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Guest Post: Argentina Running Out Of Options In Falklands Oil Fight

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Submitted by Fawzia Sheikh of OilPrice.com

Argentina Running Out Of Options In Falklands Oil Fight

As Argentina's oil battle with the United Kingdom rages on, the only other obstacle the South American country can throw at oil companies planning to drill near the Falkland Islands is to interdict U.K. ships or equipment - but regional expert Riordan Roett doubts the Argentines are “stupid enough to do that.”

This would be a “very dangerous move” on the part of the Argentine government, said Roett, director of Latin American studies at Johns Hopkins University in Washington. Argentina, which went to war with the U.K. in 1982 over Falklands’ sovereignty, is “very careful” about challenging the British in reaching the islands, Roett noted.

The dispute between the old foes erupted in February when U.K.'s Desire Petroleum towed an oil rig from Scotland to the South Atlantic to drill near the Falklands.

Experts tout the area beneath the islands contains as much as 60 billion barrels of crude oil but there are many doubts about this claim.

Geologists and political-risk specialists say such a vast deposit is possible -- after all, the Atlantic Coast downward from Brazil boasts a great deal of oil – but whether the Falklands is the next place to find such resources will be a question mark for “a couple of years,” Roett said.

Oil and Latin American experts, moreover, have mixed opinions about whether U.K. oil firms actually need the Argentine government's help to siphon out any oil from the contested waters.

U.K. firms can do without Argentine infrastructure but much will depend on current technologies, Roett argued. If companies can retrieve and pour oil into super tankers, it can then be shipped back to the U.K. or wherever their clients are based “without worrying about Argentina -- unless the Argentinians were stupid enough to try to stop the tankers,” he said.

Even if commercially viable oil at current prices or natural gas is found, projects would “somehow require the use of infrastructure in Argentina” such as ports and pipelines, Daniel Kerner, a Latin America analyst at the Eurasia Group in New York, told OilPrice.com. At the very least, he said, this infrastructure would help make the project more viable, otherwise all of the needed equipment would have to be shipped in, he added.

The price of a barrel of oil when potential Falklands’ reserves are brought up in another few years will also play into how challenging exploration will be, Roett noted.

“Is it worth the investment? Are there rigs available? The South Atlantic is not a particularly hospitable place to do any kind of deep-water drilling. So we still have to find out whether or not the technology which exists is applicable to the Falklands.”

Even though Argentina is pushing for a meeting with the U.K., and the United States has encouraged such a move, Roett dismissed the chance of an exploration partnership because Kirchner's administration is “not a transparent government.”

The U.K., with an election looming, would not want to seem weak by agreeing to negotiate either, Roett added.

Yet Kerner argued that such collaboration is “possible but it’s hard.” While this kind of a relationship would certainly assist with exploration, it’s the “most that Argentina can aspire to” and success will ultimately depend on the reservoir size and value, he maintained.

In the midst of this, it’s doubtful any Latin American country will cooperate with the U.K., Kerner said.

Argentina’s President Christina Fernández de Kirchner in fact has been rallying support from her continental neighbours, and in recent days began to mend fences with Peru, a country it fell out of favor with 16 years ago.

Kirchner has done everything in her power to make it difficult for companies pursuing the potential oil windfall. Kirchner forced boats using Argentine ports or passing through the country's waters en route to the Falklands to get special permits, and introduced a United Nations resolution reprimanding the U.K. for permitting oil exploration off the islands. The president also tabled a
bill that would impose a 30-day deadline on firms to sever ties with the islands or be run out of Argentina.

The U.N. has passed several resolutions urging both sides to negotiate but the British have declined, Kerner said.

Except for Latin America, most of the countries in the world recognize the British position on the Falklands, Roett told OilPrice.com. British sovereignty over the Falklands was declared in 1833. The Argentine military “ran into Margaret Thatcher in 1982. I don't think Christina Fernández de Kirchner wants to run into the British fleet here in 2010.”

The U.K., which reportedly dispatched a nuclear submarine to the islands to safeguard oil exploration there, has “reinforced on the Falklands their military capabilities, particularly their air force,” Roett said. And the British are better prepared to dominate the air space over the islands, he added, but doubted the row will lead to actual war again.

That no significant international oil company is participating in the drilling, meanwhile, is telling, Kerner charged.

Apart from Desire Petroleum, Spain's Repsol plans to start drilling in Argentine territorial waters -- but not in the contested area -- via its Argentine operator, YPF, which is leading a consortium.

Large IOCs so far are “moving very carefully” due to the risks associated with a “very unpredictable Argentine government,” Roett said. But if Desire Petroleum demonstrates there probably is a “reasonably large deposit,” companies will descend, he said.

With the world’s oil supplies shrinking, and more oil in the hands of producers like Saudi Arabia, Iran, Venezuela and Russia, places like the Falklands become especially important, said S. Rob Sobhani, president and founder of Caspian Energy Consulting in Potomac, Maryland.

With North Sea reserves dwindling and having already peaked, Sobhani said, countries like the U.K and Argentina see these South Atlantic reserves as a possible “game changer.”

Source: http://www.oilprice.com/article-argentina-running-out-of-options-in-falk...

By Fawzia Sheikh for Oilprice.com who offer detailed analysis on Crude Oil, Geopolitics, Gold and most other commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

 


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Tue, 03/30/2010 - 10:34 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"...but regional expert Riordan Roett doubts the Argentines are “stupid enough to do that.”

Please don't underestimate the level of shear stupidity politicians can display when they have run out of options or are about to be exposed. And don't assume every apparently stupid thing leaders do isn't intended to look that way in order to create conditions that force them to do things they publicly declare abhorrent but privately have a boner for. Most of these bastards are puppets, handmaidens for others who wish to remain in the shadows.

In a remix of a crowd favorite, it it looks too stupid to be true, it isn't.

Tue, 03/30/2010 - 10:41 | Link to Comment junkyard dog
junkyard dog's picture

4 miles of water and 5 miles of rock before one hits oil, no problem. Should be able to pump oil at about $ 210 barrel.

 

Tue, 03/30/2010 - 11:48 | Link to Comment Mad Max
Mad Max's picture

Should be able to pump oil at about $ 210 barrel.

So in other words, you're saying it will be wildly profitable by Q3 2011?

Tue, 03/30/2010 - 10:43 | Link to Comment Internet Tough Guy
Internet Tough Guy's picture

You can't just stick a straw in the ground and suck up oil. All the big finds are made, there is no supergiant field off the Falklands.

We are past peak.

Tue, 03/30/2010 - 11:19 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

I drink your milkshake! Sluuuuuuurrp. I drink it up.

That's what it's all about nowadays. I either drink it up with horizontal drilling or I beat you over the head and take it outright. The resource wars have only just begun.

http://www.youtube.com/watch?v=HHpM5US2HDs&feature=related

Tue, 03/30/2010 - 12:24 | Link to Comment Sabremesh
Sabremesh's picture

Apart from the bit about it being impossible to suck up oil with a straw, which I will grant you, the rest of your post is a series of opinions, couched as statements of fact. The truth is we don't know any of those things for certain.

Tue, 03/30/2010 - 16:50 | Link to Comment Ragnarok
Ragnarok's picture

Can someone just shoot some f'ing seismic already, we'll know the answer in ~2 years.  Acquisition -> Processing -> Interpretation -> Reservoir Analysis = No more fucking speculation.

 

 

Tue, 03/30/2010 - 10:49 | Link to Comment caconhma
caconhma's picture

Argentina welfare state is broke and is not in any capacity to do anything to protect itself or it people from an old colonial bastard.

Tue, 03/30/2010 - 11:49 | Link to Comment Mad Max
Mad Max's picture

And yet, apart from the "old colonial bastard" part, precisely the same thing could be said about the UK.

Look, it's a race of midget cripples!

Tue, 03/30/2010 - 12:03 | Link to Comment Sabremesh
Sabremesh's picture

Sorry, but where does Spain come into this!?

Tue, 03/30/2010 - 11:08 | Link to Comment Mercury
Mercury's picture

Every government can benefit from a military victory.  If I were Argentina I'd go for it:

-No Maggie Thatcher to contend with nor any other UK leader in sight that is even remotely as tough as she.

-The British navy has very recently shown that they are willing to let their own sailors be taken hostage, beneath the guns of their own warships, by a few men in rubber rafts.

What other factors really are worthy of consideration? I'd be surprised if those Brit subs didn't have corks in their torpedo tubes with legal disclaimers flopping around on strings.

Tue, 03/30/2010 - 11:26 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

I disagree.  Argentina would get its ass handed to it, even more so than before.  The UK would have to respond to any war on its own territory. 

Re UK/Iran, well, they just don't have any enthusiasm to be riding along with our intrigues in the Middle East.

If there were war, that might also finally wake up the Argentine people frrom their eternal slumber and throw the Kirchners out (naah, 'course not).  Preza Cristina could always find a pulpit in Caracas.

Pity, because Argentina could be such a nice place.

Tue, 03/30/2010 - 12:41 | Link to Comment if
if's picture

How resistant are supertankers to an RPG ?  If all you want is a piece of the action you can disrupt without taking the islands.

But the Argentines should wait until someone else proves there's oil.   

Tue, 03/30/2010 - 11:47 | Link to Comment RowdyRoddyPiper
RowdyRoddyPiper's picture

Righto matey.

Tue, 03/30/2010 - 11:18 | Link to Comment -273
-273's picture
Falkland Islands oil disappoints for Desire Petroleum

Shares in Desire ended Monday trading in London down 49.5%.

In a stock market announcement, Desire said that initial results from the Liz 14/19-1 well, in the North Falkland basin, showed that the quantities of oil may be small and of poor quality.

From bbc

Tue, 03/30/2010 - 11:34 | Link to Comment nonclaim
nonclaim's picture

Argentina is running out of options in all fronts, and the last, the nationalist boast/crap will fail spectacularly. That's where a strong military shines but the vindicative Left, getting back the 70s, destroyed the military forces: humiliated (~700 top senior in jail now) and with old equipment there's nothing they can do even if they had to protect the main land, much less attack anybody.

Tue, 03/30/2010 - 11:42 | Link to Comment Cow
Cow's picture

Britain has 1,300 troops stationed on the islands, as well as the guided missile destroyer HMS York, the offshore patrol vessel HMS Clyde and the Royal Fleet Auxiliary tanker Wave Ruler, as well as four Typhoon air superiority fighters stationed in the South Atlantic.

Argentina is going to do nothing except take a page out of the Obama Iranian strategy and write a stern letter.

Tue, 03/30/2010 - 11:54 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"Argentina is going to do nothing except take a page out of the Obama Iranian strategy and write a stern letter."

Hand delivered with the personal request not to publicize the contents, since Argentina is still on double secret probation from the last time they rattled their sabers.

http://www.youtube.com/watch?v=hostgKc7qV4

 

Tue, 03/30/2010 - 11:45 | Link to Comment Slartibartfast
Slartibartfast's picture

Even old Lions still have claws. Argentina will pay for its utter stupidity for decades to come. This was one issue Thatcher got right by calling Argentina's bluff and by telling the U.S. 'there's no middle gorund here....stay out of our way'.

Tue, 03/30/2010 - 11:52 | Link to Comment Alexandra Hamilton
Alexandra Hamilton's picture

Shares in Desire Petroleum have almost halved after the oil explorer said a well being drilled off the Falkland Islands may not be economically viable.

Shares in other companies operating off the Falklands also fell amid fears that the region's reserves may disappoint.

http://news.bbc.co.uk/2/hi/8592734.stm

Tue, 03/30/2010 - 11:54 | Link to Comment Rogerwilco
Rogerwilco's picture


Tue, 03/30/2010 - 11:54 | Link to Comment Gimp
Gimp's picture

Mercury great comments LOL

You are correct of course, the Royal Navy barely has enough ships for a "three hour tour" let alone an 8,000 mile voyage south, thanks to a welfare state and the Labour party.

Let them fight it out on the soccer field at the upcoming World Cup, whoever wins gets the islands!

Tue, 03/30/2010 - 12:11 | Link to Comment nonclaim
nonclaim's picture

That would be a great match! But I suspect the British would send a rugby team instead and Maradona (still coach?) would sprinkle the "magic dust" on his team.

Tue, 03/30/2010 - 12:14 | Link to Comment Rick64
Rick64's picture

Oil and a possible war. Jackpot! I bet the U.S. is jealous, no we got the whole middle east.

Tue, 03/30/2010 - 12:41 | Link to Comment carbonmutant
carbonmutant's picture

Christina's attempt at smoke and mirriors to distract from current events like their Port Workers strike which has paralyzed their grain exports.

 

Tue, 03/30/2010 - 12:55 | Link to Comment Slartibartfast
Slartibartfast's picture

When it comes to the Royal Navy, ask yourself this question: how have those who underestimated it fared? Not so good...you won't see a Royal Navy ship busted up by a guy in a rubber dinghy.

Tue, 03/30/2010 - 13:07 | Link to Comment Gimp
Gimp's picture

Watch out for the small boats, we had one of our destroyers almost sunk and put out of commission for three years by a small boat packed with explosives and manned by a nut job in Yemen not too long ago.

Tue, 03/30/2010 - 13:13 | Link to Comment Slartibartfast
Slartibartfast's picture

I believe that was my point.

Tue, 03/30/2010 - 17:36 | Link to Comment Quantum Nucleonics
Quantum Nucleonics's picture

That was more an intel failure.  Had they been alerted to the threat, one guy with a machine gun would have taken out that boat.  That said, if I'm the captain of that ship, no matter what someone says, if I'm parked in Yemen, I'm gonna have a couple boys with MG's on deck shooting first and asking questions later.

Kirchner doesn't seem to realize that if you want to bluff in poker, you need some chips on the table.  Argentina's military is a shambles, incapable of doing anything about the Falklands.

Oh, and don't think that when all this started someone from the Royal Navy didn't decide to park HMS Asute or one of the Trafalgar boats somewhere between Port Stanley and Buenos Aires.

 

 

Wed, 03/31/2010 - 12:24 | Link to Comment trichotil
trichotil's picture

 hmmm maybe that mysterious third party that profits from war (the longer the better) might donate a few exocets to get the money flowing.

http://www.youtube.com/watch?v=IUZu8bvxJs4

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mark456's picture

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