Petrochemicals and the energy transition
Can’t take the “petro” out of petrochemicals
The global oil and gas market includes about 100 million barrels of oil per day (bdp) in oil demand and 70 million bpd of gas equivalent. Replacing the humongous system that is currently supplying this demand is a big job, deemed to last decades and cost trillions of dollars. More than that, the transition away from fossil fuels will, ironically, be heavily dependent on fossil fuels, necessary to secure the energy baseload and supply the chemicals required to build windmills and other infrastructure. For a region that produces oil and gas, as well as petrochemicals, such as Latin America, the energy transition does not mean the end of fossil fuels; at a first phase of the transition, it can even mean more demand, especially in LNG, as a transitional fuel, cleaner fuels, and certain petrochemicals.
Hydrocarbons are a main source of revenue for many countries in the region – for example, in Colombia, the extractive industries represent 50% of exports. The Inter-American Development Bank calculated that fiscal revenues in Latam could be reduced between US$1.3 trillion and US$2.6 trillion by 2035 if the world limits global warming to 1.5 Celsius. On the other hand, if existing reserves were strongly exploited, revenues could go as high as US$ 6.8 trillion.
The chemical industry is starting to think beyond the here-and-now, the energy transition forcing an exercise to re-imagine the world in the next 10, 20, or 30 years. Demand for lower-carbon products should be longer-lived than that created by the oil, coal, and steel boom of the 2000s. Yet, one should not over-interpret the industry’s keenness to provide bio-based, recycled, or cleaner products, which continue to represent only a fraction of their portfolios. In Latin America, investments in renewable energies or bio-based products do not even begin to measure against those in upstream oil and gas. In fact, the region has been growing its prominence on the world stage in oil and gas production in recent years.
“We are already starting new value chains around the world. For example, in carbon capture and storage, we can use our ability to model reservoirs, inject CO2 underground, and drill the wells – skills that also apply to our traditional businesses.”
Ana Cristina Paiva, Polyethylene Regional Sales Manager (Latin America), ExxonMobil
The energy map in the region has started to shift; whereas in the past, Venezuela and Brazil were the biggest oil producers in Latam, now Guyana, and potentially, Argentina, are taking over. Argentina also seems to be moving into the natural gas space that Bolivia used to occupy as a key exporter in the region. Two bonanza oil discoveries in Guyana and Brazil, together with incremental increases in production at Argentina’s Vaca Muerta fields, and on top of Mexico’s own oil production, could add up to 11 million bpd produced between these four countries by 2030, suggests Rystad Energy. Also, the carbon intensity of extracting the oil at Vaca Muerta, for instance, is one of the lowest globally, which is a significant operational attribute in the context of decarbonization.
Big oil companies and regional heavyweights are the ones driving the energy transition. ExxonMobil is leading both the traditional business of O&G and petrochemicals, and new businesses like carbon capture and sequestration. As Ana Cristina Paiva, polyethylene regional sales manager for Latin America said, "ExxonMobil brings the capabilities developed in 140 years of existence to transform hydrogen and carbon molecules through carbon capture and storage, hydrogen production, and biofuels. We are already starting these new value chains around the world. For example, in carbon capture and storage, we can use our ability to model reservoirs, inject CO2 underground, and drill the wells – skills that also apply to our traditional businesses."
Out of YPF’s US$5 billion capex in 2023, almost half will go into the development of Vaca Muerta. YPF wants to double crude production in five years and increase gas production 1.5 times. In Colombia, Ecopetrol committed US$6.13 billion towards the energy transition by 2040, with a more immediate goal to produce green methanol by 2025, but, before switching to renewables, the company is investing in the discovery of natural gas in deep and ultra-deep waters. Before naphtha, natural gas or gasoline disappear, both YPF and Ecopetrol are investing in cleaner versions of the same stuff, like lower-sulfur naphtha and gasoline.
Countries in the region are poised to take different paths, on different timelines, when it comes to the energy transition. Countries that are rich in renewables and lack fossil fuels, like Chile, will follow a different trajectory than countries that have a strong oil and gas base, like Argentina.