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Argentina sees potential for new petrochemical projects as Vaca Muerta develops

Buenos Aires (Platts)--6 Dec 2017 601 am EST/1101 GMT


Argentina could attract investment in world-scale petrochemical projects as development of the giant Vaca Muerta shale play improves the potential for steady feedstock supplies, industry leaders said Tuesday.

The country has some of the largest shale gas resources in the world, and their initial development has spurred forecasts that national output could reach 185 million cu m/d in 2025, up from 122 million cu m/d this year, according to the Energy Ministry.

"We are proposing that we replicate the US model," said Marcos Sabelli, president of the Latin American Petrochemical and Chemical Association.

"With the shale boom that started 10 years ago, the United States saw the launch of an impressive number of petrochemical projects, of more than $100 billion invested," he said at the Latin American Energy Organization's Forum on Regional Energy Integration in Buenos Aires.

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"The US went from an importer to an exporter [in petrochemical products]," Sabelli said. "Argentina has this potential. There is feedstock, market and companies."


ROOM FOR GROWTH


South America consumes 30 kg per capita of petrochemicals, far less than the 134 kg in the US, and imports a large portion of the products, Sabelli said.

"We could grow three or four times if we reach the level of consumption in developed countries," he said.

The big challenge to expand petrochemical production capacity is to develop Vaca Muerta so there are steady supplies of gas, said Alejandro Fernandez, general manager of Compania Mega, a maker of ethane and other natural gas liquids.

"We need the availability of supplies so that we can justify capital-intensive investment over the long term," he said.

He estimated that the development of Vaca Muerta, now producing around 6.2 million cu m/d, according to official data, could push the country's total gas output to 180 million-220 million cu m/d.


CUTTING COSTS


Another challenge for expanding the petrochemical industry is to bring down the cost of gas.

"We don't have a cost to compete on a global scale," said Alberto Laveran, business director of Dow Chemical in Argentina.

The average price of gas is running at around $5.50/MMBtu for most industrial consumers and is poised to reach an average of $6.80/MMBtu in 2019, as the government hikes prices and provides incentives to spur the development of Vaca Muerta. The government wants to increase production to close a 25% gas deficit and eventually export surplus supplies.

The local gas price is well above the US price of around $3/MMBtu, a competitive disadvantage for petrochemical producers in Argentina.

"We need costs that allow us to compete one-on-one," Laveran said.

This is because petrochemical plants cannot only supply Argentina, whether it is for polyethylene, polypropylene or methanol, he said. They must be run at a large enough scale to export supplies, meaning that the production will compete on the global market.

"It's not sustainable to compete when the price of gas is $5.50/MMBtu [in Argentina]," Laveran said.

He said that if costs come down for the petrochemical industry and gas production increases to around 150 million cu m/d, Dow could move forward on expanding its capacity in Argentina, where it is a leading maker of ethylene and PE.

--Charles Newbery, newsdesk@spglobal.com
--Edited by Jason Lindquist, jason.lindquist@spglobal.com




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