Peak oil explains the Repsol YPF expropriation in Argentina

I think this should be obvious to everyone by now, but peak oil is a clear factor in the Argentina/Spain oil crisis. Here’s what happened.

Argentina has seen its fuel import surge as they have become a net importer of energy. As with just about every other major producer outside of Saudi Arabia, the oilfields in Argentina are already in decline. So, as oil prices soar, this widening energy shortfall means higher prices for ordinary consumers.  Argentina’s hydrocarbon output has been in decline for a number of years. According to Andy Lees of AML Macro Limited, crude production was down 5.9% last year while natural gas output was also down 3.4%. Meanwhile, power demand rose 5.1%. Bottom line: YPF’s proven reserves of crude and natural gas, which do not include new shale finds, fell 15% and 31% respectively between 2007 and 2010.

Now Cristina Fernandez de Kirchner, Argentina’s President, is a populist. She is all about giving the common man some red meat regardless of whether her programs are viable over the long term. Here, she see an easy target with energy demands rising and killing ordinary workers. Fernandez de Kirchner claims that YPF has underinvested in Argentina and that Repsol has been taking too much out in dividends rather than reinvesting in the Argentine economy to grow production to meet the burgeoning demand. Her goal is to take over YPF and have it reinvest in Argentina. Meanwhile Repsol wants 8 billion euros for the expropriated share of YPF. I doubt they will get this because Kirchner is saying that Repsol has already recouped its entire investment in YPF via the dividends it has been getting.

Remember, Argentina is now suffering economically. Many are pointing to the potential for another crisis. Kirchner will do whatever it takes to survive this period. And as a populist, that means turning to scapegoats like big foreign companies. But make no bones about it, Argentina is suffering because production of hydrocarbons have peaked there and the country will now be ever more dependent on foreign oil and gas.