The petrochemicals industry is the sector that will drive hydrocarbons consumption over the next years. Large oil companies forecast flattened fuel demand, and this is why focus is increasingly placed on the petrochemicals business. Those companies that are vertically integrated, with feedstock production all the way to the downstream business, will be the most competitive ones."

Federico Veller

EXECUTIVE MANAGER CHEMICALS, YPF

January 17, 2019

Could you provide us with some background on YPF’s chemicals business?

YPF is the number one chemicals and petrochemicals producer in Argentina, with 2.2 million mt/y of total capacity among aromatics, fertilizers and methanol. In aromatics, we have an annual capacity of 500,000 mt, processing virgin naphtha out of our La Plata refinery. Fertilizers, our second business line, are an equal share joint venture with Nutrient for the production of 1.3 million mt/y of urea at Bahía Blanca. Methanol, our third business line, is processed at the Huincul plant, with a capacity of 400,000 mt/y. Our market also sees smaller volumes of specialty chemicals such as maleic anhydride, polyisobutylene, linear alkylbenzene for detergents, oxo alcohols, and a wide range of solvents. A large portion of our market is in Argentina and Brazil, and we also reach another 20 countries in the Americas and Europe.

Where is YPF focusing its investment pipeline on?

Our latest investment was devoted to the expansion of our reforming plant for aromatics in 2012. Today we are accelerating the development of non-conventional feedstock. As a matter of fact, back in 2012, YPF was the only player developing Vaca Muerta; today, after applying horizontal and multilateral technologies, the scenario has changed, efficiency has dramatically increased, and Vaca Muerta became a rich tapestry of different companies producing more than 70,000 barrels of oil per day and 50 million cubic meters of natural gas per day, with a high five-year forecast increase.

In chemicals, the opportunities are enormous: We have gas and its liquids, good infrastructure with an excellent logistics hub at Bahía Blanca including a deep-water port, and finally we have a great market between Argentina and Brazil.

For which petrochemical products do you see opportunity for new plants?

In fertilizers, the region has a deficit of 5 million mt/y of urea, with room for a 3-times world-scale multiplier. In plastics, there is space for one world-scale ethane cracker and the associated polyethylene plants to cover the projected deficit in South America, mainly in Brazil. There is also space in the market for a world-scale polypropylene plant, as our current surplus of propane can justify a new propylene plant to produce the associated polypropylene. The deficit is even lower for methanol - around 1.5 million mt/y in the region – and Methanex is covering a great part of that with their Punta Arenas operations in Chile. However, if we are competitive enough in our gas production, we could dream of a world-scale methanol plant to meet the increasing needs of the biodiesel markets in Argentina and Brazil and use the surplus to export to Asia.

All these ideas are part of the five-year strategic plan presented by YPF in the New York Stock Exchange event in October 2018. These very large projects will most likely require the participation of partners. For example, in Vaca Muerta we need to establish a petrochemical cluster with the participation of the main companies and efficient projects that are capable of competing with American or Middle-Eastern product in our region.

Will Argentina overcome the issue of gas demand seasonality to make these investments?

The key to unlocking these developments is the stabilization of gas demand, bridging the gap between summer and winter.  In the last two years, Argentina has not suffered gas cuts in winter, and since 2018, we have been exporting gas throughout the year. We need to maximize exports to Chile, restart electricity exports to Brazil, and maximize gas storage projects so we can store gas during the summer and sell it in winter. Today, we have one underground storage facility in Diadema, southern Argentina, and we are evaluating two more. The gas injection project contributes to our new circular economy principles, that, as a result of our B20 Energy, Resource Efficiency and Sustainability task force leadership, we are trying to apply to our commercial sectors in downstream and upstream.

From summer 2019, YPF will start exporting LNG. We are bringing a floating liquefaction unit with a capacity of 2 million cubic meters per day, and we are looking at a fix liquefaction unit on a larger scale that should be operative by 2024. We consider that the tipping point to stabilize our gas demand, unlocking the full upstream potential of Vaca Muerta. Today, non-conventional production represents 30% of YPF’s total production, and by 2023, the final year of our strategic plan, 70% of our production should come from there.

What is YPF’s advantage as an integrated national company?

The petrochemicals industry is the sector that will drive hydrocarbons consumption over the next years. Large oil companies forecast flattened fuel demand, and this is why focus is increasingly placed on the petrochemicals business. Those companies that are vertically integrated, with feedstock production all the way to the downstream business, will be the most competitive ones.

You will chair APLA’s 2019 Annual Meeting. What will be the main themes for this year?

A key topic in the meeting is our foreseen growth of new large projects, with an eye to circular economy so as to be coherent with our G20-B20 commitment as a country and as a company. Competitiveness will come not only from production, but also from sustainability and total societal impact of our products as we see new foreign production reaching our region. As a company, we believe that we are growing rapid new knowledge in this respect, leading the South American region with concrete initiatives that will be given room for discussion and presentation at the meeting.

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