Beyond the tragic news about the war between russia and ukraine and the opinion of economists from the most diverse currents on the potential consequences of these events on the Argentine economy, there does not seem to be much reflection on some geopolitical aspects of a high potential impact for our country.
First of all, I would like to draw attention to the privilege that it means to be in such a geographically remote place from the events, where the risks of being directly affected by a traditional armed conflict seem extremely low. Additionally, with the seasonings of the case that can be applied from the different lines of political thought, it would seem that we are in a country with a consolidated democracybroad freedom of the press and an institutional system that, although it leaves much to be desired in terms of its reliability, is reasonably solid and plays, in general terms, within the paradigms accepted by the Western world in terms of the decision-making process.
Also, with a greater or lesser degree of freedom and state interference, we have an economy that, at least in a large part of the economic sectors, tends to resemble a market economy. And finally, we have an important endowment of natural, agricultural, mineral and energy resources.
Perspective
I believe that this set of potentialities opens, once again, the opportunity to make a real economic leap in a very short period of time, in the style of what was the end of the 19th century and the first years of the 20th century, only that, in instead of being the trigger the expansion of the agricultural frontier will be the energy frontier.
When the nucleus of the sanctions imposed by Western countries on Russia, it is observed that, beyond purely financial issues or access to the international payment system, what is under discussion -and perhaps the real key to the conflict- is Europe’s energy supply, particularly gas and oil. Without a doubt, regardless of whether economic sanctions are increased or not, suspending purchases of gas and oil, the conflict will lead Europe to rethink its energy matrix very quickly.
The conflict in Ukraine has shown that at least one aspect of globalization, which had as one of its premises that growing economic interdependence would reduce the incentives for military conflict, failed, which together with the disruption in logistics chains caused by the Covid pandemicrevalues the importance of having alternative sources of supply for all types of products, even though they may be more expensive or distant.
Reducing dependence on the supply of Russian gas in Europe will imply a strong additional boost in the participation of renewable energies, the suspension of the closure of nuclear power plants in certain countries and the increase in the participation of nuclear energy in others, but it will not be possible to reduce so quickly the participation of gas in the energy matrix, having to expand purchases in other markets (mainly the USA and the Middle East), with the risks of a different nature associated with each of these options.
One might think that the nation states, especially in northern Europe, will tend to influence their energy companies so that they speed up the search for alternatives that will make it possible to liven up the future the geopolitical risk of depending on Russia.
what’s coming
Given the conditions stated above and thanks to being the second world reservoir of shale gas (of non-conventional exploitation) can be found the lever for a rapid jump in the level of investment and the elimination of the external restriction, which has been generating for almost 100 years a permanent process of “stop & go” In the economy.
Let us imagine for a moment a law to encourage the exploitation of hydrocarbons, perhaps a little more aggressive than the one that was recently sent to Congress, which allows that once the local gas and oil market is supplied at domestic prices that, preserving a certain level of profitability for the producing companies (US$ 3.5/ million BTU/ US$ 70 per ¨criollo¨ barrel), within certain forecast consumption parameters, in summer and winter respectively and with an adjustment that is appropriate to a forecast of economic growth, allows the free availability and export of the gas produced, at values that, although they will not be as high as the current ones, will surely exceed those in force in recent years.
Dead cow it has an enormous advantage: its reserves are already proven, the exploitation technology exists and is widely distributed with internationally competitive costs and with more than reasonable environmental safety. Doubling current production (which implies not only generating exportable balances, but also eliminating US$ 6/7 billion of imports, automatically generating conditions for a substantial drop in country risk due to greater reliability in relation to debt repayment and the consequent circle virtuous which means for investment the fall in the interest rate) should take no more than 2 or 3 years with the appropriate level of investment.
Simultaneously, construction of gas pipelines should begin that allow the circulation of the gas to be exported to various destinations, which will take an execution period approximately similar to that of the increase in production, which will require that the law also contemplate the mechanisms to facilitate its construction, at least from the point of view federal, provincial and municipal regulatory, as well as environmental. Some additional billions of dollars of investment.
Finally, at the end of the gas pipelines, a gas liquefaction plant must be built in some port of Rio Negro with a investment close to a figure between US$4,000 and US$5,000 million or failing that, hire and/or build cheaper, but less efficient, liquefaction barges that replace said plant.
job
Just to give an idea of the size of the investment necessary to carry out this idea, we are talking about between US$25,000 and 30,000 million per year (5 to 7% of GDP) for several years and the generation of 30,000 to 40,000 jobs extremely well paid in Patagonia, fully financed by the companies and countries interested in these alternative sources which, curiously, are the same ones that define our relationship with the IMF. Precisely because of this detail, perhaps it would be possible to count as a third-order consequence of this move, with the relative good will to relax various conditions (particularly interest rates) that may be in the interest of our country. It can also be used as a negotiating tool to improve and accelerate the conditions of access of Mercosur to the European Unionsince energy is a key factor and where the competition is external and not within it.
It is also worth remembering that the window of use of Dead cow It is closing very slowly to the extent that the incidence of renewable energies in the world, but also in Argentina, is growing in the world energy matrix, so taking advantage of this circumstance seems very logical.
But perhaps it is much more relevant to point out what the decision expressed through a consensual law by a significant group of political forces (official and opposition) to support a measure of this type would mean in cultural terms and as a message to Argentine society. (Although there is a strong negative precedent, such as the knowledge economy law, which had been voted practically unanimously in Congress, it was suspended, basically because it was conceived in a previous administration). The political negotiation process of the approval of the agreement with the IMF seems to open a window of hope in this way.
By Juan C. Soldano Deheza
by Juan C. Soldano Deheza
