The authorization granted by the Argentine Ministry of the Environment to the company Equinor in partnership with YPF and Shell for the exploration of hydrocarbons on the high seas involves numerous risks for the country.
Although this initiative has been rejected by broad sectors of the citizenry, it has received support from both sides of the “gap”, as the division of Argentine society between Kirchnerists and anti-Kirchnerists is known.
Those in favor of the initiative point out that the activity takes place more than 300 kilometers off the coast of Buenos Aires, disqualifying those who fear tourism. The statement is wrong. It is enough to consult the scientific community and the harmful effect that prospecting tasks generate on the biodiversity that inhabits the Argentine sea.
As an example, sound waves affect southern right whale populations, which could have a devastating economic effect on the resort town of Puerto Madryn.
But the view, on both sides of the rift, remains short-term. Even if some recognize the environmental claims, the need to generate jobs, fiscal resources and foreign exchange is stronger. If the project has a negative impact on the environment, this should be avoided: (economic) urgency leaves (environmental) luxuries for later.
In addition to the points of view, these proposals do not match the objectives pursued. The problem of stranded assets, associated with the pace of the global energy transition and the consequent loss of value of industry assets and associated infrastructure, is unknown.
If the resolution of such a dilemma were local, there would be drawbacks, although they could be resolved. The problem is global, where decisions by some to mitigate physical risk could increase financial risk in others. This is what those who cling to offshore development in the Argentine sea should see.
On the other hand, the probability of an abrupt drop in demand, as a result of greater environmental awareness, technological change or the emergence of new environmental regulations, is not being taken into account.
The first is associated with the government’s response to the outbreak of extreme weather phenomena: floods, fires, tornadoes, droughts. The profusion of such phenomena accelerates the transition, as those who previously doubted the urgency of change are now pressing their governments to initiate the transition.
Technologically, the advances seen in the last decade have induced a drop in the cost of generating “clean” electricity by more than 85% for solar and 56% for wind. More decisive is the cost reduction of offshore wind farms, which could become competitive in our region over the course of the decade, which would imply a true transformation of the energy industry.
General Electric, one of the main suppliers on the market, has built, together with Siemens – Gamesa and Vestas Wind Systems, a giant prototype in France, called Haliade-X, which generates almost three times more energy than current windmills. Compared to the first offshore equipment installed in Denmark 30 years ago, the GE prototype generates 30 times more electricity.
Finally, it is worth highlighting the different changes that are taking place at the institutional level. The enactment of new environmental laws, rules and regulations places limits on thermal plants. Every day new cities in the world impose restrictions on the circulation of diesel vehicles. By 2024, no car of these characteristics will be able to drive in Paris or Madrid. In addition, in many countries the ban on the sale of internal combustion automobiles is also advancing.
All these changes may imply that the end of oil is linked to a peak in demand, and not in supply as many propose. According to a recent report, the peak could arrive in four or five years and the analyzed projects started their operational stage at the moment that the demand started to decrease.
Regardless of how the decline takes place, what is important for the region is the exogenous character and the consequent problem of stranded assets. In this context, reversing the risk of transition implies recognizing the dynamic nature of the problem, with an oil complex that ends up demanding more foreign exchange than it promises to generate.
Less successful is the proposal to associate offshore exploration with technological development. If the ambition is to reduce the technological frontier, the bet should go after renewable energies. Carlota Perez, a renowned academic, highlights the strategic nature of investing in green technologies, as this makes it possible to adhere to a new technological wave. Early detection and adoption makes it possible to appropriate extraordinary incomes, reduce the technological gap, as well as generate quality jobs.
For this to happen, the State must take an active role in regulating, financing, promoting research and development, and must have a strategic vision that envisions potential sectors, but also takes advantage of the industrial and technological capabilities currently present. Unfortunately, Argentina wastes resources and misses opportunities.
