The locals call it Vaca Muerta, Spanish for “Dead Cow.” That name perfectly captures the essence of the place, too. The Vaca Muerta formation is a harsh South American wasteland… …7.4 million acres of sprawling rocky desert, where the animal you’ll most likely encounter is (you guessed it) a dead cow. Gazing out over the Patagonian horizon, you’d never realize you were staring at one of the world’s most valuable energy assets. 16 billion barrels of oil. 308 trillion cubic feet of natural gas. All locked away in shale rock formations some 9,500 feet below the desert’s windswept surface.
Add it all up, and the Vaca Muerta formation (located in the Neuquen Basin) is the world’s second-largest shale gas reserve. It’s fourth-largest for oil. (From NaturalGasIntel: The massive Vaca Muerta formation in Argentina’s Nequen Basin.) These reserves were a total secret to the world until 2010, when a rogue exploration team from a domestic oil company started testing the area. It expected to find some mineral reserves, but never on this scale. Instead, it made a discovery that could transform the global balance of power as Vaca Muerta’s output comes online. There’s just one catch… Vaca Muerta is located in Argentina.
Patagonia’s Lost Mineral Treasure
Argentina’s economy is an unmitigated disaster, ravaged by decades of disastrous political policies. Last month, the country’s official inflation rate hit a record 142%. The government is also carrying $400 billion in foreign debt, and it’s desperately short on foreign currency reserves. Those same political policies have also kept the country from cashing in on Vaca Muerta’s massive mineral wealth since its discovery in 2010.
Extracting oil from Vaca Muerta’s rich shale will require substantial investment. It’ll need to use slant drilling rigs, hydraulic fracturing — technology that’s still cutting edge and priced at a premium. Argentina’s government can’t afford to make that investment. And since officials also nationalized key energy industries, foreigners don’t want to make that investment. The country also set internal price caps on oil and natural gas, effectively limiting profit potential for its own domestic industry. Which means Argentina’s domestic energy companies can’t afford to make that investment either. So despite being one of the world’s richest shale oil fields, Vaca Muerta only produces about a quarter-million barrels of oil per day. That’s compared to 1.3 million per day for West Texas’ Permian Basin (America’s largest shale play) and a tremendous 4 million barrels per day for Saudi Arabia’s Ghawar Field. (From VisualCapitalist: Despite some of the world’s largest shale gas and oil reserves, Argentina’s oil output makes up only a minuscule fraction of the global market.)
Kick-Starting Argentina’s Economy
Javier Milei promises to dismantle the country’s central bank, which he claims to be “non-negotiable.” He also plans to spark a wave of privatization that could kick-start entire industries that have been under government control for decades. Everything from airlines and railways to energy, utilities and pension funds could potentially be open to investment and development.
The ongoing “energy war” between fossil fuels and renewable resources is arguably the biggest mega trend in the history of modern investing. It’s a story that will span multiple generations, affect every person on the planet and completely transform our entire global energy industry, valued at over $6 trillion per year. As a result, it’s creating some of the most powerful tailwinds investors have ever seen. And while most of the spotlight seems to be on renewable resources like wind and solar, demand for fossil fuels is higher than ever.
