Argentina Gas & Oil To Boost Paint & Coatings

Argentina is poised to become a major producer and exporter of natural gas and oil thanks to the recent development of the Vaca Muerta shale field reserves and a new pipeline. The formation has the capability to produce over 1 million barrels per day (bpd) of crude oil by 2030, according to a recent analysis by energy research consultancy Rystad Energy.

“It is estimated that Vaca Muerta has reserves capable of supplying 100 years of regular gas supply. It is not an issue of geology but engineering,” said Jorge de Zavaleta, the executive director of the Camara De La Industria Quimica Y Petroquimica, Argentina’s chemical and petrochemical association, in the group’s Report 2022.

The enhanced gas and oil supply will boost Argentina’s petrochemicals industry and in turn, provide more local feedstocks for the paint and coatings industry. “The primary sources of feedstocks used for the production of many of the value chains for key paint resins and other organic chemicals are natural gas (ethane) and oil (naphtha),” according to the American Coatings Association.

Ethylene is the base for the manufacture of key coatings industry materials, such as vinyl acetate and styrene butadiene, the ACA adds. One major player in the Argentina petrochemical industry is Dow Chemical, which operates two crackers in Bahia Blanca with six production plants, including two for ethylene. Dow is a major source of paint and coatings chemicals in Latin America.

The returns on Vaca Muerta — translated as Dead Cow — have already begun. Argentina’s Neuquen province exported a record 2.77 million barrels of oil in June, the local government said. “Argentina is betting on Vaca Muerta – the world’s second-largest shale gas reserve and fourth-largest shale oil reserve – to turn the country into an energy powerhouse and to stop relying on imports at a time when foreign currency reserves are running low,” Reuters reported on August 10.

The Argentina architectural coatings market size is estimated to reach a value of $649 million by the end of 2027 after growing at a compound annual growth rate (CAGR) of around 4.5% during the five-year period between 2022 and 2027, according to a recent study by IndustryARC.

A more robust prediction comes from Actual Market Research, which suggests that the Argentina paints and coatings market will grow at a compounded average growth rate of nearly 7% between 2023 and 2028. “The country has witnessed a construction boom with increased investments in residential, commercial, and infrastructure projects, driving the demand for paints and coatings,” the analysts said.

Continued investment in the construction industry will help create demand for paint and coatings. “The construction industry in Argentina is expected to grow steadily over the next four quarters. The growth momentum is expected to continue over the forecast period, recording a CAGR of 6.6% during 2023-2027,” ResearchAndMarkets said in February. The annual construction market size was valued at $50.3 billion in 2022, supported by energy, transport, and residential investment, according to GlobalData.

Import Savings to Fuel New Investments

Argentina is still struggling with hyper-inflation of over 100%, but fresh flows of funding from abroad are expected to help the economy recover. New investments in oil & gas development, as well as in downstream petrochemicals are expected to increase substantially.

Santander reports that foreign direct investment (FDI) in all sectors in Argentina more than doubled in 2022 to $15.1 billion from $6.8 billion in 2021, with U.S. investments representing almost a quarter of Argentina’s cumulative FDI total.

Oil & gas investments are leading the wave. In June, June 9 Argentina Economy Minister Sergio Massa announced that Chevron will invest over $500 million to develop the Trapial block of the Vaca Muerta shale basin.

The new Néstor Kirchner pipeline was inaugurated in July to move Vaca Muerta gas 400 miles northeast to the capital province of Buenos Aires, which imports liquefied natural gas part of the year. This year, however, the government said it expects the pipeline from the oil and gas field to save $1.7 billion in imports this year, according to Foreign Policy.

Eventually, the pipeline, which runs from northern Patagonia to Salliqueló, in Buenos Aires province, will allow the country to save as much as $4.2 billion per year in gas imports, according to the Oil & Gas Journal.

“Construction of a planned 467-km second section, from Buenos Aires province to San Jerónimo, in southern Santa Fe province, and the soon-to-be-tendered Reversión del Norte will allow exports to northern Chile and Brazil,” the Journal reported in June.

The entire pipeline, estimated to cost $3.4 billion, will be extended to San Jerónimo in Santa Fe province, crossing the provinces of Río Negro, La Pampa and Buenos Aires.

Brazil’s Banco Nacional de Desenvolvimento Econômico e Social (BNDES), the state development bank, in December 2022 approved $689 million in financing for the second phase of the gas pipeline project, according to Enerdata. Argentina should also receive $540 million from the Corporacion Andina de Fomento – Banco de Desarrollo de América Latina (CAF), the development bank of Latin America, based in Caracas, Venezuela.

Presidential Elections In October

Argentina’s next presidential election is in October, and the primary election in early August saw Javier Milei, a conservative, lead in at the polls. Milei has suggested that he would abolish the central bank and adopt the U.S. dollar as Argentina’s official currency.

The government followed the primary election with a 22% devaluation of the peso, now pegged at 350 to one U.S. dollar. The black market exchange rate is nearly double the official rate, according to Buenos Aires press reports.

Whether Milei wins the election or not, investment in Argentina’s energy sector is expected to move forward. “In terms of policy after the elections, we would expect it to remain supportive for our sector,” said Alejandro Lew, the CFO of Argentina’s state oil company YPF, in comments to the press. The company expects to double oil production and increase natural gas by 30% over the next five years, he said in March.

Meanwhile, foreign governments and banks are working to help stabilize Argentina’s economy. The People’s Bank of China agreed in late July to secure $1.7 billion in yuan through currency swaps so that Argentina could meet its $2.7 billion payment obligations to the International Monetary Fund. The remaining balance of the payment will be facilitated by a $1 billion loaned by CAF.

The IMF board was scheduled to meet in late August for additional reviews of the country’s efforts to stabilize finances, after which about $7.5 billion in new IMF funding would become available.