Natural gas supply behavior under interventionism: The case of Argentina

Abstract

We address the causes behind the significant drop in natural gas production in the 2000s in Argentina, starting from a basic supply model that depends on economic incentives, and adding control variables related to different potential explanations such as firm specific (or area specific) behavior and the role of contractual renegotiation of concessions extensions. Results from a panel data of production areas between 2003 and 2013 show that once a basic supply-past production (or reserve) relationship is modeled, other often mentioned effects become non-significant. Chiefly among them are firm specific effects that were used as a central argument for the nationalization of YPF in 2012. Rather, the evidence shows that the observed downcycle conforms to the prediction of a simple model of depressed economic incentives acting upon mature conventional natural gas fields and hindering investment in reserve additions or new technologies. The results are robust to the nationalization of YPF, after which aggregate production continued a downward trend for two years, although are insufficient to capture an ongoing reconfiguration of incentives and risks in the forthcoming transition to shale gas production.