Brazil to lead the Latin American petrochemical industry out of the recession

On the comeback trail

30 October 2009 00:00  [Source: ICB]

Consultant's corner
Jorge Buhler-Vidal/Polyolefins Consulting

Brazil is set to lead the Latin American petrochemical industry out of the economic crisis with ambitious expansion plans

EVEN IF the worst of the global recession is over, the recovery is set to be long. Latin America has been hit, with some countries facing a deeper crisis and a slower recovery. But Brazil's chemical industry is taking advantage of the financial environment to implement ambitious growth plans.

On a macroeconomic basis, Brazil, Chile, Colombia and Peru fared better than other Latin American countries during the crisis so recovery will start earlier. Peru may lead, while Colombia, with its persistent guerrilla problem, may be the laggard. Brazil and Chile, thanks to their long-term responsible economic policies will form the solid core.

Rex Features/Chris Eyles

VULNERABILITY
Thanks to their energy supply capabilities, Venezuela and Trinidad and Tobago will suffer less than many countries, although their dependency on fossil fuel exports will make them vulnerable.

Because of erratic economic policies, Argentina, Bolivia and Ecuador will suffer more and their recovery will take longer. But Argentina, because of its agricultural strength and commercial ties to Brazil, may lead this weak group out of the recovery. Mexico, because of its strong interdependence with the US, will be dragged down with its northern neighbor and recovery will take even longer.

From a global perspective, the Latin America and Caribbean region continues to be the most active area for petrochemical projects after Asia and the Middle East. Brazilian chemical firm Braskem and state-operated energy and chemical company Petrobras are prime movers behind most of the region's projects.

The economic outlook for Brazil is among the most positive for the region. The economy appears to have stabilized and has started to improve. Demand from China, the success of tax reductions for autos and consumer appliances, and the huge promise of Petrobras's pre-salt hydrocarbons program, have inspired confidence.

Petrobras and Braskem have very ambitious objectives. Petrobras, the fourth-largest publicly traded corporation in the Americas, plans to be among the world's five largest integrated energy companies.

Braskem, the third-largest resins producer in the Americas (after US-based Dow Chemical and Dutch giant LyondellBasell), expects to be among the world's top five petrochemical companies by enterprise value by 2020. Braskem is looking to acquire polyethylene (PE) and polypropylene (PP) assets in the US by late 2009 or in 2010.

After decades of steady exploration, Petrobras discovered significant amounts of medium to light oil and gas in the Brazilian offshore pre-salt formation, located 340km (211 miles) from the coast. The pre-salt fields are expected to produce more than 1.3m bbl/day of oil by 2017 - nearly 70% of what Petrobras produces in Brazil today.

Braskem is building its "green" PE facility, processing sugar cane ethanol to supply feedstock to an existing plant at the Triunfo complex by the end of 2010.

And just when the Brazilian consolidation seemed to have been completed with the incorporation of Petroquimica Triunfo into Braskem and the ongoing consolidation of petrochemical firm Quattor, Braskem and Quattor are now studying a strategic alliance. A combined Braskem/Quattor would become the only PP and PE producer in Brazil.

BRAZIL EXPANSION UPDATE
The Quattor olefins expansion at the former Petroquimica Uniao (PQU) site is expected to be completed by the end of the year. The project will increase ethylene capacity from 500,000 tonnes/year to 700,000 tonnes/year. The new 230,000 tonne/year PE unit was completed in February and is awaiting the available ethylene. The ethylene expansion project was originally scheduled to be finished in 2007, and expected to cost $450m (€305m) rather than the current estimated $1.2bn.

Meanwhile, Petrobras is keeping to the timeline for its Comperj project, the largest single petrochemical investment in its history, at a budgeted $8.5bn. It is expected to process 150,000 bbl/day of heavy oil from the Campos Basin by 2012, producing olefins and downstream products such as PE, PP, purified terephthalic acid (PTA), polyethylene terephthalate (PET), monoethylene glycol (MEG) and styrene.

Quattor, Braskem and Brazilian industrial group Ultra continue to be interested in investing in Comperj's downstream plants, but remain uninterested in investing in production at the combined refinery and basic petrochemical level.

Dow is searching for a new partner, replacing its former Brazilian partner Crystalsev, to build a PE plant supplied with ethylene from sugar cane ethanol. The firms announced plans for a 350,000 tonne/year PE facility in Santa Vitoria. The $1bn facility, which would process 8m tonnes/year of sugar cane, was expected to start production in 2011.

The Solvay Indupa high density polyethylene (HDPE) plant in Sao Paolo was permanently shut down in September to shift ethylene usage to the newly expanded 300,000 tonne/year polyvinyl chloride (PVC) plant.

VENEZUELA DE;AUS JV PROJECTS
Venezuela's new petrochemical law, which went into effect in July, only allows private companies to hold up to 50% of state-private companies. Clark Inciarte, the new vice minister of petrochemicals and president of state chemical firm Pequiven, recently clarified that this law would not affect established ventures.

The start-up of the two Braskem/Pequiven joint ventures (JVs) has been delayed. In both cases, Braskem and Pequiven hold 49% each, while Japanese trading firm Sojitz and Venezuelan chemical distributor Coramer hold 1% each. Propilsur, the future PP producer, will start up in early 2013, rather than in 2011. Polimerica, the future PE producer, will start up in 2014, rather than in 2013. Construction on Propilsur will start by the second half of 2010, and the Polimerica construction is expected to start by the end of the first half of 2011.

The delayed start-ups are to coincide with the expected upswing in petrochemical sales by 2013. Additionally, access to financing has become harder since the end of 2008, and the global recession is expected to reduce equipment and contractor costs to 2007 prices.

It is expected that Polimerica's $3.6bn investment will be reduced to $3bn, and the Propilsur investment will be down to $900m-1bn, from $1.2bn.

An $11bn investment at the Paraguana complex is planned to produce olefins, aromatics and downstream chemicals by 2014.

MEXICO NEGITATES ETHYLENE XXI
Mexican chemical producers Alpek, IDESA, Mexichem, along with Brazil's Braskem are attempting to secure feedstocks from state energy firm PEMEX at competitive prices with an assurance of continuous supply for the $1bn Ethylene XXI cracker and downstream plants planned for the Gulf coast. The project has a tentative 2014 start-up date.

PERU PROJECT DELAYED TO 2016
The Braskem, Petrobras and Petroperu project to build a petrochemical complex in Peru is being delayed. The initial start-up date of 2014-2015 has been pushed to 2016.

The project to produce ethylene and 700,000-1.2m tonnes/year of PE requires the availability of 40m ft3 (1.1m m3) of ethane-rich natural gas to become viable, which is only expected to happen by 2016. The PetroPeru and Petrobras $1bn, 750,000 tonne/year ammonia project also has been delayed because of a lack of feedstock.

Other projects include a $1bn nitrogen fertilizer project by US-based CF Industries near San Juan de Marcona, expected to produce 2,600 tonnes/day of ammonia and 3,850 tonnes/day of urea by 2013.

LATIN AMERICA GDP GROWTH (%)

Country	2004	2005	2006	2007	2008	2009 p	2010 f
Argentina*	9	9.2	8.5	8.7	6.8	-2.5	1.5
Bolivia	4.2	4.4	4.8	4.6	6.1	2.8	3.4
Brazil	5.7	3.2	4	5.7	5.1	-0.7	3.5
Chile	6	5.6	4.6	4.7	3.2	-1.7	4
Colombia	4.7	5.7	6.9	7.5	2.5	-0.3	2.5
Mexico	4	3.2	5.1	3.3	1.3	-7.3	3.3
Peru	5	6.8	7.7	8.9	9.8	1.5	5.8
Trinidad and Tobago	8	6.2	13.5	4.6	2.3	-0.8	2
Venezuela	18.3	10.3	10.3	8.4	4.8	-2	-0.4
S. America and Mexico				5.7	4.2	-2.7	3
Notes: p - preliminary figures; f - forecast figures. *Private analysts are of the view that real GDP growth has been significantly lower than the official reports since the last quarter of 2008
SOURCES: IMF, OCTOBER 2009; POLYOLEFINS CONSULTING

Jorge Buhler-Vidal is director of US-based Polyolefins Consulting, which provides market, product and process technology selection consulting for olefins and polyolefins producers; and the overall chemical industry

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