SHALE GAS IN ARGENTINA: A SYSTEMS DYNAMICS APPROACH

The recently discovered Vaca Muerta shale formation in the Neuquén Basin in western Argentina has the potential to radically impact Argentina’s economy and geopolitics, and has potential to meet the nation’s energy needs for over fifty years. Development, however, requires a shift in national policy on multiple fronts and a multibillion-dollar infusion of capital and expertise from international firms.

In efforts to create a usable tool for international oil and gas firms considering investment in the Vaca Muerta, we use systems dynamics modeling. Our model incorporates varying levels of foreign investment, tax regimes, and other variables that multinational firms consider important to profitability. Components used in the model include available geological findings from actual test wells in the region, cost data from shale formations throughout the United States and Eastern Europe, current Argentine tax regime and regulatory constraints, and commodity prices adjusted annually through probabilistic methods. Certain variables are modifiable by the user. In spite of the limits introduced, the model consistently yields multibillion-dollar profits using reasonable scenarios. Lack of data and the inherent difficulty of predicting public policy limit the model's accuracy, but it serves as a preliminary tool to gauge the feasibility and challenges associated with developing the Vaca Muerta.

As is the definition of a systems dynamics model, there is no definitive result. The model serves as a proof-of-concept level evaluation and provides a basic sensitivity test for potential outcomes. The model proves flexible in exploring basic macro-level scenarios. The strength of this model is its ability to test multiple scenarios on a yearly basis to explore possible settings to reflect the variable political situation in Argentina. This is critical for international companies looking to invest and create risk profiles. The total economic impact of development for Vaca Muerta is a multi-faceted problem; the model presented here is a simplification for the purposes of identifying critical factors in development. The model is not designed to be comprehensive, but rather to provide stakeholders and investors with a baseline assessment highlighting key economic indicators.