Venezuela eyes $45bn petrochemicals investments

Raining petrochemicals

14 January 2008 00:00  [Source: ICB]

Venezuela's president says a string of new projects planned for the region will enable petrochemicals to "rain" down on the the country, boosting development and stimulating economic growth in impoverished regions

Anna Jagger/London

VENEZUELA'S "PETROCHEMICAL revolution," heralded by the country's president, Hugo Chavez, is expected to pump investments of some $45bn (€30.6bn) into olefins, aromatics and fertilizer projects over the next 14 years.

Phase I would require an investment of about $20bn, aimed at expanding existing sites and creating three new complexes over the next seven years. A second phase could bring the total investments up to a staggering $45bn.

Chavez has been introducing sweeping changes in Venezuela's laws, aimed at ­redistributing the country's oil wealth to poor farmers in rural areas, and has pinpointed chemicals as a key growth sector.

Venezuela is realizing the importance of adding value to its oil and gas resources by transforming them into chemical products, explains Mario Bello, corporate planning manager at state-owned petrochemical group Pequiven.

"Venezuela has the highest reserves of oil and gas in the world," he says. "As well as reinforcing the importance of oil in our economy, we are now aware of the importance of developing petrochemicals in terms of increasing employment and social development."

The country's existing and proposed petrochemical complexes are dotted mainly along the northern coastal region. Central to the petrochemical revolution is the development of industries that consume petrochemicals - plastics converters, general manufacturing and the agro-food sector - in the more southerly inland states, boosting economic development in poorer areas. The strategy follows a model established in Iran, where the West Ethylene Pipeline is being developed to feed chemicals project in the inland provinces.

"Chavez is helping to ensure we have the raw materials and the funding for the development," says Pequiven director Polia Herrera de Saez. "The idea is to rain inside the country by installing new downstream plants."

TIGHT RESIN SUPPLY

Venezuela drastically needs to increase its plastic resins production and plastic ­converting capabilities to meet rising domestic demand for transformed products. Resins have been in critically short supply in the country over the past year, as demand in the construction and packaging sectors has surged, while maintenance work has slowed Pequiven's resins production.

The domestic market for transformed plastic resins expanded by 25% in 2006 and was expected to grow by 32% in 2007, says de Saez. "We are putting the raw materials in the hands of the transformers so they can increase their capacities."

Under a government pricing policy aimed at boosting investments in plastics conversion, Pequiven supplies the domestic converting sector with resins at the best known price in the region, notes Bello. In addition, plastics converters are eligible for tax breaks on imports of machinery and capital goods that are not available in Venezuela.

Any plastic resins production not consumed domestically will be exported to Venezuela's natural markets - Central America, the Caribbean and North America, says Bello. Some output is also expected to reach Europe.

Adding fertilizer capacity, both for nitrogen and phosphorus-based products, is also a key component of Chavez's petrochemical strategy. "Fertilizers are one of the most important drivers. [They] are part of the country's food self-sufficiency plan," says Bello. "Our aim is to be one of the main suppliers of nitrogen products to the region."

Some commentators question how many of the projects included in the petrochemical revolution will come to fruition. They point to the painfully slow development of the Jose polyolefins project, in the eastern state of Anzoategui, which was originally conceived in the early 1990s. Discussions broke down with original partner ExxonMobil in 2006, and Pequiven is now developing the project with a new partner, Braskem.

"It will be a big challenge," says an official with a major international producer (who wishes to remain unnamed). "Attempts to develop the project with ExxonMobil lasted 15 years, and that was a smaller project."

Pequiven's new petrochemical production will have to compete with new capacity coming onstream in the Middle East. How well Venezuelan projects can compete will depend on the price of feedstock, remarks Ed Gartner, director for world petrochemicals at SRI Consulting. "If the feedstock is very competitive compared with the Middle East, then those projects may happen, but if it's not, and if taxes are put on it, the projects may not be built."

De Saez acknowledges that the petrochemical investment plan is hugely ambitious. "It is one of the most important plans in our country at the moment... The government is allocating a large quantity [of resources] to realise these projects."

The global lack of engineering resources will make it a challenge to complete the projects on time, says de Saez. "We are not the only people planning to grow in petrochemicals. When we seek an [engineering] agreement for a project, we know there are three or more investments looking for the same equipment."

Chavez has told the world that Venezuela will become a petrochemical power, not just in the continent but in the world, asserts Bello. "Many companies around the world know we are getting serious, because one of the important things about Chavez is that what he says, he does."

The proposed $45bn dual-phase investment plan, to be implemented by Pequiven with joint venture (JV) partners, includes first and second-generation production plants. Plastic-transforming plants will be built by private companies, notes de Saez.

Pequiven intends to hold a 50% stake in any new JVs. "Petrochemicals are strategic products for our country. We need to have a good participation [in the JVs] to ensure that the projects are implemented as planned," she adds.

Prospective partners include Iran's National Petrochemical Co., China's Sinopec and India's Reliance Industries Ltd. "We are in conversation with different potential partners," says Bello.

The proposed new complexes will be located at Paraguana, in the western state of Falcon Puerto Nutrias in the central state of Barinas and Navay, in the western state of Tachira.

The Paraguana complex will produce olefins and aromatics based on naphtha from the Paraguana refinery of state-owned energy group Petroleos de Venezuela (PDVSA). It is expected to be completed in 2014.

Pequiven plans to build a fertilizer complex in Puerto Nutrias, which is due onstream in 2012. It will produce phosphoric acid, sulfuric acid, diammonium phosphate (DAP), ammonium sulfate and nitrogen-based fertilizers.

The Puerto Nutrias complex will receive raw materials from a phosphate rock mining and concentration facility in Navay, which is due onstream in 2011.

Pequiven is developing expansion plans at its existing sites. A fertilizer expansion in Moron/El Palito in the central state of Carabobo, near the El Palito refinery, is one of the most advanced projects included in phase I.

In Jose, Pequiven and Braskem plan to bring onstream a 1.3m tonne/year ethylene plant a 1.1m tonne/year polyethylene (PE) plant by 2012 and a 450,000 tonne/year polypropylene (PP) plant by 2010.

At the Ana Maria Campos/El Tablazo complex in the western state of Zulia, Pequiven is expanding its existing PE units and building a new ethane cracker and PE units in association with affiliate Polinter. The cracker, which is expected to have an ethylene capacity of 800,000-1m tonnes/year, will receive ethane feedstock from PDVSA's Western Cryogenic Complex (Complejo Criogenico de Occidente - CCO).

The CCO natural gas-to-liquids project is under construction on the eastern coast of Lake Maracaibo, Zulia state. Announced by Chavez in November 2006, the project is aimed at substituting gasoline for gas in Venezuela, raising oil exports, and developing the petrochemicals sector. It is expected to be completed in 2009.

"The objective of the project is to collect the different gas pipelines in the west of the country to organize the extraction of the ethane," says Bello.

Venezuela is also building a gas pipeline with Colombia that will help solve short-term gas shortages in western Venezuela. "In the beginning, the gas will come from Colombia, but after 2009-2010 we will revert the flow and sell gas to Colombia," Bello explains.

Pequiven intends to raise its share of the Latin American resins market from 7% to 31% by the end of the first phase of its planned expansion, says Pedro Ramirez, a commercial manager at the company. PP production will reach 1.3m tonnes/year from 110,000 tonnes/year, high density polyethylene (HDPE) production would jump to 1.2m tonnes/year from 90,000 tonnes/year, while low density polyethylene (LDPE) output will rise to 607,000 tonnes/year from 80,000 tonnes/year. Polyvinyl chloride (PVC) production is expected to increase to 390,000 tonnes/year from 120,000 tonnes/year.

As part of plans to replace imports, Pequiven is also targeting three polyethylene terephthalate (PET) projects. Venezuela has no PET plants, so the country's entire consumption is imported, says de Saez.

Two projects are included in phase I of the $45bn investment program, and a third is under consideration for phase II.

Pequiven plans to build the first PET plant in El Palito, about 5km (3 miles) from the Moron fertilizer plant. The 120,000 tonne/year plant is due onstream in 2010, and purified terephthalic acid (PTA) feedstock will be supplied from Mexico using paraxylene (PX) from the El Palito refinery.

The second PET plant will be located at the new Paraguana complex and have a capacity of 800,000 tonnes/year. Feedstock will be supplied from a 900,000 tonne/year PTA plant, to be built close to the Paraguana refinery. The PET and PTA plants are due onstream in 2013.

As part of phase II, Pequiven is considering building a second PET plant in El Palito. The plant would have the same 120,000 tonne/year capacity as the site's first PET plant, and could come onstream in 2015 or 2016.

Spanish company Novapet is interested in investing in the first PET project, according to de Saez. The design would be based on Novapet's existing PET plant in Barbastro, Spain. Novapet and Pequiven have signed a project development agreement for the first PET plant, she adds "and they are very interested in continuing with us in the second plant."

NEW COMPLEXES

Location Product Capacity (tonnes/year) Start-up
Paraguana ethylene 943,000 2013
high density polyethylene (HDPE) 500,000 2013
polypropylene (PP) 800,000 2013
purified terephthalic acid (PTA) 900,000 2013
polyethylene terephthalate (PET) 800,000 2013
styrene monomer (SM) 600,000 2013
acetic acid 200,000 2013
monoethylene glycol (MEG) 350,000 2013
butadiene (BD) 120,000 2013
benzene 770,000 2013
paraxylene (PX) 700,000 2013
Puerto Nutrias urea 726,000 2012
sulphuric acid 660,000 2011
phosphoric acid 200,000 2011
ammonium sulphate 90,000 2011
monoammonium phosphate (MAP)/diammonium phosphate (DAP) 330,000 2011
Source: Pequiven

VENEZUELA'S ACTION PLAN

Phase I of Venezuela's strategic plan requires $19bn-24bn (€13bn-16bn) investment between 2007 and 2013

Petrochemical output would rise from 11m tonnes/year to 32m tonnes/year

Plastic resins output would rise from 630,000 tonnes/year to more than 5.4m tonnes/year

New production complexes in Paraguana (for olefins and downstream), Puerto Nutrias (for fertilizers) and Navay (for phosphate rock mining and concentration)

Expansion of existing complexes in Moron, El Tablazo (renamed Ana Maria Campos) and Jose

Phase II of Venezuela's strategic plan requires $20bn-25bn investment between 2014 and 2021

Phase II could include a nitrogen-based fertilizer complex in Guiria, Sucre state, in eastern Venezuela Iran's NPC has expressed an interest





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