Lots of countries are trying to replicate the US shale gas revolution and Morgan Stanley reckons Argentina has the best shot at doing so.
The US banking giant’s view is that Argentina’s Vaca Muerta shows the most promise. It is a high-quality liquid-rich shale that is comparable to the Eagle Ford asset in the US.
Morgan Stanley said the region has manageable logistics, which keep the costs reasonable, and a supportive, motivated government.
“Despite the challenging macro-political situation of the country, the attractiveness of below-ground fundamentals has been enough to spark a wave of investments in the shale story. While this has been led by state-controlled company YPF, renowned international players are also involved,” the broker notes.
More than half of the shale oil outside the US is concentrated in Russia, China, Argentina, and Libya, while more than half of the non-US shale gas is concentrated in five countries: China, Argentina, Algeria, Canada, and Mexico.
Morgan Stanley says Russia has the largest opportunity to replicate the US shale revolution, but a number of obstacles stand in its way, such as access to the required technology, plus the recent sanctions against the country in the wake of the dispute in Ukraine.
Argentina, meanwhile, has become the second country following the US to have achieved commercial-scale shale production, driven by a number of government incentives to encourage investment in the oil & gas industry.
“We are confident that this new wave will be sustained for a long period, given that eliminating the current energy deficit will likely take close to a decade. Therefore, we think that risks of the implementation of stricter price controls with the ramp-up of shale production are relatively low,” Morgan Stanley said.