Hablando de Mercado: From Argentina to the world - Medanito exports to Europe increase

Author Argus

In addition to winning the World Cup in Qatar, Argentina will again make global news… but now in the oil market.

Join Josh Vence, Argus Business Development Manager for Latin America, and Giovanni Rosales, Reporter of the Latin America Crude Marketto understand how global markets have shaped themselves so that Argentina's top export grade, Medanito, has become a solution for countries such as the United Kingdom, Italy, the Netherlands, Denmark, Peru and soon Chile, with a 30pc increase in the production volume of this crude from Vaca Muerta .

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Josh Vence: Hello and welcome to Hablando de Mercado (“Market Talks”), a series of podcasts presented by Argus on the main events affecting the energy and raw materials industries in Latin America and the rest of the world. My name is Josh Vence and I am a business development manager at Argus for Latin America. In today’s episode, we will be speaking with Giovanni Rosales, a reporter specializing in the Latin American crude market and writing for the Argus Americas Crude report, about Argentina’s Medanito crude. Giovanni, you have been aware of the recent changes in this Argentine crude. What is new with Medanito?

Giovanni Rosales: Hello, Josh! Thank you very much for having me on the podcast. It is a pleasure to participate again and to share the latest events regarding the development of the market for Medanito crude, including its new export destinations. Let us start by explaining that one of the factors that contributed to Medanito reaching new destinations was the stoppage of the Raizen refinery in Argentina, in October of last year. This refinery processes about half or more of the volume of Medanito and, following its stoppage, it stopped taking a large portion of the available volumes of this crude. Suddenly, Medanito’s export loads doubled, directly affecting its differentiators. This event had a greater impact for the value of Medanito crude, as its price had considerable discounts. Given the high discount rate at which it was traded, however, Medanito became more attractive to the European market, which at that time was looking for alternative grades before the start of the embargo on imports of crude transported by sea from Russia. This situation made it possible for Medanito shipments to reach the United Kingdom and Italy for the first time. In October, a shipment was bound for Pembroke, in the U.K., while in November, another one was shipped to the port of Immingham, in the same country. Italy-based Saras also received a shipment of Medanito at the refinery, operating in Sardinia. It is also important to note that the Netherlands and Denmark have received shipments of Medanito before. Now, back to Latin America, we saw a new market emerge for Medanito in Peru through Repsol, which brought at least two shipments to the refinery in La Pampilla, in December of last year.

Josh Vence: Thank you, Giovanni. You mentioned that there was more volume of Medanito available for export, but what about their production levels? Have they increased, decreased or stayed the same?

Giovanni Rosales: Most Medanito is produced in the Neuquén basin, where the Vaca Muerta deposit is located, and its production is increasing. According to statistics from the Argentine Ministry of Energy, the production level as of November of last year was around 303,000 barrels per day, that is, an increase of about 30 pc compared to November 2021. In turn, the highest production volume in Neuquén was around 308,000 barrels per day, indicating that production may soon reach new levels never seen before. Omar Gutiérrez, who is the governor of the province, previously estimated that crude production would reach 420,000 barrels a day this year. Should production continue to rise at the same rate, and if Medanito crude spreads remain around a $10 per barrel discount, shipments to Europe may become more frequent.

Josh Vence: What can you tell us about the high Medanito discount?

Giovanni Rosales: The cost of freight has a special impact on Argentine crudes because its route is one of the longest in Latin America. For example, a freight from Latin America to the West Coast of the United States, which incidentally is the market with the highest demand for Medanito, is around $70 per metric ton, amounting to $9/bl for a Medanito shipment. And of course, when sellers go to the market offering a shipment of Medanito, which is at least around 400,000 barrels equivalent to a Panamax freight, buyers take freight costs into account, which causes the value of shipment offers to depreciate. Despite that, Medanito shipments are also likely to be sold more often to other countries in Latin America, such as Brazil, Peru, and Chile, as the freight price would be cheaper for a short haul route, and many of the refineries in Latin America are set up to process crude oils with lower sulfur and acidity content.

Josh Vence: Giovanni, you mentioned Chile as an importer of Medanito crude, and we have heard about the increase in capacity of the Trasandino pipeline. When is it expected to be completed?

Giovanni Rosales: This pipeline, also known as Otasa, previously transported crude from Argentina to Chile but it is no longer used. Otasa had a capacity of 100, 000 barrels per day and is expected to increase it to about 115,000 barrels per day when it starts moving crude again by the end of the first quarter of this year. And when Medanito arrives in Chile through Otasa, it could be transported to the Port of Concepción, where it can cross the Pacific to reach other countries, or it could stay in Chile, since ENAP, Chile’s state-owned oil company, is a buyer of Medanito crude.

Josh Vence: I understand that production in the Neuquén basin is around 303,000 barrels per day and that the Otasa pipeline will have the capacity to transport around 115,000 barrels per day but it is not currently used. Giovanni, what other option is there to send Medanito to the international market?

Giovanni Rosales: One of the great challenges in Argentina is its limited transport capacity. There is, however, a second pipeline, Oldelval, which runs from Vaca Muerta to Puerto Rosales and has a capacity of 260,000 barrels per day. Despite that, capacity is limited, which may delay efforts to continue increasing crude production. This is why a new pipeline is currently being built, with the first phase of the project starting with the first 20 kilometers being in the Puerto Rosales region, near Buenos Aires. This work is part of the Duplicar project being developed by the Oldelval company. The pipeline will first go from Río Negro to Puerto Rosales, which the second phase being expected to be completed by late 2024. The pipeline will allow another 300,000 barrels per day to be evacuated from the Neuquén basin, for a total of up to 800,000 barrels per day. This would also enable the production goal proposed by Omar Gutiérrez, that is, 1 million barrels per day. Crude production at Vaca Muerta, which is increasing along with greater export capacity through the latest pipeline developments, will also allow other projects such as Ebytem’s to move forward. Ebytem is the company that operates the Puerto Rosales export terminal. By 2026, it expects to increase export capacity to 19.5 million cubic meters.

Josh Vence: Thank you, Giovanni! We are running out of time, but I would like to thank you very much for joining us on this episode of Hablando de Mercado. Visit our website for more information about our publications at www.argusmedia.com. You can listen to this and other episodes of our podcast series in Spanish, available through our website at www.argusmedia.com/hablando-de-mercado. Make sure you like, share and visit our page to follow the events affecting the world commodity market and to learn more about its effects on Latin America. We’ll be back soon with another edition of Hablando de Mercado. Bye!

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