Argentina looks to China to fund shale oil

BUENOS, Argentina, Aug. 3 (UPI) -- Frustrated in its attempts to draw Western investors into Spanish oil company YPF it nationalized in April, Argentina is looking to China to fund its future plans to produce shale oil and natural gas.

Argentina ranks behind the United States and China on a roster of 32 countries that possess huge shale oil and gas deposits.

Despite environmentalist concerns that hydrocarbon extraction from shale is causing irreversible damage to underground water resources, the energy industry is all agog with multibillion-dollar business prospects in shale development.

Scientific reports that shale development is potentially disastrous for water resources are regularly countered by other expert opinion that maintains the practice is harmless if carried out correctly.

Despite being in close proximity to oil producers Venezuela and Brazil, Argentina has fought hard to find oil in commercial quantities and reduce dependence on crude oil imports.

Senior aides to President Cristina Fernandez see shale development as a panacea for Argentina's chronic oil and gas shortages.

YPF's status is clouded in mystery, however, after Fernandez nationalized the majority stake in the company that belonged to Spanish oil giant Repsol. YPF is facing litigation from Spain and other challenges from former shareholders.

China is likely to seek watertight guarantees before it agrees to invest in YPF, industry analysts said.

Federal Planning Minister Julio de Vido said YPF's future expansion with foreign capital infusions would be discussed when an Argentine government delegation visits China in September.

De Vido and YPF's new Chief Executive Officer Miguel Galuccio and Deputy Economy Minister Axel Kicillof are all intent upon persuading the Chinese to collaborate on YPF expansion which will fly in the face of Spanish warnings to governments and corporations that invested in the seized company.

Fernandez met with Chinese Premier Wen Jiabao last month. A Chinese government delegation is visiting Buenos Aires and has had preliminary talks with Galuccio in a follow-up to the earlier talks between Fernandez and Wen.

China is looking to expand its energy footprint in Latin America and has set out billions of dollars of cash reserves for acquisitions that can help China meet future energy demands. China has also developed advanced technologies for shale development.

YPF holds sway over more than 11,580 miles of shale oil and gas reserves in the Vaca Muerta basin in the provinces of Neuquen and Mendoza.

Repsol says the Argentine nationalization of its majority stake in YPF by Argentina has eaten into its global profits. The company's lawyers are studying the legality of Argentina's 51 percent expropriation of YPF.

"Our legal council is working on a definition of the legal path to follow and has already started some actions," Repsol Chief Financial Officer Miguel Martinez said.

Argentina is also facing loss of preferential trade terms with the European Union after the EU criticized the nationalization.