The need to maintain Argentina’s international financial reserves and the development of “La Vaca Muerta,” one of the largest shale gas deposits in the world, has motivated the Argentinian government to stimulate the oil and gas market with a special exchange rate.
In Argentina, a non-standard exchange rate will be temporarily available only for oil and gas exporters in the country, to strengthen and stabilize Argentina’s currency in the global market.
According to the Ministry of Finance, 25% of oil and gas revenue can be converted to pesos using the “dollar counted with liquidity” (dólar contado con liqui, CCL dollar) from October onwards, an exchange rate that offers more pesos for every dollar than the standard exchange rate.
Normally, the use of the CCL dollar is strictly limited by the National Securities Commission, the regulatory financial body of Argentina, for the sake of currency stability. For oil producers, this limit has been extended to an exchange of 300 million dollars, provided the initial projection of exports from the government is correct. The remaining 900 million dollars would be converted through the standard exchange rate.
Replacement of the soy dollar
This decision from the Argentinian government comes right at the time of expiry of a similar initiative, undertaken previously to stimulate the agro-industrial market.
The soy dollar initiative was identical to this current oil and gas initiative, except it was applied to the exports of Argentine soybeans. The intent of this decision was to strengthen the dollar reserves of the Argentine Central Bank, to make Argentina a more stable force in international trade.
Since the soy dollar initiative is to expire at the end of September, this oil and gas initiative will take over to strengthen the Central Bank reserves in its place, aiming to keep local exchange rates stable, in addition to stimulating the oil and gas economy.
The Argentine government is reportedly in talks with mining companies to institute similar measures for the mining market as well, according to Ambito.
Supporting the energy sector and improving the country’s financial reserves
If the exports are as expected, oil and gas companies will have more liquidity.
They, in theory, will be incentivized to export more oil, because the CCL conversion will offer oil businesses more pesos per dollar earned from exports. It will also dissuade these businesses from accumulating reserves.
Along with this announcement, the minister of finance, Sergio Massa, visited “La Vaca Muerta” (The Dead Cow), Argentina’s recently discovered archaeological site. It also contains a shale oil and gas deposit that represents the world’s 2nd largest unconventional gas source, being developed by 31 companies.
Massa communicated via social media during his visit that the financial change is intended to strengthen the Argentinian currency, as well as their exporting economy, and to help sustain oil and gas businesses.
One of the techniques to extract shale gas dispersed within rocks is the controversial hydraulic fracturing (fracking), which is used at La Vaca Muerta to extract oil and gas.
An article published by The National University of General Sarmiento (UNGS), revealed that the vast majority of drilling shafts (259) in La Vaca Muerta utilized fracking, which had adverse side effects. Fracking utilized large volumes of water: 97 million liters per shaft. The university states that unconventional gas such as shale gas is often formed mainly by methane, a greenhouse gas 23 times more powerful than carbon dioxide, which a part is inevitably released during its extraction.
