Latin American projects face increased competition from US

04 June 2012 00:00  [Source: ICB]

Various new cracker projects are planned for Latin America, but their relative competitiveness could be reduced as a result of a wave of new ethylene capacity expected to come on stream in the US.

Before the global economic crisis in 2008-2009, there was great excitement about proposed new cracker projects in Latin America, says Raul Arias, senior consultant and manager for Latin America at Nexant. Now, with the improved competitive position of US cracker projects thanks to increased shale gas production, some of these Latin American projects are likely to be re-assessed, he adds.

Raul Arias

The US will now probably be the most competitive in the region

Raul Arias
Senior consultant - Nexant

The shale gas boom has led to many announced new cracker projects and expansions in the US. Four producers have already committed to building new world-scale crackers: Chevron Phillips Chemical (CPChem), Dow Chemical, Shell and Formosa Plastics. In addition, Sasol is conducting a feasibility study to build a new cracker in St. Charles, Louisiana. The new capacities are expected to come on stream in 2016-2017.

In Latin America, olefins and derivatives projects are being implemented or studied in Brazil, Mexico, Peru, Bolivia and Trinidad and Tobago (see map).

Brazilian resins major Braskem is a key player in most of these Latin American projects. The company has also said it is watching the shale gas play in the US, and is evaluating the construction of a new world-scale cracker in the country.

Last month Braskem started building its Ethylene XXI cracker and PE complex in Mexico with Mexico's IDESA and it plans to invest in the cracker and polyolefins part of Petrobras' Complexo Petroquimico do Rio de Janeiro (Comperj) project in Brazil. Braskem is also considering cracker and PE investments in Peru and Bolivia.

Braskem's plans for a joint venture cracker and PE complex in Venezuela remain on hold, although business development director Sergio Thiesen says the company could analyze the possibility of returning to the project if Venezuela's state-owned energy group PDVSA presented competitive raw material options. The project would be a partnership with Venezuela's state-owned chemical producer Pequiven.

Braskem and Pequiven are, however, continuing to study a polypropylene (PP) project in Venezuela, based on refinery propylene.

In Trinidad and Tobago, Saudi Arabian producer SABIC and China's state-owned Sinopec are studying a methanol-to-olefins (MTO) and polyolefins project. LyondellBasell had been pursuing a similar project in the country but that failed to materialize when the economic crisis arrived and LyondellBasell filed for bankruptcy protection in the US in January 2009.


The Latin American projects have already been delayed as a result of the global economic crisis. In 2007/2008, the Venezuela projects were being considered for start-up by 2013, part of Comperj had been announced for 2012 and the Peru project was scheduled to start up in 2014-2015. "At that stage there was even some optimism around Bolivia," Arias says.

The economic crisis resulted in reduced demand, increased cautiousness among investors and reduced access to financing. Now, competition from low-cost US production presents a further challenge.

Latin American projects

Click for full size map

"For any project taking place in [Latin America] you will probably not get the huge excitement that you got before the global crisis, when we all expected some of those projects to be the most competitive," Arias says. "The US will now probably be the most competitive in the region."

Many of the Latin American projects were targeting a good portion of their export sales at the US. But they can no longer rely on the US market. "This is the question that everybody is now facing: where to go with their volumes?" remarks Arias.

While the interest in Latin America is still there, "now you have to be more cautious in the way you develop the strategy for those projects and the kind of assumptions that you make regarding North America," he adds.

In particular, companies will be assessing whether a project's regional market will be large enough for the plant, says Arias. As a result, some projects could be downsized, he suggests.

However, Braskem maintains that, so far, no review of the size of any of its projects has been necessary. Asked whether the company was reviewing any of its overseas projects, Thiesen said: "Braskem keeps following with its strategy to look at all possibilities of investment of petrochemicals in Latin America and elsewhere, and of course the competitive ­position of any other players in the area are taken in consideration when analyzing ­investment opportunities."

The proposed Venezuela cracker and PE investment is an example of a project that, ahead of the US developments, would have been well placed to supply the US market. When Braskem and Pequiven announced their project plans in 2007, they said it would supply markets on the Pacific coast of South America, North America and Europe.

The Comperj and Ethylene XXI projects, on the other hand, are less reliant on the US market. Comperj will be able to supply the large Brazilian market plus the other Mercosul countries (Argentina, Uruguay and Paraguay), while the Ethylene XXI project will focus on the substantial Mexican market.

Braskem's Peruvian project, a joint venture with Petroperu, has the advantage that it will be the only petrochemical facility on Latin America's Pacific Coast. Braskem says the project will focus on the local and Andean regional markets, although when the partners first announced the project in 2008 they said the project would supply the Pacific costs of North and South America.

"The Peruvian project will be 100% absorbed by the local and Andean region market - a very small amount of the production will sold outside of the region," says Thiesen. "This project must be as competitive as the most competitive projects in the US," he says, noting that the Peruvian government has enacted a new bill to promote ethane extraction.


Braskem says it remains interested in a potential ethylene and PE project located on the Bolivia/Brazil border and based on Bolivian gas. This project would, of course, have access to the important Brazilian market.

"Braskem has an ongoing interest to build ethylene and PE units based on the ethane content in the natural gas that goes to Brazil," says Thiesen. "In our opinion, the best technical solution is to build this plant in the border between both countries."

At the same time, Bolivian state-owned oil and gas company Yacimientos Petroliferos Fiscales Bolivianos (YPFB) is studying an ethylene and PE project in Yacuiba, in Bolivia's Gran Chaco province, near a planned liquid separation plant located before the line enters into Argentina.

YPFB's proposed project in Yacuiba is now expected to include 1.05m tonnes/year of PE and is scheduled to start up in 2016, according to Jorge Buhler, director of US-based Polyolefins Consulting.

The latest project to be announced in the region is the SABIC/Sinopec MTO project in Trinidad and Tobago. The project is part of plans by the government to stimulate investments in the energy and chemical sectors, including methanol derivatives, melamine derivatives and plastics conversion.

Investors are much more cautious now, particularly with regards to feedstock security, says Arias of Nexant, which held an event in February to facilitate contacts between the Trinidad and Tobago government and potential investors.

The reaction from potential investors at the event was positive, but this has to be taken in context, he says. "Everything that is going on in Latin America is going on in a new context, which is the new competitive position and project announcements in the US," he adds.

By: Anna Jagger
+44 20 8652 3214

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