While experts in various branches of engineering and economics are enthusiastic over the prospects of the reserves discovered, they warn that the price paid to benefit from them could be steep.

“There is indirect evidence of deposits in Argentina, but this will be determined with certainty when further exploration takes place,” economist Roberto Kozulj from the National University of Río Negro said.

Kozulj, a specialist on the oil economy, said that the obstacles lie in the amount of investment required and the environmental risks, due to the consumption of huge volumes of water and energy and the chemical substances used to extract these resources.

According to the Annual Energy Outlook 2011, released in April of last year by the United States Energy Information Administration, Argentina is the country with the third-highest geological potential for these types of hydrocarbons, after China and the United States.

The study assessed the viability of 48 shale gas basins in 32 countries and estimated Argentina’s shale gas reserves at 774 trillion cubic feet (TCF), 60 times greater than the country’s current conventional reserves.

The shale gas formations are in four basins, but the Neuquén basin is the most promising. This is where the Vaca Muerta and Los Molles formations are found, which stretch across the subsoil of four provinces: Neuquén and Mendoza, in western Argentina, La Pampa in the centre of the country, and Río Negro in the centre-south.

The government of the province of Neuquén already has data on the region’s potential gathered through preliminary studies, says economist Ariel Carignano of the National University of Comahue in his report, “¿Qué es el gas no convencional? Aspectos técnicos básicos y desarrollo en la Argentina” (What is Unconventional Gas? Basic technical aspects and development in Argentina), published in November, 2011.

The report states that, although there is a “high degree of uncertainty,” studies by the Undersecretariat of Mines and Hydrocarbons of Neuquén estimate that there are 170 TCF of recoverable gas in the Vaca Muerta formation and between 130 and 192 TCF in Los Molles. The exploitation of these reserves would significantly increase gas production, create employment and promote the development of new technologies, but would also take a heavy toll on the environment.

This is the dilemma facing the new YPF, after the expropriation of 51 percent of its shares, which were held by the Spanish oil company Repsol until the May 3 passage of the bill that President Cristina Fernández de Kirchner submitted to Congress on Apr. 16.

YPF, created by the Argentine government in 1922, has thus returned to state control as a private corporation with a majority stake owned by the government and the rest held by national and foreign private companies and stockholders.

The motive for the expropriation was a steep drop in oil and gas production and proven reserves, resulting from insufficient investment. Argentina, once energy self-sufficient, has been forced to import fuel since 2010.

Now, “the main challenge lies in taking advantage of the opportunity while mitigating the environmental impact,” say Argentine chemical engineers Mariana Matranga and Martín Gutman in an article published in the online magazine Voces en el Fénix.

The article, “Gas y petróleo no convencional: Perspectivas y desafíos para su desarrollo en Argentina” (Unconventional Gas and Oil: Prospects and challenges for their development in Argentina), outlines the opportunities offered by exploitation of these resources, but warns that the effects on the environment pose serious questions.

The natural gas trapped in underground formations of shale rock is of the same quality as conventional gas but is much more difficult to extract.

It is reached through a technique known as hydraulic fracturing or “fracking”, in which holes are drilled vertically to depths that can reach thousands of metres, and then horizontally some 1,000 metres along the shale formation.

Chemicals and large amounts of water are pumped underground at high enough pressure to fracture the shale, releasing the gas, along with “fracking sand” used to prop open the underground cracks from which the gas is harvested.

Similar methods are used to reach the gas trapped in dense and highly impermeable sandstone formations, known as “tight gas”, and the light crude in porous shale rock formations, called “shale oil” or “tight oil”.

Matranga and Gutman, chemical engineers at the University of Buenos Aires, note that up until 10 years ago, these reserves were impossible to exploit, but today the technology needed to do so exists, having been developed mainly in the United States and Canada.

Nevertheless, they add, numerous countries and regions have suspended the extraction of these deposits in order to assess the extent of the damage this causes to the environment.

The wastewater from fracking contains radioactive substances and heavy metals that require treatment. Fracking operations can also pollute the groundwater, soil and air, say the authors.

Moreover, the deployment of thousands of water-transport trucks, heavy machinery, human resources and infrastructure for these operations would lead to “a marked increase in greenhouse gas emissions,” they add.

A report published in October 2011 by the National Academy of Engineering of Argentina, “Gas de reservorios no convencionales: Estado de situación y principales desafíos” (Gas from Unconventional Sources: Current situation and key challenges), concurs with the warnings voiced by Matranga and Gutman.

To offer an idea of the magnitude of the undertaking, the Academy notes that “the required development of suppliers, technology and human resources is comparable to efforts in Argentina at the time for the nuclear power sector.”

Technologies like 3D seismic surveying, horizontal drilling and hydraulic fracturing are now available, and if Argentina adopts them, within five years it could be producing fuel that it is currently importing at high prices.

This development could open up new opportunities for the export of engineering and other services to China, which also has large shale gas reserves, or the production in Argentina of fracking sand for export to other countries in the region, says the Academy.

But it also voices its concerns over “the conservation and protection of water” and “the use of chemical products.”

To illustrate the volumes of water involved, it notes that the first small-scale shale gas production operation in Neuquén required 16 water pumping trucks operating simultaneously and to their full capacity.

In addition, the Academy stresses, the decline in production from these types of reserves tends to be much more rapid than in the case of conventional deposits.

Source: www.buenosairesherald.com

A Shell spokeswoman confirmed the purchase while declining to detail its size but the Middle East Economic Survey (MEES) reported earlier that Qatar’s sovereign wealth fund (QIA) was looking at a 3-5 percent stake.

If Qatar did buy 5 percent, it would be just ahead of Blackrock, which is currently Shell’s biggest investor with 4.97 percent, according to Reuters data.

But British stock market rules require any party to disclose a holding of over 3 percent in a listed company so the absence of a statement from Qatar suggests its interest is below this level.

The Gulf nation’s massive gas supplies have made it rich, allowing it to create a sovereign wealth fund that has been buying up assets, including stakes in listed companies, around the world.

“We are delighted to welcome the Qatar Investment Authority as a long term and major shareholder in Shell, and particularly given our excellent strategic relationship with the Qatari state,” the spokeswoman said in an emailed statement.

Shell operates multi-billion dollar natural gas projects in Qatar.

Shell’s London-listed “A” shares rose 1.1 percent to trade at 20.74 euros by 14:26 p.m. British time, against a 0.4 percent rise in the STOXX Europe 600 Oil and Gas index .SXEP.

Eni, whose shares traded up 1.9 percent at 16.89 euros, had no comment on the MEES report that Qatar was negotiating a stake in it.

Two analysts said the Qatar fund might be interested in buying the ENI stake of around 3.4 percent that state-controlled finance company CDP could sell to help fund its acquisition of a stake in transmission operator Snam (SRG.MI) from Eni.

The CDP and the Italian treasury own just over 30 percent of Eni and annulment of the group’s treasury shares would increase their stakes.

A source close to the matter said a series of sovereign funds had met with CDP to discuss a possible stake in Eni.

“The plan to separate Eni from Snam involving Eni’s annulling treasury shares and the CDP selling the excess stake it would get is in pole position among the options on the government’s agenda,” the source said.

Prime Minister Mario Monti had a meeting with the Emir of Qatar in Rome in April. Monti told reporters at the end of that meeting that Qatari institutions had shown interest in long-term investments in Italy.

In Italy, investors must inform the market regulator Consob when they buy stakes of more than 2 percent in a listed company.

ATTRACTIVE COMMODITIES

A senior executive of the Qatari fund said in April that the financial crisis had restricted investment in commodities and that he expected a supply-demand gap to emerge by 2016 or 2017.

“We like commodities, we like to invest in commodities. Since 2002, the commodity price trend keeps going up,” Qatar Investment Authority Executive Board Member Hussain al-Abdulla told reporters.

Qatar Holding, a unit of QIA, said last month that it had increased its stake in French oil group Total (TOTF.PA) to 3 percent and is undecided on buying more shares.

Qatar signed a deal in April to co-invest $250 million (155.6 million pounds) with Barclays’ (BARC.L) natural resources private equity investment unit.

QIA has been the most active of the region’s sovereign wealth funds in recent years, deploying profit from its natural gas riches into assets ranging from German sports car maker Porsche (PSHG_p.DE) to British bank Barclays (BARC.L).

The fund has also been slowly buying into London-listed miner Xstrata (XTA.L) recently. Its current holding in Xstrata, which is planning to merge with commodities trader Glencore (GLEN.L), is about 7.2 percent.

On Friday, the Financial Times reported Qatar’s sovereign wealth fund planned to increase its Xstrata stake to at least 10 percent as part of a long-held strategy to invest in Glencore, suggesting the Gulf state could provide crucial support to the pair’s $90 billion merger deal.

Qatar surprised many observers by passing on the Glencore initial public offering last year as rival Abu Dhabi fund Aabar bought into the flotation.

Source: www.uk.reuters.com

However recent developments have provoked warnings that mismanagement could force the industry into long-term decline.

Arabian Gulf Oil Co, the country’s largest producer with a near monopoly over the eastern oilfields, spent last week in a battle of wills with Tripoli’s transitional government.

Its management threatened to shut down crude production unless armed protesters who were blockading its Benghazi offices were persuaded to leave. The 50 gun-toting men at its gates have been barring employees from entering the facility for two weeks.

The company produces 375,000 barrels of crude a day of the 1.4m pumped nationwide. A stoppage would derail attempts to raise its output to 425,000 barrels a day in mid-May.

Libya has the largest oil reserves in Africa, according to BP estimates, making its the continent’s third-biggest producer. With four-fifths of government revenues generated by oil sales, the government can ill afford a setback on the one front where it can point to a return to normality. Tripoli’s traffic clogged streets present a visible indicator of the country’s rapid return to normality after the overthrow of Col Gaddafi.

In its final throes the cash-strapped regime was unable to provide petrol to the pumps, rendering the roads and highways of the capital deserted.

The activity compensates for failures elsewhere – few government departments are functioning normally and militias have not been disarmed or disbanded.

“If this is not dealt with, then the consequences would be grave. It is unbelievable that a company as big as AGOCO remain hostage to a group of people,” said Abdul Jalil Mayuf, a spokesman. “The government should either deal with them by force or find a solution.”

Foreign experts on Libya’s oil industry believe only a minority of expatriate personnel have returned to the country, mostly to staff headquarters in relatively safe Tripoli. Most cite security concerns for not returning personnel to the oilfields. The logistics of even visiting the desert camps in the Sirte or Murzug basins involves negotiations with multiple militia commanders to secure safe passage.

Until a national government is installed most companies are likely to defer large scale deployments for new projects.

“I don’t think we’ll see much momentum until the election fallout is known,” said Henry Smith, a regional analyst at Control-Risks, the business risk consultants. “Security issues are still pronounced and the fragility of the current situation is significant. A lot of what we see is maintaining the existing infrastructure but no plans to expand until there is more clarity.”

With former revolutionaries demanding jobs in the country’s main industry, a scheme to absorb fighters into an oilfield’s protection force is exposing damaging turf wars.

“We have been promised jobs as part of the protection force but so far the government has not approved the contracts,” said Abdulhameed Aboragega, a member of the Zintan Miltia, one of the most prominent bands of anti-Gaddafi fighters. “There is a lot of resentment among our brigade members who thought they were going to be rewarded with jobs.”

A Repsol joint venture was last month stormed by fighters seeking payment for six months work guarding its premises during the uprising.

A report from Barclay’s warned that output was poised to stagnate as the scope for “temporary fixes” is exhausted.

Feedback from the first oil industry investment conference held in Tripoli since the war last week was “mixed” with participants reporting that officials could not provide assurances for new investors.

The arrival of the coffin containing the body of Shukri Ghanem, Gaddafi’s former oil minister, at Tripoli airport on Thursday underlined the potential for the ghosts of regime to stalk the industry.

An audit leaked to Global Witness, the anti-corruption campaigners, found “murky” practices including discounting and sweetheart deals had cost the taxpayer millions.

“Murky dealings within Libya’s National Oil Company, and the systematic mismanagement of the country’s oil wealth have effectively denied millions of dollars to the people of Libya,” said Giulio Carini, a campaigner at Global Witness. “The case for reform of the country’s oil sector could not be stronger or more urgent.”

Mr Ghanem, who was Libya’s Opec delegate, oil minister and prime minister, was the oil industry’s most powerful figure for decades under Gaddafi. He was found floating face down in the Danube but police have found no suggestion of foul-play.

The unexplained death of such a powerful figure gives already an unsettled sector reason to hold back while Libya’s new rulers grapple with its prized asset.

Source: www.telegraph.co.uk

“The key thing that is driving higher gas prices is actually the world’s oil markets and uncertainty about what’s going on in Iran and the Middle East, and that’s adding a $20 or $30 premium to oil prices,” Obama said in an interview with the American Automobile Association (AAA) published Friday.

Obama also said increasing demand for oil in China and India was driving prices.

“As more and more people around the world see their standards of living rising, they purchase cars, they have demand for oil, that creates a greater demand worldwide and that raises the price,” Obama told AAA.

Pump prices are hovering near record highs as markets worry about tensions in the Middle East, with Obama moving to clamp down on criticism of his administration on the issue in an election year.

Amid a four-state tour to defend his energy plans this week, Obama stressed that his administration has approved “dozens” of new oil and gas pipelines, but new drilling was insufficient to lower rising gas prices.

The United States this week pushed for a tough new set of sanctions on Iran aimed at pressing the state over its nuclear program, penalizing foreign financial institutions over transactions with Tehran’s central bank which handles the country’s oil sales, its key export.

Source: www.google.com

“That’s our investment profile both in the production sharing contracts and joint ventures from now to 2016 and beyond,” Austen Oniwon, group managing director of the Nigerian National Petroleum Corp., said today in an interview in Abuja, the capital. “Joint venture funds will come from both the government and the international oil companies, while the production sharing contracts will be from the contractor.”

The West Africa nation currently has 37 billion barrels in crude reserves and Africa’s largest gas reserves of 187 trillion standard cubic feet, according to the Department of Petroleum Resources, the country’s oil industry regulator. The government missed its targets to boost reserves to 40 billion barrels and output to 4 million barrels a day by 2010.

Nigeria is the fifth-biggest source of U.S. crude imports. Shell, Exxon Mobil, Chevron, Total SA and Eni SpA operate joint ventures with the state-owned Nigerian National Petroleum Corp. that pump about 90 percent of the country’s crude.

The development of deepwater oil fields is well below the country’s potential, Shell said today in an e-mailed statement. Nigeria needs to introduce better investment terms to encourage companies to explore in deep water, Mutiu Sunmonu, chairman of Shell’s Nigerian unit, said today at a conference in Abuja.

Oil exploration in Nigeria has slumped after producers backed away from investment until the country’s petroleum law is passed. The government will present a draft bill for the regulation of the oil industry to the parliament within six weeks, Petroleum Minister Diezani Alison-Madueke said.

Source: www.businessweek.com