Energy South America

While the world credit crisis shakes up all the major countries in the world, there are a few small corners where business is not too bad. One example is the oil and gas business in Argentina. It seems to have a pretty good future for the next few years at least, due to several factors:

• The benchmark price in Argentina has been around $42 a barrel for years, and it is due to rise to around $60 very soon. Prices are set by the government, and the higher the price, the more royalties they get, and the more investment there is in exploration and production.
  
• The internal market currently absorbs all the crude production, and gas has to be imported. Even with the local economy slowing, as it is, the demand for motor fuels and natural gas have stayed high. If the demand drops, that will leave some to export at world prices, which are currently just a little higher than the local price.
  
• There is still strong demand in Chile for all forms of energy, as there is in Brasil. If gas ever gets back into surplus production, there are two ready markets, especially with Bolivia constantly shooting itself in the foot in the energy policy area.
  
  In an informal survey of about a dozen private oil and gas producing companies in Argentina which I did this week, all but one company interviewed was planning to go ahead with major exploration projects as planned, for this year and next. The one company which was scaling back on exploration was a US-based company, whose revenue is tied to the world price, which has dropped more than 50%. They were cutting back on outsourcing and planning to do only what they can do in-house. Everyone else was going full speed ahead.