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Page added on April 24, 2012

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Oil takeover has support in Argentina

Public Policy

With public opinion in Argentina firmly behind President Cristina Fernandez de Kirchner’s plan to nationalize the country’s largest oil company, Congress is expected this week to approve the takeover despite some analysts’ warnings that her policies are economically reckless.

Two nationwide polls released over the weekend showed 74 percent and 62 percent, respectively, of those questioned supported the president’s proposal for Argentina to take a majority interest in YPF, whose largest shareholder is based in Spain.

The Senate is expected to vote Wednesday, and the lower house the following day. Even former president and now-Sen. Carlos Menem, who presided over the privatization of the formerly state-owned YPF in 1999, has come out in favor of the takeover.

Fernandez announced April 16 that she would seek legislative approval to seize a controlling 51 percent stake in the company, claiming that YPF management had not invested in new sources of oil production. She blamed YPF and others for the country having to import $2.9 billion more in gas and crude oil than it exported last year, resulting in the first energy trade deficit since 1994.

She has yet to say how much and when she will pay Spanish oil company Repsol for its 57 percent stake, an investment that has lost more than half its value based on current stock prices.

Repsol President Antonio Brufau has demanded $10.6 billion for the stake, which the company acquired for $13 billion. It says it has invested $11 billion since then.

The proposed expropriation drew sharp protests from the Spanish government, which said the takeover would mark an end to friendly relations between the two countries and that Spain would soon announce “clear and convincing” retaliatory measures.

Meanwhile, some analysts disputed Fernandez’s claim that oil companies were to blame for Argentina’s energy deficit.

The government’s subsidy programs often are viewed as populist gestures to bolster support from labor unions and the poor. Those programs plus public gratitude for an expanded social safety net during her first term boosted Fernandez to an overwhelming re-election victory and second four-year term in October.

Abel Viglione, an economist at the FIEL think tank in Buenos Aires, said the $42 per-barrel government-imposed limit on what oil companies can charge Argentine refineries and export buyers for crude, at a time when global oil prices are hovering around $100 per barrel, dissuades companies from investing in Argentina.

“These companies have little interest in exploring for new sources or even improving their existing wells when they can invest in other countries and sell at international (oil) prices,” he said.

As recently as 2004, Argentina had a $5 billion energy trade surplus, but production has fallen sharply since the $42 price cap was imposed by Fernandez’s late husband and predecessor, Nestor Kirchner.

Argentina produces about 570,000 barrels of crude oil a day, down from a peak of 847,000 barrels a day in 1998 and 679,000 barrels a day on average in 2007. Repsol produces about one-third of the country’s oil and gas, but other companies including Pan American Energy and Chevron have reported steep drop-offs in output as well.

At the same time it is discouraging investment in added production, the Fernandez government is stimulating demand for energy with subsidies that translate into discounted prices for consumers when compared with market global prices.

Natural gas in Argentina, for example, sells at about 20 percent of the cost paid by consumers in some other Latin American countries, a costly subsidy since the government pays Bolivian suppliers four times the price cap it has imposed on domestic producers, Viglione said. Electricity prices are about 42 percent of electric power prices charged in Uruguay and Chile, he said.

The cost to the government of these and other consumer subsidies last year totaled $18.1 billion, or 4 percent of gross national product. That’s up from 1.8 percent in 2007.

Boston Herald



3 Comments on "Oil takeover has support in Argentina"

  1. DC on Tue, 24th Apr 2012 10:13 pm 

    I think the Boston Herald should focus n what govt and consumer subsidies to big oil add up to in the US of Oil. Try trillions and a country wrecked forever by car-sprawl.

    Naturally the Welfare Oil capitalists are squeeling like stuck pigs over this. How dare Argentina seek to control its own energy supplies. Good thing it wasnt a US oilco, or the Marines would allready be on there way south, and the CIA would be figuring out a way to have President Cristina Fernandez de Kirchner slip suffer a fatal fall after slipping on a banana peel in the shower…or something.

  2. BillT on Wed, 25th Apr 2012 1:33 am 

    Nationalization of Us oil will likely happen as it gets more and more difficult to pay for imports. As it is now, there is ZERO guarantees that any oil stays in the Us. It goes to the highest bidder, which is now Chindia.

  3. DC on Wed, 25th Apr 2012 2:53 am 

    Actually, I dont think that will happen, but you never know what will happen eh? Since Big Oil, IS the govt in the United Snakes, I dont think it likely nationalization can or will occur there. Big Oil would cut off the supply of oil to country at large, except for the US corporate Military, and would simply stage a mercenary coup before it would allow that to happen. And Its not even likely no matter how bad things got, that it would even go that far. Since most of the Senate and Congress, or a huge %, are bought and paid for by Oil, again, they would simply have to stage a coup against any figurehead prez dumb enough to try.

    No, Oil will remain in ‘private’ hands right up till end, and if they have to shoot a few amerikans that feel otherwise, the US of OIL wont lose any sleep over that either.

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