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ARGENTINA: Massive Potential, Bad Politics

Bottom Line: Argentina has one of the largest gas and oil deposits in the world, but politics makes this a conundrum for foreign investors. Political mismanagement, especially on the part of President Cristina Fernandez de Kirchner, is damaging the economy and ruining the investment appeal of Argentina, leading investors to de-risk their assets by taking on concessions in neighboring countries.

Analysis: Despite the 2010 discovery of the Vaca Muerta formation in Neuquén, a deposit that reportedly holds up to 774 trillion cubic meters of shale gas and 23 billion barrels of oil equivalent, Argentine production is slowing, forcing a spike in imports to keep up with demand.

Liquid natural gas (LNG) imports almost doubled from March 2012 to March 2013, rising from 6.6 cubic meters per day (m3pd) to 12 m3pd. Overall, natural gas imports rose from 16.3 m3pd to 28.4 m3pd in that period. Low government mandated prices contributed to the high consumer demand. Coupled with political pressure for domestic producers to invest heavily, and sell at the low local prices, Argentina is struggling to attract investors despite the massive Vaca Muerta fields.

President Cristina Fernandez de Kirchner was forced to raise the price for gas from less than $3 per MMBtu to $7.5 in November 2012; most of the unconventional shale gas is not profitable until you reach a price point of $6 per MMBtu. Gas prices recently crept up to $1.37 per liter for gasoline, and on 10…

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