FocusPeru seeks to jumpstart petchem industry

23 August 2007 23:00  [Source: ICIS news]

By Jasmina Kelemen

CARACAS (ICIS news)--Peru's attempt to jumpstart a petrochemical industry is attracting international attention from investors interested in setting up shop next to the region's abundant natural gas supplies.

The potential for billions of dollars worth of outside investment hinges on a variety of  factors, including the willingness of Peruvian legislators to pass an incentives bill in the coming month, the construction of supporting infrastructure and nailing down coveted feedstock supply contracts.

"The whole thing is very iffy right now, but over the last six months there's been quite a bit of activity," said Jorge Buhler, director of Polyolefins Consulting.

Earlier this year, the Ministry of Energy and Mines and Ministry of Production crafted a bill offering tax incentives to companies interested in building petrochemical plants. Much of the proposed legislation involves repealing sales taxes for goods and services.

However, the legislative process was threatening to slow the project even before it got off the ground.

Earlier this month, a local finance daily reported that several legislators said it will be difficult to approve the bill by September, since the mining and energy committee has yet to be established.

Energy officials have said they were hoping for the bill to be passed in September to coincide with the completion of a feasibility study and pave the way for groundbreaking next year.

So far, the biggest outside player to express interest in developing Peru's petrochemical capabilities is Brazilian state-run Petrobras.

The company recently said it would invest about $800m (€592m) in a joint-venture project to produce urea and ammonia with Petroperu, depending on the outcome of feasibility studies.

The facility would be located in either Ilo or Matarani, near the border with Chile and Bolivia, and would rely on a 700 kilometer pipeline built by French-Belgian concern Suez Energy to bring natural gas from the Camisea gas fields.

However, even securing the natural gas supply is still far from a sure thing.

"We're negotiating with Camisea over the price at which we'll acquire the feedstock that the industry will use and it's the government's intention that these talks are…concluded by the middle of September," said Cesar Gutierrez, president of Petroperu, in Spanish to a local radio programme earlier this month.

"That way, an investment decision can be made in the last three months of this year," he said.

But according to Norberto Benito, the general manager of Pluspetrol, which produces gas from the Camisea field, Petroperu and Petrobras are not the only companies vying for feedstock supply contracts.

Benito told Peru's state news agency that 12 firms are interested in setting up petrochemical operations and are making bids for natural gas supplies, among them Mexico's Protexa, Chile's Enaex, Australia's Orica Mining Services and Terra Industries.

"One of the companies that we're negotiating with pays $7 per million British Thermal Units in the United States, while in Peru the price is $2.40 for the industrial sector," Benito told the Andina news agency.

Due to local demand constraints, Pluspetrol is offering only two supply contracts.

Earlier this week, vice-minister of industry Carlos Ferraro said Terra Industries and Orica Mining Services were interested in building a plant with the capacity to produce 550,000 tonnes of ammonia and 300,000 tonnes of ammonium nitrate annually.

Currently, Peru produces very little ammonia and imports 170m-190m tons of ammonium nitrate, which is typically used to make explosives for the mining industry, the official state news agency reported.

A representative of Terra Industries would not comment on the company's specific plans but said the fertilizer company is looking at a number of projects around the world in natural-gas producing regions.

"Peru is one of those spots that would be interesting," said Joe Ewing, vice-president of investor relations for Terra.

"Natural gas is very volatile [in the US]," said Ewing. "We're looking for a stable source of natural gas because it's a huge component of our feedstock, anywhere from 60-80% to make a tonne of ammonia," he said.

Last week, the head of the Oswal Chemicals & Fertilizers of India met with Peruvian President Alan Garcia and said the company was interested in building a $1.2bn fertilizer plant. Oswal's Rajhv Gupta told local newswires it would be the largest urea plant in the world.

Buhler said he believes local demand justifies the creation of a world-class petrochemical plant and that the idea of creating a petrochemical industry from the ground up is not just the pipe dream of politicians hoping to spur local development.

"No one is going to build a small plant just for the sake of building a plant in Peru," said Buhler.

($1.00 = €0.74)

By: Jasmina Kelemen
+1 713 525 2653

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