Sweeping Overhaul of Argentina’s Energy Sector Urged

A report by the World Bank urges Argentina to make a sweeping reorganization of its energy sector to allow for more competition, more realistic pricing and a greater participation of the private sector.

According to the report:

* Argentina’s oil reserves are one-third lower than the country claims, and its oil output could fall by almost 40% by the end of the century.

* Gas reserves, seen as the key to future energy development in the South American nation, are also smaller than the Argentine state oil company has calculated.

* Plans for additional nuclear power plants should be scrapped in favor of more economical alternatives.

World Bank economists and oil industry analysts see an opportunity for Argentina to expand its oil exploration and production in the wake of Iraq’s invasion of Kuwait on Aug. 2, which has led to a doubling in the price of oil.

Rafael Quijano, an analyst with the Petroleum Finance Company Ltd., a consulting firm in Washington, said in a recent study for the U.S. Department of Energy that only a small fraction of Argentina’s territory, estimated at 10% to 20%, has been tested for oil.

For Argentina to take advantage of the Middle East crisis, Quijano said, it needs a coherent oil development policy.

The administration of President Carlos S. Menem, who took power in July, 1989, is trying to liberalize traditional Argentine energy policies with “bold” measures to spur domestic and foreign investment.

But Quijano contended that there now are too many policy conflicts among Menem’s ministers, and turf battles among the federal government and provincial authorities, to entice foreign capital to participate in oil exploration and production in Argentina.

Such participation is badly needed if the country is to increase its weak oil output and expand the size of its reserves, both of which have declined since 1981.

The Argentine state oil company, Yacimientos Petroliferos Fiscales, includes in its estimates a significant volume of oil reserves “classified under the unique concept termed ‘conditional reserves’ ” that are not recoverable under existing economic conditions, the report said.

To obtain reserve volumes in agreement with “currently acceptable definitions,” the bank revised the official YPF estimates, excluding those reserves for which no production technology exists or for which there are no processing and transportation facilities.

The bank calculated that Argentina’s proven oil reserves were 1.41 billion barrels at the beginning of 1988, with little change during 1989--35% lower than YPF’s estimates.

Projecting into the future, the World Bank estimates that Argentine crude oil output could drop from about 165 million barrels in 1990 to 101 million in the year 2000, a 39% loss.

Under the bank’s “minimum supply scenario,” by the year 2010 crude oil production would plunge to 30 million barrels a year and to 18 million barrels by 2014.

Downstream from well production, the Argentine oil sector is hobbled by other serious problems, the bank said.

YPF, responsible for most of Argentina’s oil output and processing, suffered total losses of $1.7 billion in 1987 and $1.8 billion in 1988, the bank said, and its refineries are “grossly inefficient energy consumers” and suffer high levels of production losses.

Oil export prospects, in turn, are jeopardized by inadequate port facilities.

While the bank said Argentina has developed the largest nuclear power program in South America, it advised the country to “eliminate new nuclear plants from the (energy) development program” since they would not be as economical as other power-generating options.