Opportunities & Challenges


The potential for monetizing Latam’s natural resources

Image courtesy of YPF QUÍMICA

Rising domestic demand for chemicals in Latin America and a booming export market offer plenty of opportunities for producers and distributors in the region. However, a reliance on imported feedstock, principally from the US, has hindered Latam’s competitiveness for years. Frustratingly, this is not due to a lack of natural resources to produce the necessary raw materials, but a failure to develop them at a pace equivalent to the chemical hubs of North America, Europe and Asia.

The two standout resources that have the potential to transform the region are Brazil’s pre-salt oil reserves and Argentina’s Vaca Muerta gas reservoir - a 300 trillion cubic feet (Tcf) gas resource located in the Neuquén Basin. Martina Azcurra, executive manager for chemicals at YPF QUÍMICA, stated that Vaca Muerta’s resources are enough to cover the domestic demand for gas in Argentina for many decades (with LNG imports and alternative fuels utilized for winter peaks), as well as the potential for gas monetization by supplying regional markets: “Chile in the short term, because of the existing infrastructure; import substitution in Bolivia in the midterm; and in the long term, the optionality of swaps for Brazil through Bolivia or exports that require big infrastructure.”

Azcurra emphasized the significance of the project: “Achieving efficient gas monetization for both the domestic market and for export projects is the main strategic challenge that the industry is currently facing. In collaboration with the government, regulations and new infrastructure projects need to be developed with upstream and midstream capex-intensive projects in mind.”

Gustavo Cienfuegos, managing director Latin America at Haldor Topsoe, also spoke of the potential for Vaca Muerta to export, particularly to Brazil, and underlined the need for the development of Latin America’s natural resources in general to be done in a way that accompanies the green agenda. “This means that the technologies to be applied need to consider the capture or in situ re-processing of the CO2,” he added.

Emphasizing the need for dialogue between industry and government so that they are aware which issues need to be addressed, Cienfuegos noted: “One of the main requests from industry to government has been to set clear goals and targets that continue regardless of changes in government,” underlining the importance of stable rules and regulations to attract the level of investment required to develop such large resources.

When asked about the potential for Latin America to develop its domestic sources of feedstock, Rina Quijada, VP business development and research Latin America at IHS Markit, responded: “This is a very complex question. If you had asked me between 2015 and 2019, I would probably have given a different answer, but today investors want to also spend money on renewables. Five years ago there was a spending spree on fracking, but now carbon capture storage and renewables are attracting more attention.”

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Quijada affirmed that a significant amount of oil and gas will still be needed until 2040, but perhaps the dollar amount dedicated to Latam will have to be shared among renewable energies.

Edison Terra, VP olefins and polyolefins South America at Braskem, believes the development of projects such as Brazil’s pre-salt reserves are still feasible in a world where investment in renewables is also an option: “The sources of feedstock being developed in Brazil and Argentina are expected to be very competitive and will become a reality at the right time from an economical perspective… It might happen that investment into traditional feedstock may reduce due to this interest into renewables and recycling, but there is still an investment market for the development of traditional raw materials.”

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Demand for gas goes through the roof

By October 2021, natural gas prices had doubled year on year, a trend expected to continue as the northern hemisphere approaches winter with volatile weather conditions expected. Furthermore, as natural gas has become the fuel of choice for clean energy transmission, demand has skyrocketed and storage levels remain far below historic norms.

Looking back to 2020, industrial gas demand in Latin America was decimated by strict lockdowns and economic contractions across the region, but there was an unprecedented surge in demand for medical gases. Marcus Silva, Air Products’ general manager for Argentina and Brazil, revealed that some hospitals experienced an increase of demand between 500% and 1,300% during the height of the pandemic, and this impacted industrial supply.

Silva detailed the scenario during Argentina’s second wave of Covid-19, which began in April 2021: “The Argentinian government issued a temporary regulation to restrict the supply of gases for industrial demand so medical gas demand could be supplied. This impacted the industrial supply chain, which mainly utilizes oxygen for combustion activities to increase the efficiency of burning.”

Since then, a rebound has occurred in Latam’s industrial gas market. To foster faster economic recovery both the Argentinian and Brazilian governments enacted a series of incentives to the housing and construction industries, such as low tax loans.

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“Subsequently, we have seen an increase of over 200% in the demand from this industry year on year. With greater emphasis on sustainability, the building and construction industry is also moving towards more liquid nitrogen being applied to expedite the process of bonding different chemical molecules in concrete,” said Silva, adding that there has also been a demand increase of approximately 70% year on year for fabricated metal products and repairs, and a 45% increase in oxygen demand for water treatment.

Etienne Lepoutre, Air Liquide’s president of the Latin America region, remarked that it is good news that demand for medical gas has passed its peak, however, levels are still very high and will remain so for the rest of the year. Regarding the industrial market, he commented that momentum started to regain in the second half of 2020, and had already surpassed pre-pandemic levels in the first half of 2021. “We believe that we are going to see continuous demand growth as countries such as Brazil and Argentina start to recover from even pre-pandemic economic recessions. Mexico, another key market, is currently benefiting from the US recovery, and we have seen a lot of activity there so far this year.”

Looking at the direction the industry is heading, Marcus Silva pointed to renewable energy as a key growth area. He gave the example of Brazil’s potential for green hydrogen generation and established positioning in the renewables market: “Brazil already has a very large base of renewables, with approximately 64% of the country’s green energy coming from hydroelectric power plants. The ethanol industry and the pulp industry are also working on projects that use biomass to generate power.”

“Industrial demand for gases started to regain momentum in the second half of 2020, and has already surpassed pre-pandemic levels in the first half of 2021. We believe that we are going to see continuous demand growth as countries such as Brazil and Argentina start to recover from even pre-pandemic economic recessions.”

Etienne Lepoutre, President – Latin America Region, Air Liquide