OPIC should strengthen US-Argentine partnership with Vaca Muerta deal

The board of the Overseas Private Investment Corporation (OPIC) should approve a critical Argentine oil and gas project on Wednesday, Sept. 11. The Vaca Muerta deal is geo-strategic, financially sound, and reduces poverty. The project will create both American and Argentine jobs, will contribute to changing the economic model of Argentina, will lead to an annual additional $1 billion in foreign currency, will help enable energy independence for Argentina and will be a strong vote of confidence in Argentina when Argentina needs support from its friends. 

An affirmative vote for this deal by the OPIC board would ensure continuity with the Obama Administration’s policy of supporting “Safe and Responsible Development of Unconventional Oil and Gas” in Argentina.

The Vaca Muerta formation underlies a Belgian sized territory with some of the world’s greatest oil and gas reserves. These reserves can only be developed with “non-conventional” techniques (read “fracking”). Vaca Muerta when fully developed will be an enormous opportunity for Argentina. If fully developed, oil and gas will become a second economic engine of Argentina after agriculture. Vaca Muerta is supported across the Argentine political spectrum both by the current Macri government and by the Peronist opposition.  Cristina Fernandez de Kirchner is rightly proud of her role in standing up “unconventional” oil and gas development in Argentina. She writes about her role in getting Vaca Muerta up and running in her recent book “Sinceramente.” 

There was a recent opinion piece in Devex (along with a more formal complaint lodged with the OPIC board) making the case for the OPIC board to vote against the Vaca Muerta deal. The piece argues that the board should vote against the deal because oil and gas projects contribute to climate change, raising concerns about the consent of local indigenous communities, and claiming that the deal was not properly announced. It irresponsibly questions the skill and capacities of the Argentine management team.

The OPIC management team responded to these concerns. One gets the sense that the real concern of the opinion piece authors is that climate change is such an overriding issue that the Vaca Muerta oil and gas assets should not be developed at all.

Of course, environmental and social concerns are legitimate and should be addressed and mitigated. These concerns should be balanced with other priorities such as jobs, economic impact, energy independence, and whether the oil and gas resources are going to be developed regardless and in a less responsible way. It should also be noted that there are a number of renewable energy projects in Argentina in front of OPIC’s board that will likely be financed in the near future. Renewable energy such as solar and wind are important and growing sources of future energy, but growing economies still need base energy from sources such as natural gas — such as the gas produced at Vaca Muerta.

Vaca Muerta will be developed one way or the other. If, as is possible, Alberto Fernandez wins the presidency, a Fernandez government will vigorously pursue further developing the Vaca Muerta assets. Fernandez’s chief economic advisor, Guillermo Nielsen, has spoken on several occasions about the intentions of a Fernandez led government to further develop Vaca Muerta along the lines of the Permian Basin in the United States.

If the United States does not help develop Vaca Muerta, some other country will. Chinese firms have made investments in Vaca Muerta, and Russian firms have taken a look as well. Argentina stopped importing oil 18 months ago because of a significant increase in Argentine oil production, and no Argentine government wants to return to importing oil.  Argentina now wants to cease importing gas — and Vaca Muerta will help them do that.     

Open any newspaper and you will see that Argentina is in political and economic trouble and is looking to the United States for help. Senior Adviser to the President Ivanka Trump was in Jujuy, Argentina, in the last seven days and announced an unrelated OPIC infrastructure deal-widely seen in Argentina as a U.S. vote of confidence. The Vaca Muerta deal will send a signal that the U.S. and Argentina have a long-term partnership.

Daniel F. Runde is a senior vice president and William A. Schreyer chair in Global Analysis at the Center for Strategic and International Studies. He previously worked for the U.S. Agency for International Development, the World Bank Group, and in investment banking, with experience in Africa, Asia, Europe, Latin America, and the Middle East.