Mexico's ethylene project Braskem Idesa is on track for 2015 start-up

27 October 2010 16:42  [Source: ICB]

Braskem and Grupo Idesa's $2.5bn Ethylene XXI project in Mexico is moving forward for a 2015 start-up, with PEMEX on the sidelines for now

The Braskem Idesa joint venture has an "open invitation" to Mexico's state-owned energy giant PEMEX to take a minority stake in the project, the CEO of Mexico's Grupo Idesa says.


Gareth JJ Burgess

"We sent a formal invitation for PEMEX to take a stake in the project early this year. We don't have a response yet, but we have an open invitation. There's no rush," says Idesa CEO Jose Luis Uriegas.

"It will not be more than a 10% stake. PEMEX will be coming back to us in the coming months, possibly in 2011," he adds. While Idesa would welcome PEMEX as a minority partner in the project, Uriegas says the construction does not depend on PEMEX taking a stake.

"This project is going ahead. We would like PEMEX as a partner if that's what they wish, but it is not a critical aspect," he says.

Backed by an ethane supply contract from Mexican state-owned oil company PEMEX, the country's $2.5bn (€1.8bn) petrochemical and polymers project, to be built by joint-venture (JV) partners Braskem of Brazil and Grupo Idesa of Mexico, is set to start up in early 2015. The project will be the largest to date in Mexico and would reduce the country's imports of polyethylene (PE).

"Before the end of this year, we will have selected the technology for the cracker and polyethylene plants," says Jose Luis Uriegas, CEO of Idesa, in an interview with ICIS.

"We will have completed the FEED [front-end engineering and design] by mid-2011, and at this time will also get financing commitments from banks. We want to execute the financing arrangement by the end of 2011, then have construction in 2012-2014. By early 2015, the project should be on stream," he notes.

The JV project, Braskem Idesa, is also known as Mexico's Ethylene XXI project. The partners aim to have 70% of the cost financed with debt, says Uriegas. Braskem Idesa was launched in April, with Braskem holding a 65% stake and Idesa 35%.

Institutions interested in the project include national development banks Nacional Financiera and Banco Nacional de Comercio Exterior in Mexico, and the Brazilian Development Bank in Brazil; export credit agencies for the import of equipment from the Americas, Asia and Europe; the World Bank's International Finance Corp. and commercial banks, says Uriegas.

Cleantho Paiva Leite, commercial and business development director of Braskem Idesa, confirms that the project is "very much on track" for a start-up in early 2015.

Jorge Buhler-Vidal, director of US-based Polyolefins Consulting, says: "The schedule looks very reasonable. Most of the difficult decisions, such as the supply of ethane, have already been made."

The project will be sited near Coatzacoalcos, in Veracruz state, close to PEMEX's facilities, but the exact site has not been selected. "We are still negotiating for this piece of land, as well as considering some other alternatives near Coatzacoalcos City," Uriegas says.

"Before the end of this year we will have selected the technology for the cracker and polyethylene plants. By early 2015, the project should be on stream"
Jose Luis Uriegas  CEO, Grupo Idesa
The project comprises a 1m tonne/year ethylene cracker and PE plants with a capacity of 1m tonnes. The previously planned breakdown of 450,000 tonnes/year of high density polyethylene (HDPE), 350,000 tonnes/year of linear low density polyethylene (LLDPE) and 200,000 tonnes/year of low density polyethylene (LDPE) has yet to be finalized.

"The breakdown is not yet decided. It will be part of the market studies we will finish by the end of 2010. Then we can confirm or adjust these figures," says Uriegas.

Discussions for Mexican polyvinyl chloride (PVC) producer Mexichem to buy 200,000 tonnes/year of ethylene from Braskem Idesa are currently off the table, but Uriegas does not rule out the future possibility. "Right now we plan to use 100% of the ethylene for PE production. But if Mexichem is interested, we can discuss this," he says. Buhler-Vidal notes that the 200,000 tonne/year LDPE plant is likely to be lower on the priority list, compared with the HDPE and LLDPE plants.

The Ethylene XXI project, a revival of the failed Phoenix project in Mexico, received a major push forward with the announcement of Braskem and Idesa securing a feedstock contract with Mexican state-owned energy giant PEMEX in November 2009.

The Phoenix project was conceived in 2003, scaled back in 2006 and then fizzled out completely in 2007. PEMEX had planned to build a 300,000 tonne/year PE JV project with Canada's NOVA Chemicals and Idesa. The inability to reach an ethane supply agreement with PEMEX derailed the Phoenix project.

Buhler-Vidal estimates that there is an 85-90% probability that the Ethylene XXI project will be completed. "The only uncertainty is political - it is not technical or financial. Both partners know what they're doing and are realistic, and have the market and raw materials," he says. "All the pieces are there. There's just the nagging question of: 'What if someone in the Mexican government changes his mind in the next year or two?'"

"This will be one of the most competitive integrated plants in the Americas"
Cleantho Paiva Leite, Commercial and business development director, Braskem Idesa
The announcement that PEMEX had agreed to provide 66,000 bbl/day of ethane feedstock to the project was made at the 2009 Latin American Petrochemical and Chemical Association (APLA) conference, in Mexico City.

The ethane price formula is confidential, but will make the project competitive with others in the Americas, according to Uriegas. The supply contract is for 20 years with an option to be extended by another 15 years.

"Our cracker will be very competitive with any cracker supplied by naphtha and competitive with other ethane crackers in North America," he says.

"We are on track for start-up by early 2015. Before the end of this year we will have selected the technology for the cracker and polyethylene plants"
Jose Luis Uriegas, CEO, Grupo Idesa
"Due to the scale of the project, modern and efficient technology, infrastructure in Mexico and raw material costs, this will be one of the most competitive integrated plants in the Americas," says Leite. Most of the PE production volumes will be for the domestic market, which is short of the material.

"The project will have a major impact on the Mexican polymers market. When in operation, we will be the largest polymer producer in Mexico and one of the large players in the Americas," says Leite. "It will significantly reduce the volumes of imports of PE into Mexico, so that by 2015, with our operations, imports should fall from 1.5m tonnes in 2014 to approximately 600,000 tonnes in 2015."

There is also the potential for limited exports of PE in the first few years of operation, he adds. "Mexico will still be substantially short of PE, so in essence, once you get this project going, you might as well start building another right away," says Buhler-Vidal. "It's a market growing at about 4%/year with a huge deficit, so there shouldn't be a major problem selling more PE."

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By: Joseph Chang
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