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September 14, 2016

Volume 17 Issue 52

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Shell May Divest in Argentina

As part of strategy to raise cash, Royal Dutch Shell last week announced that it is reviewing the possible sale of its downstream assets in Argentina, including one of the country’s largest lubricant businesses and a base oil plant in Buenos Aires.

Shell holds an estimated 20 percent to 25 percent of Argentina’s lubricant market, according to Claudio Pereira, director of Brazilian consultancy LubeKem. As a result, a sale could have a significant impact on the market, depending on buyer and other details.

“The impacts on the Argentinean downstream markets, if Shell really decides [to sell], will depend on the divestment model to be used, which is not so clear yet,” Pereira explained via email.

Shell’s assessment of Argentinian downstream operations is part of an effort to raise U.S. $30 billion through divestments from 2016 to 2018. In addition to lubricant sales, those operations include a Buenos Aires refinery with a 1,500 barrel per day API Group I base oil plant, along with 600 retail fuel stations and chemicals, liquefied petroleum gas and marine and aviation fuels activities. The review does not include Shell’s exploration and production operations in Argentina, which the company intends to keep.

If a sale does go through, it could represent the latest in a series of shake-ups to Argentina’s lubricants market. The country’s other leading lubes suppliers include state-owned YPF, Petrobras Argentina and Axion Energy, Pereira said. Argentina energy company Pampa Energia recently bought Petrobras’ 67 percent stake in its Argentina subsidiary for $897 million. Axion Energy’s lubricant operations are part of ExxonMobil’s former downstream operations in Argentina, which Axion acquired in 2012.

Argentina’s lubricant consumption was around 292,000 metric tons in 2015, Pereira added, but he forecast that demand for lubes will drop between 3 to 5 percent this year due to the economic recession in the country.

“In the lubricants markets, the domestic Group I base oils are still the main base stocks for blenders, complemented by imports, and local production is not enough to cover all the demand, so depending on Shell's divestment model, the imports of base oils and/or finished lubricants could increase in the near future,” Pereira speculated.