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Dow Chemical to invest upstream to secure gas supply

Dow to pioneer Argentina first shale gas pilot project

2B1st_Project_Smart_Explorer_Sales_Pursuit_ToolThe Dow Chemical Company (Dow) from USA and the Argentina national oil company YPF  signed a memorandum of understanding (MOU) to develop shale gas in the giant deposit of the Vaca Muerta in the eastern Province of   Neuquen.

For Dow, the control of the natural gas supply is a vital parameter of its competitiveness within the hydrocarbon-based chemical industry.

YPF_Bridas_Vaca_Muerta_MapSo far Dow could take advantage of its global position to boost production in the regions of the world where the resources are the cheapest.

This strategy finds its best illustration with the $20 billion capital expenditure of the Sadara project to build in Saudi Arabia a giant petrochemical complex in joint venture with Saudi Aramco.

Since Sadara was decided in the year 2000’s the US shale gas became a reality up to the point that all the international companies are relocating their petrochemical activities in USA and Saudi Aramco is now starting to explore shale gas for its own purpose.

Dow is in the lead of this relocation movement of the petrochemical industry in the USA and  is actively lobbying in the USA against the export of liquefied natural gas (LNG) from the USA as it could propel the local natural gas prices to dangerous high levels compared with other producing regions in the world.

In opposite way the oil and gas companies are developing an integrated upstreamdownstream business model eliminating most of the risks on the gas prices fluctuation since the gas price is mostly used for internal transfer calculation.

Dow being concentrated on the downstream part is highly reliant on the gas prices. 

Dow_YPF_Argentina_First_Shale_Gas_Pilot_ProjectIn this context, the opportunity to get access to shale gas resources and to develop a pilot project with YPF represents some kind of U-turn in Dow strategy investing upstream to benefit from this integrated upstream – downstream business model developed by its global competitors.

According to the terms of the MOU, Dow and YPF will establish a 50/50 joint venture to develop the Block El Orejano located in the area of the Vaca Muerta basin already explored.

This choice was justified by the successful connection on March 1st of the El Orejano-2 to the Pacific Pipeline by the first shale gas well put in commercial production.

From this first step, Dow and YPF intend to develop the Block El Orejano as the first shale gas field pilot project.

Dow and YPF to partner downstream and upstream

For Dow this upstream experience is perfectly located in Argentina as it is partnering for years with YPF on the downstream side with the Bahia Blanca petrochemical complex.

Dow_YPF_El-Orejano_Shale_Gas_Pilot_ProjectIn 2007 Argentina put in place an export tax system to preserve the price level of the oil and gas in the country against the international fluctuations.

If these measures were efficient in that respect, their backside had been to dry up all the investments of the international companies in Argentina.

Over the years the old fields matured and the lack of investments led Argentina to turn short of natural compared with its own consumption.

The discovery of the Vaca Muerta and other unconventional oil and gas fields in the same time motivated the Argentina Government to adjust its export tax to attract again the international companies.

BP through Bridas, Chevron, China National Petroleum Company (CNPC or PetroChina), Statoil, Total signed agreements in Argentina to explore unconventional resources.

For Dow, Argentina is a country managing cautiously its export of oil and gas while developing its reserves of shale gas estimated to the third largest in the world after USA and China.

In that respect Dow and YPF pilot project in Argentina is to return experience about shale gas development, the integrated upstream – downstream business model and the benefit or not for a country to control its oil and gas export despite huge resources.

For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer


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