December 13, 2017

Neuquén Governor speaks to the Herald about the future of Argentinas’s oil-producing provinces

Sunday, September 13, 2015

Sapag: ‘We can’t keep giving energy subsidies to everybody’

Neuquén Governor Jorge Sapag speaks at a summit in Buenos Aires last week.
Neuquén Governor Jorge Sapag speaks at a summit in Buenos Aires last week.
Neuquén Governor Jorge Sapag speaks at a summit in Buenos Aires last week.
By Fermín Koop
Herald Staff
Neuquén Governor Jorge Sapag says inflation should be lowered to attract investors

Alongside governors of ten oil and gas producing provinces, Neuquén Governor Jorge Sapag last week signed an agreement with Victory Front (FpV) presidential candidate Daniel Scioli, in which he vowed to maintain financial incentives for the energy sector if elected.

In an interview with the Herald during a short visit to Buenos Aires, Sapag, who has been mentioned in the past as likely Scioli’s energy minister, asked for economic stability. The Neuquén governor also claimed that energy subsidies shouldn’t be universal.

What should be the priorities for the country’s energy sector in the next few years?

Argentina has to become energy self-sufficient. Not importing gas on barges should be a priority to save dollars, we have sufficient resources here. That’s what the US did first on their path to self-sufficiency. We have to work on conventional gas while moving forward with unconventional resources at the same time. We have great gas fields and many projects on the way. Hydroelectric energy also has a key role and we have to move fast with the current projects.

Should the country move forward with renewable energy, a sector with a high potential but so far underdeveloped?

Neuquén has projects worth US$3 billion but we need solid purchase agreements to move forward. The world is betting on renewables and we should do the same as we have a large potential, specially in Patagonia with a lot of sun and wind. But large investments are needed and if the state is going to be buying that energy investors need certainties over the payment. Once we provide certainties, investments will come.

You said Argentina’s goal should be energy self-sufficiency but large investments are needed to develop the unconventional resources. How can the country attract those investors?

Investors need a suitable geology and legal certainties, things we have given them in Neuquén. But what we now need is economic stability. We need stable economic variables and sufficient Central Bank foreign-currency reserves. Both things give investors more guarantees over having access to their profits in the future. We could even create a fund with the money that comes from the new investments, which would help to have sufficient cash for import payments and for companies to have access to their profits.

Can the country maintain its higher oil prices in the long-term despite the steep drop on world prices?

Argentina had in the last few years a differential price and that has to be maintained. We need to have a domestic price that makes the oil and gas activity sustainable and guarantees profits for the provinces. It doesn’t make any sense to rely on international prices. We can’t start importing oil because now it’s cheaper and leave the domestic industry aside. That would lead to unemployment and we would be submitting ourselves to the will of the world sellers. Government officials need to provide clear rules and investments will come. We have more than US$100 billion in potential projects that could be carried out in Neuquén by Shell, Total, Petrobras and Wintershall

What are those companies asking for to move forward with their projects?

They want simple and clear rules. There’s high expectation among investors due to the presidential elections and they will want to speak with the next president to see how he is going to deal with the economy, such as Chevron did with Cristina Fernández de Kirchner. We can’t attract investors with inflation at 30 percent. The government has to guarantee them that a certain path will be followed.

Have you met with the main three presidential hopefuls?

I haven’t discussed deeply the gas and oil perspective with the three of them. I did talk to Scioli over the perspectives of the energy sector. I had an argument with Macri’s advisers as they wanted the royalties of Vaca Muerta to be distributed among non oil producing provinces. Doing that would create a revolution in the producing provinces. The key aspects to work on are costs, energy subsidies, Central Bank foreign-currency reserves and the creation of a fund for investments. There’s an open opportunity.

Provinces grouped under the Federal Organization of Oil Producing Provinces (OFEPHI) signed an agreement with Scioli last week, which gives YPF a central role. Doesn’t that favouritism affect other companies from coming to invest here?

While the United States has more than 2,000 energy companies, we think Argentina should have at least 200 of different sizes. We need to give opportunities for all companies. YPF has more than 12,000 square kilometres in Vaca Muerta and is perfectly capable of giving other companies a chance.

What role should YPF have with the upcoming president?

Cristina Fernández de Kirchner was brave enough to make a deal with Chevron to develop the first unconventional area outside the United States. YPF’s management did a good job. We used the experience of the United States and Canada and gained a lot of knowledge. Now we are up to date with the technology used in the US and are created our own technology. YPF is the country’s flagship and has to continue on that path.

What should the next administration do with energy subsidies?

Energy subsidies are affecting the national treasury so we need to work on being more equitable. We can’t keep giving subsidies to everybody. Buenos Aires City citizens pay 500 pesos for cable television per month and only 30 pesos for gas every two months. The people who can pay for the energy will have to do it, retirees and unemployed could remain as the exception. The national treasury needs the economy to function well.

Should the current Energy Secretariat become a ministry with the next administration?

Neuquén has an Energy Ministry and an Environment Secretariat and that scheme worked for us. It would be a good idea to upgrade the national Environment Secretariat to a Ministry.

Would you be interested on heading a potential Energy Ministry?

I’m not looking for any position. Neuquén has honoured me by being the lieutenant-governor and twice the governor. My interest lies with the republic, the state policies and the success of Neuquén. You’ll always find me supporting the country’s sovereignty and the environment. I want to be close to the provincial and the national government and bring my expertise.

Neuquén recently faced demands by indigenous communities, who are asking for land rights near oil and gas areas. Are you concerned over those claims becoming more recurrent?

The province gave 25 communities in 1964 the rights on 150,000 hectares of land suitable for agriculture and cattle. Since then, the policy has always been to give land rights to those who can demonstrate ancestry. We have already given 450,000 hectares of land and will continue to do so. It’s unthinkable that some groups are trying to take a piece of land and claiming it belongs to them, that’s breaking the social contract. We’ll be fair with everybody.


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