INSIGHT: Mexichem wise to partner with OxyChem on US cracker

24 August 2012 18:35  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--Mexichem and US-based Occidental Chemical (OxyChem)’s proposed 50:50 joint venture to build a 500,000 tonne/year ethane cracker for over $1bn (€800m) at OxyChem’s site in Ingleside, Texas, represents a wise move for Mexichem as it seeks to secure ethylene and vinyl chloride monomer (VCM) supply.

This latest cracker announcement brings the tally of new US ethylene capacity announcements based on cheap shale gas to 9.4m tonnes/year, or 35% of existing capacity.

Unlike the other planned US cracker projects, just about all the output from this one will go directly out of the country in the form of vinyl chloride monomer (VCM) to Mexico. Mexichem needs the VCM for polyvinyl chloride (PVC) production, and much of that will be targeted for export.

Mexichem already has plans to source ethylene and VCM through a planned joint venture with Mexico’s state-run oil company Pemex. But it is a prudent move on the part of Mexichem to lock up supply from elsewhere.

The proposed venture with Pemex, which was announced in June 2011 and expected to be approved by the first quarter of 2012, has been delayed. The venture is in the final approval process by both parties, a Mexichem executive told ICIS.

The Mexichem/Pemex 60:40 joint venture includes a 230,000 tonne/year VCM plant which will be expanded to 400,000 tonnes by 2015, a 200,000 tonne/year ethane cracker and a chlor-alkali plant in Pajaritos, Mexico. Pemex’s other two crackers in Morelos and Cangrejera are expected to supply additional ethylene for the venture.

Mexichem and OxyChem announced on 15 August that they signed a memorandum of understanding (MoU) to evaluate the formation of a joint venture to build a cracker. Substantially all the ethylene would be used by OxyChem at Ingleside to produce around 1m tonnes/year of VCM to be sold to Mexichem under a long-term supply agreement.

OxyChem and Mexichem aim to make a final decision on the cracker in the second quarter of 2013 following the completion of a feasibility study and basic engineering. If they proceed, the cracker is expected to begin operations in 2016.

Mexichem had told ICIS in November 2011 at the Latin American Petrochemical Association (APLA) annual meeting that it was in preliminary discussions to partner on a condo cracker in the US. It aimed to take 500,000–600,000 tonnes/year of ethylene from the cracker by pipeline to its facilities in Mexico to make VCM and then PVC.

But this deal will have VCM produced at the source in Ingleside and then sent down to Mexico. Mexico has a current 600,000 tonne/year VCM deficit, market sources told ICIS at APLA. The deficit is expected to increase to 1.1m tonnes/year by 2015, as Mexichem’s PVC capacity is projected to increase by 500,000 tonnes/year by then.

Additional reporting by Anna Jagger in London and Ron Coifman and Al Greenwood in Houston

By: Joseph Chang
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