OUTLOOK ’08: Feedstock woes plague LatAm

31 December 2007 21:00  [Source: ICIS news]

Feedstock woes plague Latin AmericaBy Jasmina Kelemen

CARACAS (ICIS news)--Latin America’s petrochemicals markets will remain stable in 2008 due to overall strong economic growth but patchy feedstock supplies threaten to hold back the industry's expansion, said analysts.

The scarcity of feedstock and potential shortfalls in electricity supply could also be a driving force in shifting political alignments in the year ahead.

“The challenge of the petrochemical industry in Latin America is to secure a stable source of supply,” said Roger Tissot, a political risk analyst at PFC Energy.

“Look at [Chile's] Methanex; it has a beautiful project but it ran out of gas.”

The precarious supply situation was felt most acutely in South America, where a natural gas shortage in Argentina forced Dow Chemical to halve production at Bahia Blanca during the critical winter months.

Investment remains subdued due to the outages, obliging producers to secure their own feedstock supplies before considering potential expansions.

“No-one is investing along the petchems chain [in Argentina]," said Jorge Buhler-Vidal, director of Polyolefins Consulting.

 “There will be no new investments unless [producers] can be sure that there will be no outages,” he said.

A lack of energy also threatens to restrict growth in the region’s largest economy, Brazil, where the industry this year underwent a series of consolidations to produce some of the largest petrochemical producers in Latin America.

The scarcity of gas has prompted Brazil to scour the continent for supplies and is the impetus behind plans to invest billions of dollars throughout Latin America. In late December, Brazil and Bolivia announced a letter of intent for up to $1bn (€680m) in natural gas investments.

Relations between the two nations had cooled after Bolivia's President Evo Morales nationalised most of its hydrocarbons sector in May 2006, following the example of his close ally, Venezuela’s Hugo Chavez.

Advancing natural-gas talks at the executive level could boost petrochemical plans since Brazil's Braskem suspended its plans to build an ethylene and polyethylene plant in Bolivia last year.

Local media has reported that Braskem could soon rethink its strategy for Bolivia. Analysts do not put too much stock in Bolivia’s vague plans to develop its petrochemical industry with Venezuelan and Iranian financial backing.

"Bolivia is a stranded country with significant needs for social development," said Tissot. It makes more sense for the land-locked nation to negotiate the best price it can get for exporting gas to Argentina and Brazil, he said.

In energy-rich Venezuela, state-producer Pequiven has the feedstock but not the capacity to meet the nation's surging demand for petrochemicals.

In an effort to reverse years of neglect in the petrochemical sector, Chavez has vowed to invest in a project to triple Pequiven's output by 2013.

But in the near term, Pequiven will have to rely on imports to cover the local market's demand for plastic resins.

In Peru, an abundance of natural gas, an investment-friendly government and a new free trade agreement with the US is attracting interest from petrochemical producers from all over the world.

CF Industries has outlined plans to build a world-class fertilizer plant using natural gas from the Camisea field.  Producers, such as Brazil's Petrobras, South Korea's SK Corp and Dow, are also eyeing ethane contracts that should be available in 2008 to feed a future polyethylene plant.

Foreign investors will continue to evaluate opportunities in Colombia, where the government has expressed interest in expanding its petrochemical industry. A new petrochemical industrial zone planned for Cartagena would allow feedstock suppliers, resins producers and transformers to operate within the same complex.

($1.00 =  €0.68) 

By: Jasmina Kelemen
+1 713 525 2653

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