CORDOBA – Things could soon get very busy for Marcelo Guiscardo and his colleagues at QM Equipment, an Argentine firm that designs and produces specialized equipment - including rock-breaking machines – of the type used in shale gas extraction.

Up to now, the company's production has almost exclusively been for export, with customers in South America, Oman, Egypt and Russia. That could soon change. Argentina, it turns out, is parked on top of an immense reserve of shale gas: the third largest reserve in the world after the United States and China. There are now hints the country is ready to begin exploiting those reserves, meaning QM – which already has its hands full trying to meet foreign demand – could soon have more business than they can even handle.

According to a 2011 US Department of Energy report, Argentina's "technically recoverable" resources are over 22 billion cubic meters, equivalent to about 11% of the world's shale gas reserves. To put things in perspective, even if just 10% of Argentina's estimated reserves are exploitable, the country would still be looking at an amount more than seven times greater than the reserves at the Loma La Lata field in the western province of Neuquén. When it was discovered, Loma La Lata, the country's largest single natural gas deposit, shifted both Argentine and Chilean energy policies towards natural gas.

Finally cost effective

Shale gas is an unconventional type of gas deposit. In order to exploit it, operators must fracture rock by injecting high-pressure water horizontally. The water contains numerous chemical additives used to prevent the fractured rock from closing. "On average, a shale gas well is about six times as expensive as a regular well. And it is exhausted much more quickly since, with current technology, only around 20% of the gas is extracted," says Jorge Feriol, president of the Argentine Committee of the World Energy Council.

Energy start-ups began applying shale gas technology in the United States around 20 years ago. In 2000 it barely represented 1% of U.S. oil and gas production, but by 2010 it had reached 25%. It is estimated to reach 50% in the coming decades. Some say that the United States, thanks to shale gas, could go from being an energy importer to being an energy exporter.

Despite Argentina's huge reserves, shale gas production has been slow to take off – until recently, local selling prices were simply too low to make it cost-effective.

That's finally changing thanks to efforts by the Argentine government to significantly increase the permitted prices for the shale gas. As a result, several U.S. companies, including Apache, have jumped into the market. Since 2008 they have drilled more than 70 exploration wells.

The Argentine oil giant YPF has been talking about shale gas since 2009. Last November it announced the discovery of a major reserve of shale gas at the Loma La Lata fields. If estimates prove accurate, the discovery would increase Argentina's total gas reserves by 40%. Waiting in the wings are several other big name energy companies, including Total, ExxonMobil, Chevron and Petrobras.

Shooting for self-sufficiency

Considering these developments, it is easy to understand why the Argentine energy secretary, Daniel Cameron, announced enthusiastically that Argentina will, in the near future, once again be energy self-sufficient. If that indeed does come to pass, Argentina stands to cut its energy expense by some $5.5 billion per year. Other analysts, however, are a bit more reserved in their energy forecast, saying the goal is reachable, but isn't likely to happen overnight. Even in a best case scenario, Argentina's shale gas wells will not be fully functioning for another five or six years.

That, in turn, assumes that current prices hold. Another potential stumbling block is equipment. International demand is high right now, meaning the necessary machinery is scarce. For local companies like QM equipment, a potential Argentine shale gas boom would mean opportunity, but could also present serious logistical problems.

Could Argentina eventually position itself as an energy exporter? Not a chance, say analysts. That would mean at least a decade of investments and, above all else, rebuilding consumer confidence. Chile still remembers bitterly the 2004 energy crisis, when energy shortages in Argentina caused gas exports to Chile to drop substantially, forcing Chile to quickly build coal-fired plants to meet its population's energy needs. Chile also scrambled to build a large liquefied natural gas reconversion port, which allows it now to buy much of its natural gas from overseas.

Argentina also faces competition closer to home. Many other South American countries, including Brazil, have substantial shale gas reserves of their own. "But we're still leaders when it comes to exporting technology and know-how," says QM's Marcelo Guiscardo.

Regardless of Argentina's place in the world market, business has been very good for his company, which has received a number of new orders for high-horsepower fracturing equipment.

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