrocarbons
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EXECUTIVE SUMMARY Winners and losers in Argentina in the age of unconventional hydrocarbons Gustavo García Zanotti Marco Kofman Facundo López Crespo Jorge Chemes Pablo Bertinat Enlace por la Justicia Energética y Socioambiental (EJES) [Socio-environmental and Energy Justice Alliance] is the collaboration of Argentine organizations Observatorio Petrolero Sur (Buenos Aires, Neuquén, and Río Negro provinces) and Taller Ecologista (Santa Fe province). Through an interdisciplinary and federal approach, our work currently focuses on the megaproject Vaca Muerta. We take into account the policies involved, and the territories and population affected in the long term. The strategic focus is on the economic, financial, energy and socio-environmental aspects. Our objective is to expose the overlooked impacts and find a fair path to energy and economic transition. More information at ejes.org.ar Authors: Gustavo García Zanotti, Marco Kofman, Facundo López Crespo, Jorge Chemes, Pablo Bertinat Editing: Fernando Cabrera, Diego di Risio, Flavia Medici Proofreading: Lynne Bolton Photos: Colectivo Vaca Bonsai, Martín Alvarez Mullaly, Marion Esnault Design and layout: dosRíos [diseño & comunicación] 1. Economic transfers, 2. Oil and Gas, 3. Energy, 4. Argentina December 2017, Argentina. Copyleft Taller Ecologista Rosario and Observatorio Petrolero Sur in EJES (Enlace por la Justicia Energética y Socioambiental), Argentina. CC-BY-SA – Attribution-ShareAlike Details of the license can be found on the following website: http://creativecommons.org/licenses/by-sa/4.0/legalcode Executive Summary In the context of insufficient energy supply, which has severely affected the Argentine economy in recent decades, there has been a progressive shift in the state’s strategy towards the energy sector in general, and the hydrocarbons sec- tor in particular. The loss of gas self-sufficiency, the volatility of international oil prices, the resurgence of the external constraints historically faced by our economy and the power of market’ players were all variables that determined the way this problem was addressed by the different administrations in charge of the energy sector. This set of contradictions was resolved from 2011 on by the large-scale development of Vaca Muerta. The unconventional play is one of the biggest in the world and could supply the domestic market for several decades, not only with gas but also with foreign currency from exports. But there are various paths that can be taken. With the change of govern- ment in late 2015, where Cambiemos coalition overthrew 12 years of Cristina and Néstor Kirchner governments, economic policy in general, and sector- related policy in particular, have radically changed. The map of winners and losers has thus been redrawn, hitting the poorest the hardest. A variety of social actors are involved in the sector and they constitute a complex web of interests: several state jurisdictions, different types of users, workers, communities affected by the exploitation and industrialization of natural resources, producers from those region and companies belonging to the sector. However – and this is true for the entire period under analysis – sec- toral policy was mainly defined as part of a negotiation between the national state and the biggest companies in the sector. In recent times, the inclusion of union movements succeeded in reducing workers’ participation in income distribution. Such mechanisms limit and restrict debate and the decision- making process since they view energy as just another commodity. The purpose of this work is to counter that trend. In essence, it seeks broad- en the debate on energy policy, with an emphasis on the need to democratize the decision-making process. Thus, while describing the current dynamic, we aim to broaden the window of possibilities. The final section thus suggests a number of energy alternatives using renewable sources and potential ways to develop the sector. Winners and losers in Argentina in the age of unconventional hydrocarbons 1. The energy system received by Cambiemos We have defined four main variables for analyzing an energy system: a) What the primary energy sources are at present and which are being encouraged. b) What type of ownership or management structure is employed by the main actors in the sector. c) How energy generation is recompensed (in other words, who pays to use that commodity and how) d) What that energy is used for (who it is consumed by, how and what for?) 1.1. Fossil fuel dependency as a structure and projection The level of fossil fuel dependency in the primary energy supply has remained at almost 87% for at least two decades, a high level in comparison to other South American countries, only surpassed by those that are major producers of oil (Venezuela, Colombia Ecuador) or gas (Bolivia). Fossil fuel dependency in the energy balances of South American countries (including imports) -4- Source: own elaboration, based on data from the International Energy Agency In a context of rising energy imports, an intense strategy of “energy self-suf- ficiency” was adopted. The aim was to put an end to the need to purchase energy from abroad given the resurgence of external constraints. To achieve this goal, Executive Summary Executive once the state had regained majority control of YPF in 2012 – which was to fulfill the role of “sectoral leader”– big economic transfers were made to the sector to reverse the steady fall in production. In 2013, 2014 and 2015, direct transfers from the state to the sector exceeded 3 billion dollars a year, a similar amount to that the state spent on health and almost three times the figure spent on science. The big flagship project of that period was Vaca Muerta. Through the part- nership formed first by YPF and Chevron– and later with other multination- als – the intention was to obtain income from foreign direct investment. The development of unconventional hydrocarbon extraction made it possible to halt the decline in oil and gas production in Argentina, albeit at a significant environmental and social cost, not only to the communities where the uncon- ventional wells are located, but in numerous areas linked to the megaproject. 1.2. Economic concentration in the hydrocarbon sector The microeconomic features of Argentina’s hydrocarbon sector show a strong con- centration. In 2015, four companies (YPF, Pan American Energy –a BP, Cnooc and Bridas holding, Pluspetrol, Sinopec) were responsible for 74% of oil production. With regard to gas, the four main operators (YPF, Total Austral, Pan American Energy and Petrobras) extracted 75% of the total output. Concentration in oil and gas production, 2015 -5- Source: own elaboration based on data from the Ministry of Energy and Mining. Winners and losers in Argentina in the age of unconventional hydrocarbons 1.3. Energy subsidies and maintenance of rates The energy subsidies implemented dur- ing the Kirchnerism period fulfilled the function of generating indirect income for citizens, thereby boosting their con- sumption capacity. As the years went by, more and more resources were ear- marked for this purpose. As a propor- tion of public spending during the three Kirchner governments, total energy subsidies increased from 2% in the early years to 10% by the end of that period. Photo: Martín Álvarez Mullaly Energy subsidies as a share of public spending -6- Source: own elaboration based on data from INDEC and MECON A significant proportion of these transfers were direct subsidies granted by the national state to hydrocarbon companies through different programs designed to encourage investment. Between 2008 and 2016, the state contributed 16 bil- lion dollars to companies in the sector. From 2013 on, these incentives became more costly, involving annual disbursements of almost 3 billion dollars. Executive Summary Executive 2. Recent changes in energy policy 2.1. The priority in Vaca Muerta, greater concentration of unconventional exploitation In early 2017, Omar Gutiérrez, Governor of Neuquén, Guillermo Pereyra and Manuel Arévalo, Secretary General of the Private Oil and Gas Union of Rio Negro, Neuquén and La Pampa and Secretary General of the Union of Private Oil and Gas Workers respectively; Miguel Angel Gutierrez, YPF President, Marcos Bulgheroni, Executive Director of Pan American Energy and Jean-Marqc Hosanski, Executive Director of Total Austral, signed the so-called “Vaca Muerta Agreement”. The addendum to the collective agreement for workers in the sec- tor, which included a set of elements designed to ensure contract flexibility and a reduction in wage costs for companies, was one of the modifications included. At the same time, unlike in other basins, in Neuquén, unconventional gas pro- duction continues to be favorably regulated in terms of the “Gas Plan” program. This has meant that the fall in productive investment has shown significant differences according to the type of exploitation. In the case of conventional pro- duction, investment fell by 48% between 2015 and 2016, taking into account com- panies as a whole. Meanwhile, investment in unconventional production only dropped by 16% during the same period. Investment in unconventionals has thus gone from accounting for 32% of the total invested to 43%, thereby aggravating the environmental, social and productive problems associated with this activity. -7- Photo Vaca Bonsai Winners and losers in Argentina in the age of unconventional hydrocarbons Gross productive investment for the whole sector in millions of dollars