Argentina Chemicals 2016 Pre release

8/18/2019 Argentina Chemicals 2016 Pre release

1/26 P R E

- R E L

E A S E

E D I T I

O N

Argentina Petrochemicals2016


2/262 Global Business Reports |ARGENTINA PETROCHEMICALS PRE-RELEASE 2016

www.gbreports.com

Global Business ReportsPRE-RELEASE | Argentina Petrochemicals


3/263Global Business Reports |ARGENTINA PETROCHEMICALS PRE-RELEASE 2016 3

www.gbreports.com

Global Business Reports PRE-RELEASE | Argentina PetrochemicalsInternational Petrochemical Conference (AFPM) 20-22nd March 2016

3Global Business Reports |ARGENTINA PETROCHEMICALS PRE-RELEASE 2016 3

www.gbreports.com

Global Business Reports


4/26

Table of Contents Dear Readers,We cordially welcome you to the pre-release o Argentina Petrochemicals and Chemi-cals 2016, the irst book in a series o Industry Explorations between GBR and APLA, alaunching at APLA’s Annual Meeting in Buenos Aires in November this year.

This pre-release is the outcome o our irst steps into interviewing key players romacross the petrochemical and chemical industries in Argentina, as well as some o thecompanies providing key support services, such as distribution, third party and inte-grated logistics, and emergency response.

The aim o our inal investment guide is to highlightthe opportunities or investment in Argentina’s petro-chemical and chemical industries, particularly in lighto the new government administration and the coun-try’s upstream potential.

In this pre-release you will ind insights rom not onlythe country’s biggest petrochemical producers, in-cluding YPF and Dow Argentina, but also comparisonsbetween Argentina and its largest competitors in LatinAmerica, such as Mexico and Brazil.

We explore the potential or a shale revolution hereakin to recent events in the United States, and discussour nation’s goal o producing enough petrochemi-cals to satis y both domestic and regional demand.

We also delve into Argentina’s anomalous chemicaldistribution environment, in which more than 120

companies operate, and the potential or M&A activ-ity now the country has removed international importrestrictions. Global EPC providers such as Techint andOdebrecht also provide us with their perspectives onthe in rastructure challenges affecting the country’soil and gas pipeline network which, once resolved,could lead to the next world-scale petrochemicalplant in Argentina.

Please join us in reviewing the opportunities presentin Argentina!

Alice Pascoletti, Senior Project Director Laura Brangwin, Project Director Harriet Bailey, Journalist.

Argentina Petrochemicals2016

This research has been conducted by Alice Pascoletti,Laura Brangwin and Harriet Bailey.

Edited by Mungo SmithGraphic design by Özgür ErgüneyCover Image by YPF

A Global Business Reports PublicationFor updated industry news from our on-the-groundteams around the world, please visit our website atgbreports.com, subscribe to our newsletter by signingup to our VIP list through our website, or follow us on

Twitter: @GBReports

Letter

Emerging from the Shadows:An introduction to Argentina and its

chemical industryInterview withJose Luis Uriegas ,President, APLA

Interview withMiguel Galuccio, CEO, YPF

Interview withMarcos Sabelli,Chemical Executive Manager, YPF

Interview withGastón Remy,President, Dow Argentina

Interview withManuel DiazExecutive Director, APLA

Falling into place:Argentina’s petrochemical industry

A unique situation:Distribution, logistics and serviceproviders

4.

5.

6.

8.

10.

11.

13.

14.

21.



www.gbreports.com

Global Business Reports PRE-RELEASE | Argentina Petrochemicals

Argentina in 2016 is a very different place thanArgentina in 2015. In what has been dubbedhis “Macri-economic shock treatment,” newlyelected President Mauricio Macri o the Cam-biemos coalition government used his irst twomonths in office since his election on Decem-ber 10th, 2015 to implement a number o major

economic re orms.These include promising to resume publicationo credible economic data, afer the previousgovernment was censured by the InternationalMonetary Fund in 2013 or allegedly manipulat-ing the igures to cover its poor record; remov-ing controversial taxes on agricultural exportssuch as corn and bee ; and lowering taxes onsoybeans (Argentina is the world’s third largestexporter). Macri’s biggest move was to lif arti-

icial currency controls. With the peso allowedto loat, it saw an immediate one-third devalu-ation, alling into line with its street value o

around 13 pesos to the U.S. dollar.

Macri was also the irst Argentine President toattend the World Economic Forum in Davosin thirteen years, signaling a new era or Ar-gentina’s international relations and a ocuson attracting oreign investment. In his irstinterview with the oreign press on the eveo his attendance, he stated his plan or the

Argentina o the uture: “We have to be a pre-dictable and trustworthy country. We haveto show investors that their rights will be re-spected, as well as that we will demand thatthey obey Argentina’s laws.”His actions stand in dramatic contrast to hispredecessor, Cristina Fernández de Kirch-ner, who continued the isolationist policiesthat her late husband, ormer president Nés-tor Kirchner, launched in 2003. Macri is alsoseeking to re-align Argentina with capitalistmarkets afer years o courting authoritarianregimes such as China, Russia, Venezuela and

Iran.

A RECIPE FOR SUCCESSArgentina is deceptively large; the eighth-biggest country in the world, it is almost 3,700kilometers (km) rom north to south, and onlyaround 620 km shorter than mainland UnitedStates is wide. Vaca Muerta, located in Neu-quén province in the west and the largest

shale deposit in the country, covers an areathe size o Belgium and, according to theU.S. Energy In ormation Administration (EIAholds around 16.2 billion barrels o shale oiland 308 trillion cubic eet (tc ) o shale gas.Argentina boasts some o the strongestproved hydrocarbon resources in the world,but has until now eschewed oreign invest-ment in avor o developing its own economy.The Kirchners’ lef-wing “Front or Victoryparty imposed protectionist policies andeconomic controls, pushing up in lation toaround 25% and hampering Argentina’s ex-

port industry with its arti icially strong peso.

Emerging from the Shadows: An introduction to Argentina and its chemical industry

Photo courtesy of Air Liquide.



www.gbreports.com


Jose Luis UriegasPresident, APLA

Could you provide us with a brief overview of APLA, thebenefits it provides to members and its work promotingthe petrochemical and chemical industries across Latin America?APLA is an integrated association, connected to more than100 companies. Our two most important eatures or ourmembers are the opportunity to network and the relevant in-

ormation on the industry. Furthermore, our most important

event is the Latin American Annual Meeting, at which attend-ees can meet and interact with di erent companies rom allover the world to develop business and share ideas. Althoughour Annual Meetings have a ocus on Latin America, we alsoreceive attendees rom outside o the region, who are looking

or opportunities here.

APLA’s 2015 Annual Meeting was held in Mexico. Couldyou provide us with a brief overview of what APLA aimsto achieve from its Annual Meetings and what attendeescan expect?We celebrated our 35th Annual Meeting in Cancun, cover-

ing conventional and unconventional hydrocarbons, theircomposition throughout the Latin American region and thesustainability o businesses. We have held previous events incities such as Rio de Janeiro, Buenos Aires, Mexico City, andSantiago, while our 2016 event is to be held in Buenos Aires.This has been strategic choice; Argentina is in a burgeoningposition because o its unconventional resources in areassuch as Vaca Muerta. Additionally, the new government ismore open to oreign investment and promoting the industry,which will enable the country to take advantage o its huge oiland gas reserves.

A third of participants at the 2015 Annual Meeting werefrom the United States. What is the general feeling of for-eign investors towards the petrochemical and chemicalindustries in Latin America, and Argentina in particular?U.S. attendees can use the con erence to gain a more directoverview o the opportunities available in countries such asArgentina, Mexico and Brazil, as well as emerging commercialand investment opportunities. Those countries interestedin trade with Latin America can gauge the size o the market

rom our meeting. Regarding Argentina, the country is now atthe right stage to ocus on oreign investment and there oreshould be o interest to U.S., European and Asian investors at-tending our Annual Meeting.

We are seeing increasing numbers o U.S. companies attendour events; they have experience rom the shale gas revolu-tion and several petrochemical plants are set to come on-line be ore 2020. Attendees rom North America are looking

or opportunities that could arise rom Latin America, bothas a potential market or their extra capacity, and as an op-portunity or new production projects across the region.

Within Latin America, which countries have a strongpotential for the future of their chemical and petro-chemical industries and what reasons lie behind this?Every country has di erent characteristics. Brazil does nothave abundant ethane and struggles to remain competi-tive in the production o ethane-related products. However,the current low international oil prices we are seeing meansBrazil is as competitive as it was our years ago.In neighboring Argentina, although the domestic market isaround one quarter the size o Brazil, it has very competi-tive unconventional resources. When companies can provethey can produce high volumes o shale gas, this will lead to

higher investment volumes. Argentina has the opportunityto become very competitive and will be able to export to di -erent markets within Latin America.

Moving north, Mexico has very competitive plants and rawmaterials as it is connected to the North American pricingsystem. The problem is in the short term; all o the country’sadditional ethane will be dedicated to the new Braskem/Idesa Ethylene XXI plant. There ore I do not expect that wewill see additional large investment in the short term untilthis stabilizes. From 2020 onwards we can expect signi icantadditional availability o ethane and this could lead to ur-ther oreign investment in new plants.

What are APLA’s goals for the next five years and howdoes APLA expect to play a role in improving the pros-pects of the Argentine petrochemical industry in fu-ture?In terms o the region as a whole, although emerging coun-tries are not growing at the pace that was predicted a ewyears ago, we continue to maintain con idence in our mar-kets as they grow. The population and spending power oour people is growing and that will present many opportu-nities both or investment and as end markets. This region,which is not homogeneous, is increasingly working togetherthrough APLA to try to become as competitive as possible.

"Regarding Argentina, the country isnow at the right stage to focus on foreign

investment and therefore should be ofinterest to U.S., European and Asian

investors attending our Annual Meeting."



www.gbreports.com


Yet precluding oreign competition was aboon or some o Argentina’s small- and me-dium-sized enterprises, as a vacuum in ser-vices, along with the issuance o credit lines,contributed to business growth in a compara-tively hospitable environment.

In addition to having the second largest shalegas reserves and the ourth largest shale oilreserves worldwide according to the EIA, theprice o Argentina’s oil and gas is vastly differ-ent rom the global norm. As a result o gen-erous state subsidies imposed by Kirchner,Argentina’s hydrocarbons are the most expen-sive in the world, with natural gas per millionBritish thermal units at more than three timesinternational prices. Oil was initially set at $72per barrel in 2013, when global oil prices weretrading at more than $100, meaning Argen-tinians bene itted rom low-cost motor uel;

with the World Bank predicting that global oilprices will stabilize at around $37 per barrelor the remainder o 2016, Argentina’s in lated

rates mean motorists now pay around a thirdmore or gasoline than in neighboring Brazil.Macri’s administration has started to phaseout these subsidies and eliminate the gapwith overseas markets, implementing a 10%decrease in the per-barrel price in the irstweek o 2016. Global players, such as ShellArgentina’s president Teó ilo Lacroze, believethat, rather than regulating the price o oiland gas, the government should incentivize

new production. Although Kirchner’s govern-ment passed the Hydrocarbons Re orm Lawin 2014, aimed at reducing both governmenttakings and taxation levels on new explora-tions, oreign investment was not orthcom-ing due to regulatory uncertainty and a dis-tinct lack o ree-market policies.The petrochemical sector has not seen anindustry-changing investment in almost two

decades and, despite Macri’s re orms, newpetrochemical complexes are unlikely to bein the pipeline or another ten years. Althoughthe door has been opened to oreign inves-

tors looking or the next shale revolution,much-need transportation and in rastructureprojects ailed to win political support in theprevious government; such issues will needto be addressed quickly in order to attract thehigh volumes o oreign capital required.In 2011, as a result o the last government’sinterventionist policies, Argentina became anet importer o energy or the irst time since

1984. Raw material availability was severelydepleted and, as such, petrochemical com-plexes have not been operating at capacity

or more than hal a decade. As this import/

export trend inverts, Argentina will rapidly beable to absorb an increase in the availabilityo eedstocks, while simultaneously investingin the expansion and modernization o plants

or urther growth.I all o Argentina’s estimated unconventionalreserves—802 tc o gas and 28 billion barrelo oil—could be proved as technically recov-erable, its oil production horizon would ex-tend more than 100 years and its gas produc-tion more than 600, setting it on the path notonly to sel -sufficiency, but also to being ableto supply neighboring countries.

Argentina has all the ingredients required tobecome an attractive investment destina-tion or multinational petrochemical players:world-scale reserves, a new government benton normalizing the economy and the capac-ity or rapid production increases. Accordingto the World Bank’s Ease o doing businessIndex, Argentina was ranked in 121st placeout o 189 countries during Kirchner’s secondterm in office. Neighboring Chile ranked 48th,while Mexico, Latin America’s success storyas ar as oreign investment is concerned,ranked 38th. Time will tell whether “Macri-

economics” will achieve the desired effect. Photo courtesy of Bolland y Cía.

"The chemical and petrochemicalindustry in Argentina has a bright future thanks to the quality andsize of the country’s infrastructure,market, technology, an extensivehistory in hydrocarbons, andreneries"

Jorge de Zavaleta, ExecutiveDirector, Cámara de La IndustriaQuímica y Petroquímica (CIQyP)

“Investors looking at Latin America will nd Vaca Muerta in Argentina much more attractivetoday than in previous years. Thebiggest advantage Argentina hastoday, aside from its feedstock,is its new administration and proposed reforms.”

Rina Quijada, Senior Director Latin America, IHS



www.gbreports.com


Miguel GaluccioCEO,YPF

Could you provide us with a brief overview of YPF’s op-erations in Argentina?YPF is Argentina’s leading energy company and is engagedin the exploration and production o oil and natural gas, andthe transportation, re ining, and marketing o petroleumproducts. Over the past three years the company has dem-onstrated solid growth in oil and natural gas production andhas assumed a leading role in developing unconventional

resources. Today, YPF’s products reach every corner o thecountry and we are proud to be present almost everywhereArgentina needs energy.As a ully integrated energy company we are also leaders inthe petrochemical business, operating three strategicallylocated re ineries in La Plata, Buenos Aires; Luján de Cuyo,Mendoza; and Plaza Huincul, Neuquén; we also hold inter-ests in Re inor, located in the province o Salta.Luján de Cuyo is the re inery with the highest conversioncapacity in the country. It can re ine over 105,000 barrels ocrude oil per day (bpd). It produces practically all the prod-ucts marketed by YPF in Argentina, such as diesel (premium

standard, mining and agricultural), naphtha, propane, bu-tane and propylene. In June 2013, an HDS unit and the HTNII unit were installed, with an investment o $170 million and$188 million respectively. Both plants generate diesel ueland gasoline o the highest quality.The La Plata Industrial Complex is one o the most impor-tant re ineries in South America and one o the most dynam-ic industrial sites in the country. It has a re ining capacityo 189,000 bpd. The re inery processes all crude oil typesproduced in Argentina, obtaining a wide range o products.It includes a acility or the production o lubricants bases,para ins, aromatics, asphalt and petrochemical products.It has the capacity to produce 860 cubic meters (m3) o

inished lubricant bases per day. In 2012, and with an in-vestment o $269 million, an HTG B unit was installed, andit currently produces 1.8 billion liters o uels per day. Fur-thermore, the continuous catalytic re orming unit startedoperating in June 2013, increasing by over 50% the aro-matics production, which is used or generating a higherproduction o naphthas and petrochemical products. Theinvestment amounted to $463 million. In order to enhanceproduction, a new $792 million coker unit is being built withthe objective o increasing the re ining capacity to 206,000bpd. We are proud o the outstanding results that this com-plex showed last year in terms o production. The company

achieved a 31-year record in the production o uel and pet-rochemical products.The third re inery is Plaza Huincul, a low-complexity plant thatsupplies the Patagonian and Alto Valle regions. It has a re in-ing capacity o 25,000 bpd. Additionally, the complex includesa acility that produces methanol rom natural gas, with anannual production o 400,000 tons. Methanol is a key inputin the production o bio uels and petrochemical by-products.

What effects will YPF’s recently-announced partnershipwith American Energy Partners have both on YPF’s oper-ations in the Vaca Muerta shale play, and on Argentina’supstream and downstream segments overall? The incorporation o strategic partners responds to the objective o ramping up the unconventional natural gas produc-tion to reach energy sel -su iciency and to expand the pet-rochemical business. Currently, 15% o our gas productioncomes rom tight and shale gas. Our goal is to have 50% oour gas production rom these ormations by 2020 and, withmore gas supplies, we will be able to expand our petrochemi-

cal production. There is an important opportunity to create aregional hub or petrochemical production in Argentina ledby polyethylene, polypropylene and other polyole ins andderivatives. This will make it possible to replace imports andbecome a net exporter o petrochemicals.There is a signi icant market opportunity not only to supplythe country, but also to become a key regional player, due tothe competitive advantage based on natural gas. To what extent does Argentina’s infrastructure pose achallenge to the access of resources and the movementof product and material?In rastructure development remains crucial or the growtho our company and our country. With a large pipeline andpower grids, Argentina is well-connected throughout its vastgeography. To support its development, YPF’s Foundationworks jointly with local governments to upgrade roads, hospi-tals, schools and training centers at the towns located near ouroperations. Argentina also has enormous potential to increasethe capacity o our petrochemical industry, allowing us, in themid-term, to become leaders and regional exporters.

As YPF’s operations are located outside of the populousBuenos Aires province, how does the company supportthe growing demands of Argentina’s chemicals sector in

"This year we are inauguratingY-TEC’s headquarters, a 13,000 square

meter space that will become an iconof innovation to the service of science.With 48 labs and 12 pilot plants, it is

the rst scientic research center of its

kind in the country."



www.gbreports.com


terms of availability of qualified personnel?In order to accompany the challenges acing the petrochemi-cal business, human resources aims to attract and retain toptalent. To this end, YPF has an attractive relocation policythat enables us to reassign pro essionals around the coun-try. We have also signed agreements with universities around

the country to contribute to our pro essional training needs.Young pro essionals join the company through speci ic pro-grams, and we have implemented paid work experience pro-grams and internships in order to increase numbers o engi-neering students and promote technical education within ourcommunities.

Could you tell us more about Y-TEC, YPF’s research anddevelopment arm, and some of its recent advances intechnology?Y-TEC was created thinking about what the uture holds or thisindustry. Together with CONICET (National Scienti ic and Tech-nical Research Council), the company has the objective to re-search and develop advanced technology to cover the needs othe Argentinean oil and gas industry. As well as our signi icanttechnology advances, we are working together with research-ers rom CONICET and several Argentinian universities.Over the last three-and-a-hal years the company has grownexponentially. It started with 80 employees and today it hasmore than 300 scientists, researchers, technicians, academ-ics and consultants. This year we are inaugurating Y-TEC’sheadquarters, a 13,000 square meter space that will becomean icon o innovation to the service o science. With 48 labsand 12 pilot plants, it is the irst scienti ic research center o itskind in the country.

Regarding the petrochemical segment, we created new poly-meric materials that will give us creative solutions to the in-dustry’s needs. For example, polymers with oleophilic andhydrophobic characteristics could solve environmental is-sues. We are also studying new technology to obtain internalole ins to produce sur actants or enhanced oil recovery. Ad-

ditionally, we have started work on a product that includesa new catalyst to obtain acrylonitrile, a key element or theproduction o several derivatives o great signi icance or theindustry. Another milestone was the design o the uel thatwas used in the Tronador project, which put national satel-lites in orbit. This research was conducted entirely by Y-TEC,and we are now building a plant to produce this uel. With YPF’s focus on its shale gas resource, where canwe expect to see Argentina’s petrochemicals industry inthe next ten years? Today our company is the main producer o petrochemicalsin Argentina. The YPF Chemicals business leads the domesticmarket and also exports its products to international marketssuch as the United States, Europe, Mercosur and the rest oLatin America.One o the key points o YPF’s strategy is to oster the devel-opment o natural gas in order to boost the petrochemicalindustry. We consider that this sector will generate addedvalue to the gas industry and the possibility o developingdeposits that today are less viable. Looking ahead to 2030,Argentina can trans orm itsel into a regional leader in pet-rochemicals because it provides the products our neighbor-ing countries need, as they do not have access to certaincommodities.

Photo courtesy of YPF.



www.gbreports.com


Marcos SabelliChemical Executive Manager, YPF

Could you tell us more about YPF’s petrochemical clientsand the global markets which the company supports?YPF exports to countries throughout South America, Europe,and the United States. Nevertheless, YPF mainly exports toBrazil. Though commercial travel rom Buenos Aires to thenorth o Brazil is sometimes more expensive than to Rotter-dam or Houston, it makes sense to export to Brazil and otherMercosur countries given the common external tari (and

the distance o Argentina rom the rest o the world). YPF´spetrochemical complexes are strategically located close tocompetitive supply routes; it there ore makes sense to urtherintegrate with the south o Brazil, with which Argentina caneasily exchange goods and raw materials.YPF’s Argentine and Brazilian clients are similar, and includeother petrochemical companies that buy YPF’s basic andintermediate chemicals as well as trans ormers that buythe company’s specialty products or applications urtherdownstream. Some o YPF’s important clients in Argentina in-clude Unilever, Procter & Gamble, Petrobras and Río Tercero,among others.

Why has YPF decided to focus on increasing its aromat-ics production capacity in recent years?The investment in increasing YPF’s aromatics production ca-pacity re lects the company’s strategic ocus on vertical or-ward integration. YPF’s investments, whether they relate toacquisitions or to capital expenditures, look to take ull advan-tage o the raw materials the company already produces. Since2010, Argentina has been short in gasoline and gasoline com-ponents. Yet YPF has been in naphtha or many years and wasone o the main suppliers o naphtha eedstock to Braskem inBrazil. Given the abundance o naphtha as a eedstock or aro-matics, it made sense to invest $450,000 in a new continuouscatalytic re ormer unit or the production o aromatics.

How will YPF’s downstream segment take advantage ofthe increased production of unconventional natural gas?Part o YPF’s strategy involves the direct integration o thecompany’s upstream natural gas production with its petro-chemical production, without the need or a re inery. As pet-rochemical companies in the United States have done, YPFhopes to take advantage o the rich gases produced rom un-conventional gas ields.Argentina is already rich in gases such as ethane, propane,and butane. Regarding ethane, Dow Argentina and other

companies use much o it as eedstock and the rest is usedas uel; propane, meanwhile, is exported by Argentinian com-panies. As unconventional natural gas production increasesin the short and medium term, Argentina will be increasinglyable to supply the country’s domestic gas needs and de-crease natural gas imports both as LNG and rom Bolivia. Nowthat YPF has urther increased its production o aromatics, thecompany’s next strategic goal is to supply Argentina and the

region with petrochemical products rom competitive naturalgas liquids.

What is YPF’s vision for the petrochemical industry in Argentina?YPF is the engine o the petrochemical industry in Argentina,being the irst petrochemical producer in Argentina and oneo the top three in the South American market. Though Ar-gentina exports or burns some petrochemical eedstock, thecountry continues to import many specialty petrochemicals.YPF wants to lead Argentina not only to energy sel -su icien-cy, but also petrochemical sel -su iciency. A ter ully supply-

ing the domestic market, YPF wants to lead the Argentinepetrochemical industry to becoming an important supplier inSouth America.

Argentina has not seen an industry-changing invest-ment since the late 1990s. Will YPF make the next big in-vestment in Argentina’s petrochemical industry?YPF aims to build a world-scale petrochemical plant. Eveni Argentine demand or petrochemicals may not justi y theconstruction o a world-scale plant, uture regional demanddoes. Once Argentina, Brazil, and other countries in the re-gion resume growth, there will be a huge petrochemicalmarket to supply.The success o YPF and Argentina’s petrochemical businessrests on our pillars: abundant eedstocks, a strong market,a world-scale plant, and a world-class partner. The develop-ment o Argentina’s unconventional oil and gas industry willsupply the raw materials, and South America will provide themarket demand. Yet Argentina still needs a world-scale plantto supply that market and YPF still needs to solidi y a world-class partner. YPF would give and take rom such a partner-ship. YPF would take advantage o the partner’s expertise inproducts such as polyethylene, while the partner would takeadvantage o YPF’s proven ability to oversee billion-dollarprojects and to run petrochemical plants in Argentina.

"YPF wants to lead Argentina not onlyto energy self-sufciency, but also

petrochemical self-sufciency. After fully supplying the domestic market, YPF

wants to lead the Argentine petrochemical

industry to becoming an importantsupplier in South America.



www.gbreports.com


Gastón Remy President, Dow Argentina

How important are Dow’s Argentinian operations to thecompany’s global corporate strategy?Dow’s subsidiary in Argentina is the company’s sixth largest inthe world, even though Argentina is the world’s 24th largesteconomy. As a result, Dow Argentina is disproportionately rep-resented in terms o Dow’s business presence in Argentina. Thisis because the company operates in two key plat orms o theArgentine economy. On the one hand, Dow is the third largest

player in the agribusiness; while on the other, Dow is the largestand best-integrated petrochemical player in the hydrocarbonvalue chain, especially thanks to the company’s plastics busi-ness. A third plat orm under development in Argentina relatesto in rastructure and mining, or which Dow has both solutionsand technologies.Dow’s success in Argentina is the product o the nexus amongthe country’s own competitive advantages in the agribusinessand hydrocarbon industries, the alignment o Dow’s core busi-ness with these two industries, and Dow’s reputation and pres-ence in Argentina.

How important has Dow been to the development of Ar-gentina’s petrochemical industry?Dow has been recognized as the leader o Argentina’s petro-chemical industry or the last 60 years. Throughout the com-pany’s leadership, Dow has o ten been a irst-mover within theindustry and is deeply committed to supporting Argentina’sdevelopment and to the company’s sustainable growth in thecountry.Counting the direct and indirect employees that contribute tothe company’s operations, Dow employs 3,800 people. As akey strategic industrial partner, Dow has invested more than$2 billion during the last 15 years. Its strong per ormance re-sulted in sales o more than $2.4 billion in 2014 and exports thatsurpassed $600 million, strengthening Argentina’s commercialbalance and replacing imports with local production.

What impact would a shale revolution have on Argenti-na’s petrochemical industry?To understand the impact o a shale boom on Argentina’seconomy, it would be use ul to recall the impact that such aboom had on the petrochemical industry in the United States.From 2007 to 2009, petrochemical acilities were shutting downin the United States and companies were thinking about mov-ing operations to other regions, such as the Middle East. Now,the American petrochemical industry has $140 billion worth o

investments in more than 100 ongoing projects, has created700,000 connected jobs, and will move rom a trade de icit inpetrochemical products to a surplus o $30 billion by 2018.When compared to Argentina, the United States has a popu-lation that is seven times bigger and an economy that is 32times larger. And yet, the shale resources o the United Statesis 82% the size o Argentina’s. Moreover, the vast majority othese resources are located in Neuquén, whose advantages

include abundant water resources, a century-old hydrocarbonindustry, connection with pipelines and, unlike some areas inthe United States, relative under-population. The impact o theshale boom in the United States had a pro ound impact on itspetrochemical industry, but imagine the impact that such aboom would have in Argentina, where the ratio o resources toeconomic output and population is much larger. Even i Argen-tina underachieves, the impact could still be massive.

What will Dow’s leadership look like in Argentina in theyears to come?In 2015, Dow launched seven sustainability goals to help re-

de ine the role o business in society. The irst goal is to leadthe blueprint by which Dow aims to lead the development oa societal blueprint that integrates public policy solutions, sci-ence and technology, and value chain innovation to acilitatethe transition to a sustainable planet and society.Pursuing sustainability means that uture generations will bebetter o as a result o our decisions. Many well-meaning busi-ness, government and societal stakeholders around the worldare working toward sustainability through individual actions,but we have not yet all come together to de ine and deliver acoordinated blueprint. On a path to a sustainable society andplanet, e orts must be combined into one proactive, compre-hensive strategy and implementation blueprint.Dow is committed to helping lead this transition. As the worldleader in combining the power o science and technology topassionately innovate what is essential to human progress,Dow will advance sustainability by collaborating at the inter-sections o business, government and society – with everyone

rom customers, suppliers and other industry stakeholders, togovernments, non-governmental organizations (NGOs), educa-tional institutions, communities and civil society.Recalling the abundance o Argentina’s unconventional re-sources and Dow’s early participation in their development, Icannot think o a country where Dow is better poised to leadthe blueprint.

"The impact of the shale boom in theUnited States had a profound impact on its

petrochemical industry, but imagine theimpact that such a boom would have in

Argentina, where the ratio of resources toeconomic output and population is much

larger. Even if Argentina underachieves, theimpact could still be massive."



www.gbreports.com




www.gbreports.com


Manuel DiazExecutive Director, APLA

What changes have you seen in Argentina’s chemical in-dustry during the last two years and how important arethe chemical and petrochemical industries to the coun-try’s growth and success?In my opinion, the main change occurred when YPF starteddeveloping Vaca Muerta in partnership with Dow Argentinaand other international companies. The petrochemical in-dustry has elt the eedstock de icit the most and there ore

any opportunity to increase our production o raw materi-als and gain investment is positive. We can compare VacaMuerta to the shale plays in the United States, although ourability to gain immediate oreign investment is dissimilardue to our smaller domestic and regional market. As well asworking capital, we also gain expertise rom companies withexperience working in the United States. We will not see anovernight revolution here as in North America, but we canimmediately increase our production due to the country’sunused capacity.

Could you explain the reason behind APLA’s decision to

hold the 2016 Annual Meeting in Buenos Aires?The main reason is the current economic and political situationin Argentina. It is a good opportunity to showcase Argentina’spotential to the 1,000 attendees we expect to host, who aremostly decision-makers and high-level executives looking to in-vest in the region. The 2015 Annual Meeting was held in Cancunas a result o the new Ethylene XXI plant in Mexico, which wasthe most important investment in Latin America at that time.The next opportunity now resides in Argentina, as the economicsituation has improved with the change in government.

What effect will an increase in production in Argentinahave on neighboring countries?It will impact all o the region because Brazil uses naphtha

eedstock as a raw material, while Argentina uses natural gas.We will not only be able to supply the demand in the domes-tic market, but will also be able to export the over-supply ohydrocarbons to neighboring markets in Chile, Paraguay andUruguay. Our main product is ethane, which can be producedin abundance using shale gas, and we will also be able to de-velop a range o petrochemical products or export. The pet-rochemical industry has a long history in Argentina and theextent o the Vaca Muerta reserves will rejuvenate this. Withthis eedstock, we can invite oreign investors to allocate capi-tal to Argentina and develop uture world-class projects.

What are some of the challenges that could impedegrowth of the Argentine petrochemical industry?One o our biggest challenges is in rastructure investment. Wecurrently have high logistics costs due to a lack o investmentin the country’s in rastructure in recent years, particularly whentrading with neighboring markets. The ports in particular re-quire modernization; i we can increase capacity, our competi-tiveness as a major player in Latin America will greatly improve.

APLA also hosts an annual logistics meeting; or 2016 this takesplace in Panama, as the expansion o the Canal this year a ectsthe transportation plans o the whole Latin American region.In terms o Argentina’s network o gas pipelines, it is good, butnot good enough. It is very easy to add new production to ourexisting in rastructure, but we need to improve the capacity othese pipelines to accommodate the increased production onatural gas that we will see in the country. In this regard, wecan learn rom the Eagle Ford shale play in Texas, which is oa similar pro ile to Vaca Muerta.

Does APLA have any initiatives in place to increase the

availability of a skilled workforce in the region?All o Latin America aces a problem in terms o technicaleducation, not just Argentina. It is essential or APLA to workclosely with universities and the government to provide peo-ple with these skills, and APLA, in association with IPA andthe University o San Martin, o ers seven scholarships in thepetrochemical industry to post-doctoral students rom anycountry in Latin America. In order to ensure the availability oquali ied personnel or the uture development o the indus-try, we need to train people now.In terms o a technically trained work orce, Argentina hasbeen working or a long time, through organizations such asY-TEC and CONICET, to develop new technology. The Ministryo Science, Innovation and Technology is also working hardto develop our scientists and engineers o the uture.

Where can we expect to see the petrochemical industryin Argentina in the medium term?Argentina is laying the oundations to prepare or uture in-vestment through opening the market, improving in rastruc-ture and demonstrating Argentina’s reputation as a business-

riendly country. It is the ocus o this government to gaininvestments in various industries, with the petrochemicalsector being a key area or growth. I hope to see important,world-class investment in Argentina over the next decade.

" We can compare Vaca Muertato the shale plays in the United

States, although our ability to gainimmediate foreign investment is

dissimilar due to our smaller domesticand regional market. We will notsee an overnight revolution here

as in North America, but we canimmediately increase our productiondue to the country’s unused capacity.



www.gbreports.com


The shale gas revolution in the United Statesreinvigorated the country’s stagnating pet-rochemical industry, turning around its or-

tunes in less than hal a decade. Lookingurther south in the American continent,

the world’s third largest proved shale gasreserves in Vaca Muerta could see the “DeadCow” reviving to breathe new li e into Argen-tina’s lagging industry.The country boasts the three actors requiredto develop any petrochemical industry: read-ily available eedstocks, access to technolo-gy, and a receptive domestic market, accord-ing to Ignacio Millan, president at InstitutoPetroquimica Argentino (IPA). Although theU.S. Energy In ormation Administration’sstudies showed Argentina’s potential in 2013,estimating its shale oil reserves at 27 billionbarrels and shale gas reserves at 802 trillioncubic eet (tc ), the Peronist administrationin power had closed the doors to externalinvestors. With the election o business-

minded President Mauricio Macri at the endo 2015, the ourth and inal actor appearsto be in place to implement a distinctly His-

panic shale revolution.It was, however, international action whichled to the establishment o Argentina’schemical industry, as explained by EnriqueGrotz, partner and oil and gas leader at EY:“The military began this industry in 1942 as aresult o the war effort, but the Armed Forcesonly consumed around 4% o the total manu-

actured chemicals.”As was the case more than hal a century ago,when international relations were key to thedevelopment o the petrochemical indus-try in Argentina, the same is true now. WithMacri ending the isolationist policies o or-mer president Cristina Kirchner, which led toArgentina becoming a net importer o energyand lacking enough raw materials to eed itscrackers, the door to oreign investment hasbeen lung wide open.

This will not, however, lead to the type o trans-ormative activity seen in the United States in

recent years, or even to the next Ethylene XXI

plant, as in Mexico; more than a decade odamaging government policy and a poor rep-utation with organizations such as the Inter-national Monetary Fund mean Argentina hassome way to go be ore it can attract the hugesums o money required. Although EY’s Grotzstated six oreign companies are conductingdue diligence into Argentinian companies atpresent, ellow EY partner Germán Cantalupihas highlighted the need or greater clarity inthe economic landscape in order to see moreactivity: “The uncertainty is related to the pric-ing o raw materials, which is a political ratherthan a market issue in Argentina. I the govern-ment puts different regulations and taxes onraw materials it will affect prices,” he said. “No-body wants to move irst, so a lot o researchand investigation is being conducted but noth-ing concrete is taking place.”

Falling into place: Argentina’s petrochemical industry

Photo courtesy of AESA (A-Evangelista S.A.).



www.gbreports.com


INDUSTRY BEGINS AT HOMEArgentina’s national energy company isYacimientos Petrolí eros Fiscales (YPF),which began its chemical operations in1944. Government mismanagement o as-sets created $6 billion in losses and to the

restructuring o the company in the early1990s, which led to an almost 80% reductionin its work orce. The company then enteredprivate hands or almost two decades rom1993. In 2012, a ter 13 years o ownership bySpanish energy company Repsol, the Kirch-ner government re-acquired the company inan attempt to reverse the declines in outputwhich had led to Argentina becoming a netimporter o energy a year previously. MiguelGaluccio, an Argentine petroleum engineerwho had worked at YPF until the Repsol buy-out in 1999, be ore taking up international

positions with oil ield services provider Sch-lumberger, was installed by Kirchner as thecompany’s new CEO.Following the re-nationalisation o the com-pany, YPF re-organized its reporting structureto create a new downstream segment, empha-sising the importance o the petrochemicalindustry to YPF’s operations. “The petrochemi-cal sector has enormous potential in Argentinaand is a key part o the company’s growth strat-egy in an industry which is competitive on aregional level,” explained Marcos Sabelli, YPF’schemical executive manager.The company owns two petrochemical com-plexes in Argentina: the La Plata IndustrialComplex (CILP) in Ensenada, Buenos Airesprovince, which has both a re inery and apetrochemical plant, and one in Plaza Huin-cul, to take advantage o the Vaca Muerta

Fernando Caratti, General Manager,Re inor

shale play in Neuquén province. It also owns

a 50% stake in Pro ertil, one o the largesturea and ertilizer plants in the world, locatedin Argentina’s chemical heartland, the porttown o Bahía Blanca.Sabelli stated that YPF’s next goal is to in-crease supply o petrochemical productsderived rom natural gas liquids in order toreduce the country’s dependency on imports

rom Bolivia. Re inor (Re ineria del NorteS.A.), ormed in 1992 as part o the YPF pri-vatisation process, is the only downstreamcompany in the Argentine northwest region.Its Campo Duran plant is linked to Bolivia bythe Juana de Azurduy pipeline, constructedin 2011, and has been the sole operator othe eedstock Argentina receives rom Boliviasince 2012. “The possibility to increase gasimports rom Bolivia was a good opportunity

or Re inor, considering our strategic loca-

tion,” said Fernando Caratti, Re inor’s gen-

eral manager. “Since then, the company hasstarted to process Bolivian gas to make up orthe decrease in domestic gas production.”Re inor has seen eedstock availability de-cline by two-thirds since 2005 and is now op-erating at one third o its available capacity– a problem acing many o Argentina’s pet-rochemical producers. “The Argentine petro-chemical industry experienced our waves oinvestment, the last o which occurred in thelate 1990s and early 2000s,” said IPA’s Millan.“Since then, the industry’s main constrainthas been a lack o eedstock.”Despite dwindling supplies o raw materials,companies have attempted to improve yield

rom the hydrocarbons available. YPF invest-ed more than $450 million in a new continu-ous catalytic re ormer unit at CILP to doubleits capacity or producing high-value aromat-

Marcio Sanita de Azevedo,General Manager, Braskem Argentina



www.gbreports.com


ics, used or generating the petrochemicalsbenzene, toluene and xylene, rom low-valuenaphtha. According to Rina Quijada, seniordirector Latin America at consultancy IHS,the Argentine petrochemical industry will behighly dependent on imported aromatics inthe short term, as gas-based petrochemicalscould increase production capacity or ole-

ins and derivatives. ,

SELF-SUFFICIENCY As Argentina’s national energy company, andthe third largest petrochemical producer inSouth America, YPF wants to lead Argentinato energy sel -sufficiency. A ready supply ohydrocarbons would also allow or the countryto be sel -sufficient in terms o petrochemicalsand improve its manu acturing base. YPF’s Sa-belli recognises the building blocks required toachieve YPF’s plan: “The success o YPF and Ar-gentina’s petrochemical business rests on ourpillars: abundant eedstocks, a strong market,a world-scale plant, and a world-class partner.”By developing Argentina’s unconventional oiland gas industry, a steady supply o raw ma-terials can be ensured, while the wider SouthAmerican market has the demand. A world-scale plant has yet to be built but, in orderto do so, it seems likely that companies will

need to work together. In August 2015, YPF an-

nounced its intention to acquire a 46% stakein Petroquimica Cuyo and 50% o Lyondell-Basell’s Petroken or a total o $122 millionBy the end o the year, however, the deal had

allen apart. The Argentine Central Bank’s lacko physical dollars meant YPF could not com-plete the transaction. “YPF’s inability to makeeffective the necessary payments on due time[means the deal] in my opinion is not very like-ly to be put back to li e,” commented Jorge R.Sampietro, general manager at PetroquimicaCuyo.The acquisition would have not only allowedYPF to gain synergies, with PetroquimicaCuyo and Petroken having acilities in closeproximity to YPF’s plants in Luyan de Cuyoand Ensenada respectively, it could also havepaved the way or the world-scale plant YPFwants and Argentina needs. “The economieso scale ostered by such a consolidation could

acilitate the development o a project or theconstruction o a new PP plant that would en-sure the supply o domestic demand and gen-erate export availabilities,” said Sampietro onthe merger’s advantages.YPF does, however, have several partners inthe energy sphere already. As well as U.S.-based Chevron and Malaysia’s national energycompany Petronas, with whom it is already

working on oil and gas projects in the Neuquen

"In terms of innovation, thechemical service sector iscontinuously evolving; not onlybecause of the different needsof mature oil elds, which makeup the majority of the eldsin Argentina, but also due tounconventional elds such asVaca Muerta."

Adolfo Sánchez Zinny, Commercial Administration Manager, Bolland

"Opening up Argentina to theworld in terms of foreign trademay lead to greater productivity inour supply chains. Currently, the ports are only operating at 50%of their capacity, and thereforethey will be able to double thevolumes they handle without any problems."

Hernán Sanchez, CommercialDirector, Celsur Logística



www.gbreports.com


Basin, YPF’s latest collaborator is American En-ergy Partners. The two companies signed a$500 million, 50/50 agreement at the start o2016 to conduct exploration and developmentprojects in Vaca Muerta. Such partnershipsshould ensure an ample increase in produc-

tion to supply not only YPF’s partnership withDow Chemical, in which the ormer suppliesthe latter’s gas demands, but also other petro-chemical operations across the country.

SPECULATE TO ACCUMULATEDow’s presence on the Argentine petrochemi-cal scene is, at around six decades, almostas long and proli ic as YPF’s. Despite recent

eedstock challenges, the country remainsdisproportionately represented within Dow’sglobal strategy. “Dow’s subsidiary in Argen-tina is the country’s sixth largest in the world,

even though Argentina is the world’s 24th larg-est economy,” said Gaston Remy, president atDow Argentina. “Dow has been recognized asthe leader o Argentina’s petrochemical indus-try or the last 60 years.”Dow’s main production site is its 120-hect-are petrochemical complex in Bahia Blanca,in which it invested 450 million pesos or ex-pansion in November 2014. In a shock moveupstream, Dow signed a $350 million jointventure agreement with YPF to explore the ElOrejano gas ield in Neuquen eighteen monthspreviously. “[Its] advantages include abundantwater resources, a century-old hydrocarbonindustry, connection with pipelines and, un-like some areas in the United States, relativeunder-population,” explained Remy o the de-cision to invest in exploration. “Dow has ofenbeen a irst-mover within the industry and isdeeply committed to supporting Argentina’sdevelopment and to the company’s sustain-able growth in the country.”Dow and YPF reaffirmed their commitment toArgentina in late 2015, adding a urther $500million to their exploration und or the El Ore- jano site. Estimates suggest production couldreach an average o two million cubic metersper day by the end o 2016 - three times cur-rent levels. IPA’s Millan believes Argentina’spetrochemical industry is worth the invest-ment: “Investors should recall the irst moveradvantage. Those that take the risk in heavilyinvesting in an opportunity be ore others arethose that later reap signi icant pro it.”

EVERYBODY NEEDS GOOD NEIGHBOURSAs well as the bene its or Argentina romcompanies joining orces, IPA also considers

Argentina working more closely with neigh-

boring Brazil on bi-national projects as bring-ing certain advantages. This would increaseArgentina’s domestic market – an attractiveprospect or potential investors. “A greateragreement between Brazil and Argentina,in terms o export, shared trade and manu-

acture, would be very convenient or bothcountries in uture due to their close proxim-ity,” suggested Al redo G. Friedlander, IPA’sexecutive director.With a population o more than 200 millioncompared to Argentina’s 43 million, Bra-zil has the largest domestic market in LatinAmerica. All the countries in the SouthernCone are net importers o polymers andother petrochemicals, re lecting a strong re-gional demand that could be satis ied withincreased local production.Brazil’s Braskem, which claims to be the larg-est polypropylene producer in the Americasand the largest polyethylene (PE) producer inLatin America, maintains a presence in Argen-tina to both serve its clients across the South-ern Cone, and as a lucrative end- market or itsproducts. “Argentine demand or PP exceedsdomestic production capacity, so the industryneeds PP imports rom Braskem to continue to

run smoothly. At the same time, Argentina hasa trade de icit in high-density PE,” explainedMarcio Sanita de Azevedo, general manager atBraskem Argentina.While Braskem’s PP production capac-ity reaches almost two million tons per year

(tpy), its Argentine competitors PetroquimicaCuyo and Petroken produce a combinedtotal o only 310,00 tpy. With the Brazilianeconomy slowing down at the same time asArgentina’s is opening up, Brazil could acean oversupply o PP, leading Braskem to in-crease its exports to its southern neighbour.In turn, Petroquimica Cuyo and Petrokencould initially struggle to remain competitiveuntil they are able to up their production,which will require additional steady supplieso raw materials.Braskem’s bet on the uture o Argentina’sabundant unconventional hydrocarbon re-sources also led Braskem to make a play orSolvay Indupa, the corporation’s Argentineproducer o PVC and soda; the purchase washowever vetoed by Brazil’s competition au-thority in November 2014. Despite this, de Aze-vedo considers Argentina an important market

or Braskem into the uture and the company’s



www.gbreports.com


strategy in this regard is to act as a local play-er, recognising the mutual bene its in cross-country trade: “Braskem imports naphtha

rom Argentina and exports back polymers.For Brazil, Argentina is a natural market andBraskem tries to see Argentina as an internal

market,” said de Azevedo. A FUTURE INVESTMENTAwareness among oreign companies othe potential in Argentina’s unconventionalhydrocarbons, combined with the new ad-

ministration’s ocus on promoting growthwithin the petrochemical industry, suggestsit is only a matter o time be ore Argentinaachieves the investment required to kick-start new developments along the entireenergy stream. However, Argentina’s growth

could be hamstrung by a lack o quali iedpersonnel to sta new sites, and the humanresource is described by IPA’s Millan as oneo the major challenges or Argentina’s pet-rochemical industry. “The petrochemical in-dustry employs more than 100,000 people,

and most o them have quali ications ortheir role. Around 30% are engineers or otherskilled operators,” said Millan.Argentina’s current output o students withan engineering degree is around 6,000 to8,000 per year; a new petrochemical com-

plex would require around 10,000 to 15,000new engineers, o a total o around 50,000new technically skilled employees. Overthe seven-year time rame it would take toconstruct a new petrochemical complex,around 20% o those graduates would needto assume one o those roles on an annualbasis. “A new petrochemical complex andthe resulting downstream industry wouldpresent an additional high demand orquali ied personnel. Thus, the petrochemi-cal industry would be competing in a highlycompetitive environment in order to recruit

the best talent,” he continued. “New capacityin the United States is expected to increaseplastics industry employment by more than20%, while each o those jobs generates a

urther 6.3 new employee roles in the rest othe economy.”The problem is, however, not unique to Ar-gentina and the Association o Petrochemi-cals and Chemicals in Latin America (APLAhas established a distance postgraduatelearning program or students rom acrossthe region. “It is essential or APLA to worclosely with universities and the government

to provide people with these skills and APLA,in association with IPA and the National Uni-versity o San Martin, offers seven scholar-ships in the petrochemical industry to post-doctoral students rom any country in LatinAmerica,” explained Manuel Diaz, APLA’s executive director.The two-year course is taken by around 30students per year, around hal o whom come

Rodol o Perez Wertheim,

Director General, Meranol



www.gbreports.com


rom Argentina. It is aimed at replicating thetechnical knowledge ound in other leadingpetrochemical industries worldwide, as stu-dents are required to have a degree in a STEMsubject be ore starting the course. “The pro-gram is designed to help higher education

pro essionals with their general knowledgeo the petrochemical industry, providing con-ceptual categories, decision parameters andpatterns o action that allow them to improvetheir pro essional per ormance,” commentedIPA’s Friedlander.YPF too has taken steps to attract and retainthe necessary pro essionals to accompanyits growth, not least by providing assistancewith relocating personnel to its various sitesacross the country. The company has alsosigned agreements with Argentine univer-sities to develop and train its work orce o

the uture. “Young pro essionals join thecompany through speci ic programs, andwe have implemented paid work experi-ence programs and internships in order toincrease numbers o engineering studentsand promote technical education within ourcommunities,” explained YPF’s CEO, MiguelGaluccio.The need to ensure Argentina keeps pacewith global technology in the energy sphereis being advanced by Y-TEC, a research anddevelopment (R&D) organization establishedby YPF and the National Scienti ic and Tech-nical Research Council (CONICET) in 2013.Its aim is to reduce costs across Argentina’senergy stream by developing home-growntechnologies, rather than importing them

rom abroad. “For example, polymers witholeophilic and hydrophobic characteristicscould solve environmental issues. We arealso studying new technology to obtain in-ternal ole ins to produce sur actants or en-hanced oil recovery. Additionally, we havestarted work on a product that includes anew catalyst to obtain acrylonitrile, a keyelement or the production o several deriva-tives o great signi icance or the industry,”continued Galuccio.Two years afer its inauguration and YPF’soriginal R&D team o 75 people has been bol-stered to around 350 researchers based at anew, 495 million peso Science and Technol-ogy Center within YPF’s La Plata complex.The space has around 60 dedicated laborato-ries, ocusing on the our areas o upstream,downstream, renewable energy and materi-als engineering. CONICET’s 10,000 research-ers and capabilities nationwide are also

available to work on Y-TEC projects.

POLITICALLY ADVANTAGEDDetermined local players, interest rom acrossLatin America and an awareness o the re-quirement or a trained work orce have beenin place in Argentina or a couple o years; thecomplementary actor is a supportive govern-

ment, which is set to change the ortunes othe petrochemical industry. “Investors look-ing at Latin America will ind Vaca Muerta inArgentina much more attractive today thanin previous years,” said IHS’s Quijada. “Thebiggest advantage Argentina has today, aside

rom its eedstock, is its new administrationand proposed re orms.”The government now needs to create a politi-cal environment conducive to oreign invest-ment by promoting reedom or chemicalcompanies to operate and improving links

between Argentina and other economiesworldwide. According to Rodol o Perez Wert-heim, director general at chemical manu-

acturer Meranol, there is no time like thepresent or the government and the energyindustry to come up with a strategy or uture

The Latin American Petrochemical and Chemical Association, headquartered in BuenosAires, represents companies involved in the a orementioned industries across the region.Active member companies operate in Latin America, while associated members provideservices to the petrochemical or chemical industries or directly manu acture chemicals butoperate outside o the region.The association has seven objectives, including the production o reports and researchstudies on the industry, training and developing the work orce required or the industryand promoting a spirit o mutual cooperation between its member companies and otherindustry associations and relevant organizations. “Our two most important eatures or ourmembers are the opportunity to network and the relevant in ormation on the industry.Furthermore, our most important event is the Latin American Annual Meeting, at which at-tendees can meet and interact with different companies rom all over the world to developbusiness and share ideas,” explained Jose Luis Uriegas, APLA’s president.APLA celebrated its 35th anniversary in 2015 and held its annual meeting in Cancun, at-tended by around 1,000 decision-makers and high-level executives rom the Latin Ameri-can region and beyond. A third o participants were rom the United States, highlighting the

importance o countries such as Mexico, Brazil and Argentina to oreign investors. “Attend-ees rom North America are looking or opportunities that could arise rom Latin Americaboth as a potential market or their extra capacity, and as an opportunity or new produc-tion projects across the region,” he continued.The act that the 36th annual meeting takes place in Buenos Aires between 20th and23rd November this year was no accident, as Uriegas explains: “This has been a strategicchoice; Argentina is in a burgeoning position because o its unconventional resourcesin areas such as Vaca Muerta. Additionally, the new government is more open to oreigninvestment and promoting the industry, which will enable the country to take advantageo its huge oil and gas reserves.”Global consulting irm IHS holds a one-day Latin American Petrochemical and PlasticsCon erence annually, which always takes place the day be ore APLA’s Annual Meeting. Themain event or IHS, which provides solutions or oil-related and petrochemical derivative

industries, is its annual World Petrochemical Con erence (WPC), which takes place in Hous-ton prior to the AFPM’s American Fuel and Petrochemical Manu acturers event in March2016. According to IHS’s senior director Latin America Rina Quijada, the WPC also includesa speci ic, one-day Latin American Petrochemical Summit.The mood o Latin American experts, then, is optimistic. Mexico’s joint petrochemical ven-ture between Braskem and Idesa is in start-up mode and the country is undergoing energyre orms which will make it easier or natural gas rom the United States to enter the country.Further south, Argentina could be the next big player: “Argentina is laying the oundationsto prepare or uture investment through opening the market, improving in rastructure anddemonstrating Argentina’s reputation as a business- riendly country. It is the ocus o thisgovernment to gain investments in various industries, with the petrochemical sector beinga key area or growth. I hope to see important, world-class investment in Argentina over thenext decade,” said Manuel Diaz, APLA’s executive director.

Focus on APLA



www.gbreports.com


growth: “The chemical industry depends onoil and gas and, at present, Argentina has ade icit in this matter. I the government agreesto supply energy to the whole industry, it willencourage the chemical industry to investin different products. We believe that this is

going to happen, there ore we think that theright moment to invest in the market is now.”Not all o Argentina’s petrochemical plantsare currently operating at ull capacity and, atpeak periods, some are unable to operate be-cause o the lack o eedstock. It was reportedDow was orced to cease operations at twoo its PE plants in October 2015 while, duringwinter, households and petrochemical com-plexes compete or available raw materials.“The winters o 2012 and 2013 were particu-larly challenging as household demand ornatural gas was particularly high and the gov-ernment prioritized supplying householdswith natural gas,” said Javier B. Sato, com-mercial manager downstream at Petrobras.Argentina there ore already has the capacityavailable to increase production without theneed or signi icant investment, be ore invest-ing in moderate expansion works over thenext three years. This will allow time or the

various upstream projects to get underwayand or commodity prices to rise, stabilisingthe market in Argentina and demonstratingto those companies currently sitting on the

ence to commit to pro itable joint venturesor the uture. EY’s Grotz takes a long-term

view on the petrochemical’s current situation:“In around ten years we will see Argentina be-come sel -sufficient in terms o hydrocarbons,which will positively impact the petrochemi-cal industry. We then need to ocus on export-ing - Argentina currently only exports around0.8 million tons o product per year - but thisdoes not make economic sense today.”With all o YPF’s activity on the explorationand production side, as well as in R&D, com-bined with its partnerships over the last ewyears, the company’s aspiration is clear. “Theincorporation o strategic partners respondsto the objective o ramping up the uncon-ventional natural gas production to reachenergy sel -sufficiency and to expand the pet-rochemical business,” commented Galuccio.“We’re getting closer to realizing our objec-tive o energy sel -sufficiency by putting intoproduction the resources that can change theenergy uture o our country.”

"AESA is one of the fewcompanies in the region withcapabilities to develop projectsthat includes engineering,equipment manufacturing,construction and operation of facilities on both sides of the oiland gas industry: upstream anddownstream."

Adrián Mascheroni, General Manager, AESA


21/26



www.gbreports.com


niche markets,” continued de la Roza. “I [Ar-gentina’s openness] continues, the chemicaldistribution market is likely to see some con-solidation.”

LOCAL LEANING

Local players have been able to tailor theirproduct offering to the idiosyncrasies o theArgentine market. The services they providewill be difficult or multinational distributors,with their various levels o management, toreplicate. Having been locked out o global ex-change markets, producers have struggled toaccess the capital they require and indepen-dent transportation providers such as HenryHirschen (HH) have been able to plug the gap.“The difficulties that Argentine companieshave aced in accessing international inanc-ing has made HH’s inancing services all the

more important,” said the company’s director,Tomas Hirschen.Grupo Simpa, a raw materials distributor orplastics convertors established in 1978, hasbeen able to leverage Argentina’s inancialinstability to become the largest petrochemi-cal distributor in the country, with a 55%share o the plastics distribution market. Aspetrochemical companies such as Petro-ken and Petrobras were unwilling to supplyproduct on credit, and seeing that its clientswere struggling to obtain avourable inanc-ing rom banks, Grupo Simpa came up witha solution. “Dow Argentina grants its custom-ers up to seven days to pay afer receiving aninvoice and our competitors allow between30 and 60 days,” said president Adrián GabrielSchwartz. “Grupo Simpa allows between 90and 180 days and, as a result, our inancing

options have enabled us to become the larg-est petrochemical distributor in Argentina.”Lack o inancing options or end-users hasalso made petrochemical companies morecautious in terms o selling their products.Distributors have there ore taken on interme-diary roles, with companies such as GrupoSimpa buying raw materials directly romvendors. “The world average or distributionsales as a percentage o total plastics salesis about 20%; in Argentina, it is about 40%,”continued Schwartz.International distributors however, still main-tain the advantage in terms o a recognized

brand name and trusted working practices.The Kirchner administration’s ailure to ocuson the chemical segment’s role in the econ-omy means international players have notlearnt to trust the industry’s regulations assufficiently protective.

“The multinationals that operate in Argentinaand Latin America ofen demand standardsthat are higher than national ones,” said Me-sucan’s Gerschenson.Those local players which have been able toprove themselves in this regard should notsee any difficulties as Argentina’s new com-mercial stance attracts the attentions o glob-al chemical companies; however, newcomersto the market may also choose to use trustedglobal names rom their existing jurisdictions.“Multinationals are now looking or distribu-tors that can supply a product with the samequality and assistance throughout the entire

region,” claimed Martin Font, general man-ager at MCassab Argentina. “Clients that op-erate in both Brazil and Argentina are happyto have a single company supplying them inboth countries with the same degree o prod-uct quality and assistance.”

Tomas Hirschen, Director,Henry Hirschen (HH)

Gabriel Rubacha, Managing Director,Techint Engineering and Construction



www.gbreports.com


RESTORING BALANCEOne way in which multinationals might bettertrust Argentina’s regulations is in the overhaulo its customs requirements. Under the pre-vious government, the country was ranked

ourth in the world or having the most re-

strictive measures in place regarding interna-tional trade. One o these restrictions was theAdvanced Affidavit or Imports (DJAI), imple-mented in 2012. Companies were requiredto submit affidavits or imported goods be-

ore completing transactions and be ore thegoods could leave their port o origin, severelyrestricting the reedoms o Argentina-based

irms to do business. “In the irst six monthsafer the government irst implemented theDJAIs, the supply o certain imported chemi-cals ell and prices naturally rose,” explainedHirschen.

As well as impacting on the supply o chemi-cals, EPC providers were in some cases unableto bring in technical equipment rom abroad.The Federal Public Revenue Administration(AFIP) required companies to justi y why theywanted to ship in equipment rom overseas,with lack o availability in Argentina being anof-cited reason. Argentine-Italian EPC irm Te-chint Engineering and Construction believesmore should be done to manu acture suchgoods in Argentina: “In the last ew years it hasbeen difficult to import equipment or materi-als into Argentina,” said managing directorsouthern cone Gabriel Rubacha. “For this rea-son, and in order to oster local industries, weare working to incentivize local companies toimprove their technologies and provide alter-natives to equipment manu actured abroad.”DJAI was the subject o a number o com-plaints rom the United States, the EuropeanUnion and Japan, amongst others, and wassubsequently ound to be in violation o WorldTrade Organization rules on internationaltrade. With Argentina only having until the endo December 2015 to resolve this issue, it wasone o President Macri’s irst tasks on taking o -

ice on December 10th. “Our new governmentmade these amendments on 23 December2015, replacing DJAI with SIMI, a new IntegralSystem or Monitoring Exports, which grantsautomatic licences or all imported products,”outlined Sebastian Aversa, country manager

or BDP International.BDP International is a third-party logistics irmheadquartered in the United States and withoperations in 270 cities worldwide. Around80% o its operations in Argentina are ocusedon the chemical industry and, like many com-

panies, it has relied on imports or the majority



www.gbreports.com


o its business since 2011. “In our Buenos Airesoffice, 80% o the business covers imports toArgentina, which is the main business o or-eign trade today as the export market acrossthe country has dropped off,” said Aversa. “Im-ports decreased by 45% during the period o

DJAI and we hope that we can regain theselosses during 2016.”With the replacement o DJAI and the openingup o the market, it is hoped that Argentina’simport/export balance will normalize. Produc-ers will be able to export abroad rather thansimply supplying the domestic market and,with the opportunity to increase the amountand type o imported goods, supply chainsneed to be optimized.

PORTS AND PIPELINESAccording to APLA executive director Manuel

Diaz, one o Argentina’s biggest challengesis in rastructure investment. The associationholds a logistics meeting annually to discusshow the region can improve and interlink itstransportation and in rastructure require-ments, which is this year being held in Pana-ma. The long-awaited expansion o the canal,in order to increase capacity or the new gen-eration o super tankers, has seen moderniza-tion plans given the green light along the U.S.Gul Coast; Argentina, meanwhile, has delayednew investment into its ports due to economicuncertainty and a weak oil and gas industry.Argentina boasts the second-longest riverin South America afer the Amazon; at 4,880km, the Paraná River connects the chemical-producing ports o Zárate and Campana withthe Atlantic Ocean, but is so ar an under-utilised resource. Carboclor, the main isopro-

pyl alcohol manu acturer in Latin America, islocated on the shores o the Paraná and hasa 300 meter dock port to receive offshore ves-sels. “Carboclor’s proximity to a deep river likethe Paraná River would allow the company totransport more volumes at lower costs,” saidgeneral manager Al redo Fernandez. “The in-crease o waterway transportation would alsosigni icantly reduce reight costs.”Rio de la Plata, the river which orms the bor-der between Argentina and Uruguay, hoststhe ormer’s most important ports: those oLa Plata, where YPF’s petrochemical complexis located; Dock Sud, the site o Shell’s 110,000bbl/d Buenos Aires re inery; and the port oBuenos Aires itsel . Shell Argentina’s president,

Teó ilo Lacroze, stated the company was com-mitted to long-term operations in Argentina:“For the last ive years, Shell has invested in thecompany’s downstream business despite ad-verse business conditions. In particular, Shellhas invested in the Buenos Aires re inery, oneo the largest in-country assets.”It is not just port in rastructure that is lacking.According to EPC irm Odebrecht, its discus-sions with the Chamber o Construction andother development organizations indicatethe previous government built up a $6 billionbacklog in in rastructure investment. As wellas spending money on modernizing the ports,the nation’s domestic and industrial gas pipe-line network could also do with an update. “It

Photo courtesy of Odebrecht.



www.gbreports.com


is good, but not good enough. It is very easyto add new production to our existing in ra-structure,” said APLA’s Diaz, “but we need toimprove the capacity o these pipelines toaccommodate the increased production onatural gas that we will see in this country.”

Odebrecht is con irmed or a $200 millionproject rom the province o Cordoba to ex-pand its pipeline system, but is awaiting a ur-ther $300m in contracts across the country.Rival irm Techint is currently working on onesection o the north eastern natural gas pipe-line, but says urther expansion o the net-work into Misiones province, on the borderwith Brazil, is likely to be suspended. In termso industrial gas pipelines, the irm looks tothe upstream sector to provide answers: “Weare analyzing perspectives on how much gasis going to be available in order to evaluate

what sort o capacity needs to be,” said Ruba-cha. “I the Bahia Blanca petrochemical com-plex sees expansion, there may be a need tohave an additional pipeline to transport gas

rom Neuquén to Bahía Blanca.”

CHICKEN AND THE EGGAnother area which will also have to be ad-dressed is sa ety on the roads, with 90% ointernal chemical distribution carried out bytruck. Restec, part o the Suatrans group osa ety providers located across Latin Ameri-ca, is one o only three companies providingchemical sa ety services or chemical compa-nies in Argentina. This is due to the act thatthere is no obligation or manu acturers ordistributors to have an emergency responseteam as part o their operations – unlike inneighbouring Chile and Brazil. “Around 75%o the chemical companies in Argentina useRestec’s services; companies such as BASF,Dow, Chemours and Petroquimica Cuyo areamong our 87 clients,” explained presidentEduardo Rosa. “The remaining 25% o themarket has less to do with competition andmore to do with a lack o investment in sa etyby small- and medium-sized companies.Sa ety was not a priority during the last 12years o government.”In rastructure questions then will be ad-dressed only i the need is there. Despite theneed or more raw materials in Argentina, alack o oreign investment and limited dollarsin the bank have kept plans or new re ineriesand petrochemical plants off the table. Lowinternational oil prices have also sti led ap-petite or growth, with Odebrecht taking theview that oil prices need to rise to a break-

even point with the government’s subsidies:

“In terms o building a new petrochemicalplant in Argentina, the starting point will bethe normalization o international oil prices.For local shale production, the break-evenpoint is around $50 to $60 per barrel,” com-mented business development director Pab-

lo Brottier. “The earliest we could see a newworld-class plant come online in Argentina– i the oil prices start to recover this year –would be 2023.”Techint, however, takes a different view: “I be-lieve a key component or uture projects is

the international price o oil, although it is notthe unique actor that will affect investments,”said Rubacha. “Companies will look at the bigpicture and make decisions based on theirlong-term strategies. We will probably seesome activity in this regard in late 2016.”

Despite the uncertainty surrounding the is-sue, Argentina’s EPC irms are adamant thatthey are ready or the next wave o expansionsand new builds, using the experience theyhave built up in other sectors and jurisdic-tions over the past decade.


26/26

Documents

Argentina Chemicals 2016 Pre release