A new horizon

Argentina

TOGY talks to Gastón Remy, Dow Argentina’s regional president, about the value of natural gas, the importance of the strategic alliance with YPF, and the future of Argentina’s petrochemical sector. Dow is the largest petrochemicals company in Argentina, operating five plants.

In 2013, Dow Argentina entered into a joint venture with YPF to develop the El Orejano block of the Vaca Muerta shale formation in the Neuquén province. In total Dow Argentina and YPF will be investing around USD 2 billion in the El Orejano development project.
Dow Argentina is a subsidiary of Dow Chemical, and was founded in 1995. As the largest petrochemicals company in Argentina, Dow specialises in processing natural gas and producing ethylene, polyethylene, polyurethane and agrochemicals. The company has five plants in the country.

• On the value of gas: “Natural gas and its value-adding potential, whether as fuel or feedstock for downstream processing, is an essential component in the development of advanced manufacturing industries. When used as a chemical feedstock, natural gas creates additional value as much as eight times the value of the gas itself.”

• On the importance of a YPF partnership: “The strategic alliance with YPF for the production of unconventional gas represents a huge opportunity for Dow, as it will allow for the increase of the availability of this resource in Argentina, expanding the company’s access to a safe supply and long-term raw materials key in the region.”

• On domestic growth: “Productivity is the main determinant of long-term growth and growth is the main key to reducing poverty. We need to grow so that we have a future for all.”

Besides touching on these topics, TOGY talked at length to Gastón Remy about his forecast for the country’s petrochemicals sector and Dow’s activities in Argentina. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Gastón Remy underneath.

What is the outlook of the petrochemicals sector in Argentina?
The potential of unconventional resources makes us think not only about Argentina’s recovery of energy self-sufficiency, but also about a new era for the petrochemicals industry. Natural gas and its value-adding potential, whether as fuel or feedstock for downstream processing, is an essential component in the development of advanced manufacturing industries. When used as a chemical feedstock, natural gas creates additional value as much as eight times the value of the gas itself.
The availability of resources enhances Dow’s opportunities in the country. The multiplier effect of industrial resources, added to the production of unconventional hydrocarbons, may be represented by four waves of investment and industrialisation that expand through the petrochemical production value chain: hydrocarbons production, petrochemicals industry development, manufacturing byproducts and R&D.
The first is the most basic instance of resource reutilisation: shale gas extraction and production. This introduces large amounts of raw material into the system. During the second stage, the extracted gas is used to maximise basic industries, such as petrochemicals, which benefit from the constant supply of raw materials used in production plants allowing it to generate supplies used by other industries.
The third stage involves an extra step in resource industrialisation by engaging companies that invest in new energy plants and manufacturers of byproducts in the primary sector, such as plastic transformers, container producers and other manufacturers. This stage adds yet another layer of value to the raw material and contributes to the generation of products for mass consumption.
The fourth stage focuses on establishing and strengthening R&D centres that can continue to explore new technologies and provide workforce training. This stage will allow Argentina to achieve its full reindustrialisation potential and make the most of raw materials to the benefit of the production chain as a whole. Going through each of these four stages requires a coherent plan and policies that will assure a continued gas supply and promote industrialisation by preventing the exclusive use of natural gas during the primary stage.

How important is Argentina’s largest petrochemicals complex, Bahía Blanca, for Dow’s global operations?
Dow’s subsidiary in Argentina is the company’s sixth largest in the world, even though Argentina is the world’s 24th-largest economy. The company operates in two key platforms of the Argentine economy. On one hand, Dow is the third-largest player in the agribusiness; while on the other, Dow is the largest and best-integrated petrochemicals player in the hydrocarbons value chain, especially thanks to the company’s plastics business. A third platform under development in Argentina relates to infrastructure and mining, for which Dow has both solutions and technologies.
Bahía Blanca is one of the most important petrochemicals centres in Latin America. It has connection through pipelines with the Neuquén and Austral hydrocarbons basins and proximity to one of the main deepwater ports in the region. These conditions, together with the developed infrastructure and the proximity to an urban centre with high-level universities, make the complex of Bahía Blanca a site with high potential for growth.

With global hydrocarbons prices so low, why make the move into the upstream sector?
In 2013, Dow signed an agreement with YPF to become one of the first investment catalysers in the upstream gas sector: a pilot programme to develop the El Orejano block, the first shale gas project in the country, located in the province of Neuquén.
For this first stage, the investment was USD 350 million. Last December, both companies presented the second stage of development, with an investment of USD 500 million, and in the coming years it is expected to reach USD 2 billion of investment in the total field development. El Orejano is already the largest producer of unconventional gas in the world, outside of North America.
Gas is the basic raw material for the petrochemicals industry. Any variation in its availability directly impacts the competitiveness and productivity of the industry. The strategic alliance with YPF for the production of unconventional gas represents a huge opportunity for Dow, as it will allow for the increase of the availability of this resource in Argentina, expanding the company’s access to a safe supply and long-term raw materials key in the region.
In addition, the successful release of unconventional gas in the region, similar to the US impact, suggests a new era for the petrochemicals industry in Argentina and enables the industrial revival of the country. The multiplier effect of industrial added production of unconventional hydrocarbons extends across the entire value chain of petrochemicals production and generates a high impact on local job creation and manufactured goods.
This project, developed jointly with YPF, contributes to the growth of production of natural gas and allows the country to reduce energy imports and move towards energy sovereignty.

How has Dow Argentina’s business developed in the past 12 months and what is the outlook for the year ahead?
The 2016 balance has been very positive since it allowed us to reaffirm the commitment we have to the economic development of the country through a series of strategic investments that will deepen Dow’s footprint in Argentina.
For 2017, we foresee a transition stage, where we are still accommodating the pieces of the puzzle. It is more important to check whether the trajectory is going on the right path rather than seeing concrete results. Big changes take time and we have to leave behind shortcuts and short-term results. At Dow, we see a positive trajectory. We need to generate the conditions that will allow a massive influx of investments, but also acknowledge that these investments take time.
We need to recover competitiveness with active policies, not only with the support of the government, but with different key factors from society, including the business sector. There needs to be strategic axis for the country, where there is a large degree of consensus that does not change with time. Productivity is the main determinant of long-term growth and growth is the main key to reducing poverty. We need to grow so that we have a future for all.

For more information on Dow Argentina, such as the production at its five plants and an extensive look at the El Orejano shale gas test, see our business intelligence platform TOGYiN. TOGYiN features profiles on companies and institutions active in Argentina’s oil and gas industry, and provides access to all our coverage and content, including our interviews with key players and industry leaders. TOGYiN currently covers 31 markets worldwide.

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