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Argentina's petchem sector investing in shale plays to boost feedstock supplies


Argentina's petrochemical sector plans to step up investment in developing oil and natural gas supplies from shale plays like Vaca Muerta, helping to boost feedstock supplies to expand production capacity, a senior government official said Thursday.

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"This sector is getting involved in the investment process of Vaca Muerta to secure the resources that they need as raw materials," Industry Minister Debora Giorgi said in a televised press conference.

Of the six biggest polymer and plastics producers, "at least two" have started investment plans for shale development, she said after meeting with sector representatives.

The first was Dow Chemical. It entered a partnership in September with Argentina's state-run YPF to develop a pilot production project for shale gas on the El Orejano block. They will invest a combined $188 million in the first year to drill 12 wells for shale gas resources, targeting the Lajas, Sierras Blancas and Vaca Muerta plays.

The companies estimate peak production could surpass 3 million cubic meters/day.

With the additional supplies of gas, Giorgi said petrochemical companies would be able to increase production and expand capacity at their plants, helping to reduce imports of gas, gas-based feedstock and petrochemicals. Polymer producers, for example, have been increasing imports of ethylene as feedstock, in particular during the May-to-September cold season when gas shortages peak.

Dow plans to use the additional gas supplies from its partnership with YPF to boost gas feedstock supplies at its plants in Bahia Blanca, which have capacity to produce 700,000 mt/year of ethylene and 600,000 mt/year of HDPE, LDPE and LLDPE.

Dow buys gas-based ethane feedstock for these plants from Compania Mega, in which Dow, YPF and Brazil's state-run Petrobras are the main shareholders. Mega processes the gas at a plant in Bahia Blanca and sells the ethane as well as supplies of butane, propane and natural gasoline to makers of petrochemicals and other finished products.

Giorgi said another two petrochemical companies are in talks to launch shale development projects, without naming them.

The target is Vaca Muerta, which holds the largest chunk of the country's 802 Tcf of shale gas resources, according to estimates by the US Energy Information Administration.

State-run YPF has started producing the first supplies from the play, with output running at 13,000 b/d of oil equivalent, most of it light crude, in third-quarter 2013. YPF has teamed with Chevron on a $1.5 billion pilot production project, while other companies like ExxonMobil, Shell and Total are starting to drill for supplies.

YPF has said shale development will help turn around a decade-long decline in oil and gas production.

The decline coupled with rising demand has sparked shortages in a country that relies on oil and gas to meet about 90% of its energy needs.

Faced with the shortages, petrochemical producers have had to scale back production even as the country has ramped up imports of Bolivian gas and LNG, which averaged 30 million cu m/d in 2013. Argentina had been exporting as much as 20 million cu m/d of gas as recently as 2004.

Giorgi said the lack of gas and other feedstock has prevented petrochemical companies from running plants at higher capacity.

According to analysts, Brazil's Braskem hasn't been able to build a polyethylene plant in Argentina because of the lack of gas feedstock. Dow Chemical and Basell Polyolefins's Petroken face the same problem for polyethylene and polypropylene products, respectively, analysts have said.

"Argentina is importing nearly $900 million worth of petrochemical products a year," she said.

By developing Vaca Muerta and other shale plays, the petrochemical companies will have more feedstock to increase production, helping to reduce the imports, Giorgi said.

She said that by 2020 the production of shale gas should be sufficient to replace imports of gas and some petrochemical products.

--Charles Newbery,
--Edited by Jason Lindquist,