"We want to double crude oil production in five years and increase gas production by 1.5 times."

Martina Azcurra

EXECUTIVE MANAGER, CHEMICALS, YPF QUÍMICA

October 06, 2023

Could you summarize the key developments at YPF Química in the last year?

First, we consolidated our position in the region, growing our market share, especially in Brazil. For some years now, YPF’s primary chemical production capacity has exceeded local demand, which is why we have been looking for external markets, with a focus on those closest to us in order to minimize logistics costs and leverage cultural idiosyncrasies. Brazil is a key market not only due to its proximity, but also its size, and we have been present in the country for more than 15 years. Besides supplying to all of Latin America, we are exporting speciality chemicals to the US and Europe.

Second, we continue advancing our modular pyrolysis project, managing the risks and challenges of developing a new technology for a very nascent market, while also making progress at our Industrial Advanced Recycling complex.

Third, we successfully completed pilot tests and reached the industrial production phase for a new line of products for the Oil & Gas markets, using our Y-TEC technology for a comprehensive proposal: product, application, and field monitoring.

How has YPF Química performed in 2023? How do you maintain your market position in light of heightened competition from Asia?

Our performance for the first half of the year has been satisfactory, reaching 450 ktn sales volume, in line with last year. The region is dealing with the entrance of extremely competitive Asian products. Their competitiveness comes down to the large scale plants. It is hard to understand the final selling price of Asian products after subtracting the logistics costs to South America, but it seems to be the consequence of a slow Chinese market that leaves many producers stranded with big surpluses. But this type of price-first competition takes place on the spot markets. We are confident in our position as a sustainable, long-term partner for our customers who trust the quality of our products.

What are the main dynamics in the methanol and aromatics markets in Argentina and Latam?

The methanol market is associated with the production of biodiesel, which depends on the cultivation of soybeans and other crops. A prolonged drought this year has severely affected soybean production. Adding to this the macroeconomic conditions in Argentina, biodiesel producers will not be profitable this year, which has pushed down methanol sales in the local market. However, we expect the industrial segment in the region will continue to drive demand, and new applications like low-emission fuels will generate new market niches. Meanwhile, demand for aromatics and solvents remains strong, and international prices for aromatics have been sustained since record peaks in July 2022.

Could you update our audience on the progress made at your modular and industrial pyrolysis plants?

We have had delays at the modular plant, especially after the war in Ukraine put pressure on the global availability of raw materials, which did not bode well with Argentina’s own import problems. Also, we work with start-ups that have outstanding know-how but limited on-the-ground experience. Nevertheless, we are moving ahead, and we had a pilot done in Croatia by a Norwegian company supporting the start-up – within this study, we tested the suitability of the pyrolysis oil for our installations. At the industrial plant, we advanced tremendously, our technology licensors being much bigger players, as is the scale of the operation. We will need the modular plant to make sure the quality of the pyrolysis oil is compatible with our current equipment (used in the production of conventional oils). The modular plant has a capacity of about 300 to 700 tons/year, while the industrial one has 30,000 tons equivalent of crude yearly.

As a petrochemical player, how is YPF Química positioned for a long-term future where the use of fossil fuel-derived products is supposed to decline?

Thanks to our investments, I do not see any threat concerning the demand for YPF’s products. What we call “traditional products” will, at some point, be subjected to more regulations and requirements. By making pyrolysis oil a reality, we have at hand a circular feedstock to make new products that meet those requirements. One may wonder why a petrochemical company is focusing on plastics recycling when we are not producing plastics. This is intentional: while there are many uses for pyrolysis oil, there are few offtakers with the capacity to transform it into petrochemical products. We treat the CYQLO OIL (which is our registered trademark for pyrolysis oil) as a conventional fuel, going to the very beginning of the value chain to make petrochemicals. Further along, we are also looking at opportunities of producing bio-methanol, by capturing emissions and reincorporating them in the gas to create biogas. Today, YPF is a pioneer in these technologies in Argentina, but making these efforts now gives us reassurance that we will be at the vanguard of the future demand of our customers.

YPF allocated US$5 billion CAPEX for this year, 20% higher than last year. Could you comment on the strategy and focus of these investments?

YPF's investment plan is focused on the massive development of non-conventional resources at Vaca Muerta (US$2.3 billion), with a view to monetizing crude oil, monetizing natural gas, and developing lithium and clean energy value chains. As an integrated company, YPF goes all the way from the production and transportation of oil and gas, to refining, under which we have the production of petrochemicals and commercialization. What we need today is to secure a competitive production of oil and gas that is well aligned with the demand curve. At some point, and we don’t know when, but we will see a decline in the demand for oil and gas, yet our focus of today is to invest most of those US$5 billion in today’s production, especially of shale oil. YPF's growth strategy is based on the development of Vaca Muerta resources, cost efficiency and financial discipline. We want to double crude oil production in five years and increase gas production by 1.5 times. We aim to become an energy exporting company in the region and to be an LNG player for the rest of the world.

The focus of today is to ensure the basis - the raw materials essential for the petrochemical industry to keep growing.. Amongtheless, YPF has been investing in the development of green energies through YPF Luz, which has become the second-largest producer of clean energy in Argentina, generating approximately 100 GW.

At the same time, we have other projects rolled out on the refinery side. Now in its second year (out of three), we have reconfigured our refinery to produce de-sulfurized fuels (with lower sulfur content). Next year, we will also increase our aromatic production after revamping projects at of our La Plata production site. Currently, we have more than 30 products in our petrochemical line.

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